Details of the New Costco Visa: Better Than Expected! But is it Good Enough?

American Express lost 10% of its card business when they lost the Costco deal. Here’s an inside account of how American Express lost the business. As costly as it was for American Express to lose Costco, it would have been more costly to retain Costco.

Details of what were expected to be the new Citibank Costco card were leaked in a regulatory filing, and we were led to believe it was basically the same product offer as the American Express Costco card — only a Visa rather than an American Express. It turns out that’s wrong, and the new Citi card is better.

Costco’s switch to Visa though was delayed. This is a complicated transition for the merchant and for the banks, especially with Citibank picking up American Express’ “back book” (Citibank bought the existing card accounts from Amex).

Now we:

  1. know the transition timeline from American Express to Visa at Costco as well as for new Costco Visas to become available.

  2. Know the final details of the Costco Visa and it’s better than expected

American Express will continue to be accepted at Costco through June 19. Starting June 20, Costco will accept only Visa, cash, checks, debit cards, and Costco cash cards.

Current Costco cardholders will receive new Citibank Visas in May or early June.

Citi’s site for the new Costco card is live and the card’s benefits are stronger than we were led to believe (HT: One Mile at a Time).

The no annual fee card (that requires Costco membership) will offer:

  • 4% rebate on gas on up to $7000 in spend per year (then 1% back)
  • 3% rebate on restaurant and travel
  • 2% on Costco and at
  • 1% on everything else

Citi basically increases cash back in each category by 1% compared to the American Express cobrand Costco card, with some minor differences (for instance the American Express business card had a higher gas allowance than the personal card, while Citi has the same benefits across personal and business).

PenFed’s premium card offers 5% back on gas. So does the co-brand Sam’s Club card. So 4% isn’t revolutionary here, though it’s good. Sam’s Club also gives 3% back on restaurants, and the Chase Ink Cash and Sapphire Preferred earn double points at restaurants (and I value each point at more than 1.5 cents apiece). Plus of course there are 2% rebate cards on everything not just Costco.

So this is a solid card, an improvement over the Aemrican Express offering that was a huge part of its consumer portfolio, despite the low merchant fees Costco pays. Folks who liked the Costco card will like this but it’s not super exciting for me.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. Well, I think most cards giving a rebate on gas exclude costco gas stations. For people like me who always buy gas at costco, 4% sounds really good (since I assume costco gas stations will be included with THIS card).

  2. Is there any clarity on when Costco will begin accepting Visa as a payment form? It seems plausible there could be some overlap allowing either Visa or Amex, between now and the June 19 hard stop date for Amex, especially if Citi will send Costco Visa cards to members in May or June.

  3. Why would there be any signup bonus???? Your Costco Amex will be converted automatically into the Visa card. There is no reason to provide an incentive. If they provided a signup bonus, all of the existing Amex cardholders would cancel their Amex cards, wait a few weeks, an sign up for the new card. It doesn’t pencil out.

  4. @Steve

    I think Kalboz was referring to sign up bonus for people who don’t have the Costco Amex Card. Generally whenever Costco opens new location, there are multiple Costco gift cards offered for signing up for their credit cards.

  5. JohnB: Hmmmmm…….. If Kalboz was referring to a limited promotional offer connected to the opening of a new store, you would think that he might have mentioned that. Instead, he asked about “the signup bonus for this new card.” Two very different things. I stand by my comment.

  6. Given the 3% cash back, this card sounds fantastic if (1) most of your spend is on restaurants or travel and (2) your preferred redemption is domestic economy airline tickets, right?

  7. @Steve

    There had better be an incentive for non Costco Amex cardholders. I didn’t have the Costco Amex. I don’t find Costco Citibank Visa any more attractive than the Amex version. And furthermore, there are millions of Costco members who don’t hold the Costco Amex Card. WHY should they get the Costco Citibank Visa, when they can use any Visa card they already have.

  8. Re: “… it’s not super exciting for me”. What other cards are more exciting and why?

    My family uses the Costco Amex as our primary card because a) it is no fee if you are a Costco member anyway; b) the rewards are simple — rebates are fixed (no gimmicky changes per month/quarter) and c) the reward is cash, not points or miles that are subject to devaluation by changing rules of the issuer. It was a pain that the Costco card was an Amex which is not accepted by many small businesses, so the change to Visa (normally no foreign exchange fee and rental car insurance worldwide) and the increased rewards look like a slam dunk for us.

    But I’m always interested to hear why others choose various cards. We do only frequent family leisure travel (in economy) so there is no high spending business travel and entertainment on our card.

  9. Questions:
    1. Does the 4% gas rebate apply to COSTCO gas stations?
    2. Will use of a United Visa card credit air miles or a Sapphire Preferred credit points? Does COSTCO have to pay premiums for other visa cards?

  10. @Roy

    Every Visa card has different features. Not charging foreign exchange fees and car rental coverage are different for every type of Visa card. The new Costco Visa has car rental protection, but I see no mention of the foreign exchange fee. If the Costco Visa includes “no foreign exchange fee” as a feature, that could be a game changer. As far as I know almost all cards with no “foreign exchange fee” charge an annual fee.

  11. @Seve

    That’s not entirely true…
    Fine print reads:
    “Certain Non-Qualifying Purchases.You will only earn 1% cash back, not 4%, for gas purchased at superstores, supermarkets, convenience stores and warehouse clubs other than Costco or for fuel used for non-automobile purposes.”

  12. I just got my CitiBank welcome packet in the mail. I read through the whole thing.

    1). Initial interest rate if you don’t pay in full is slightly higher than AE’s was.

    2) The “grace period” is shorter than AE’s.

    3) If you normally pay your balance in full, but fail to get the payment in in time to be processed (past personal experience with credit cards issued by the banks “too big to fail” finds this is a common experience as the closing date, mailing date, and due date window is not a constant, shrinking and expanding), or you just don’t have quite enough to pay the statement in full some month, it takes three months of paying in full afterwards ti win back your “grace period.”

    4) I’m not convinced the “foreign transaction fees” will beat AE’s,

    5) … and then there’s all the disclaimers about “out of Network merchants” who accept VISA, and their fees.

    In summary, I’m glad I got an AE Blue card with rewards and will now use my Credit Union issued VISA at Costco.

  13. The so-called “4%” rebate on the new VISA card is arguably a take-away compared to the AMEX card because there almost no gas stations anymore that aren’t tied to supermarkets or convenience stores. So about the only place you will get the 4% rebate is at Costco and the one-in-a-million stand-alone gas station. Costco will just raise their gas price by 1% to pay the higher rebate on the VISA card, while ending the 3% rebate they used to give on the AMEX card to gasoline purchased at supermarkets and convenience stores. Is this really better on balance for most users?

  14. Does anybody know if you’ll get the 5% rewards using a PenFed VISA at the pump at a Costco gas station? …now that Costco is taking VISA?

  15. I’m responding to my own question above in case anybody else has wondered about the PenFed VISA card being eligible for the 5% rebate at Costco gas stations. Yippee! It does work. I just received my first PenFed statement after charging gas at Costco and it did give the 5% immediate cash rebate. It can’t get any better than this as Costco is usually the cheapest top-tier gas in most areas and to get another 5% off is just the best deal out there.

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