Costco Losing Money from Credit Card Switch
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Costco took the credit card world by surprise earlier this year when it announced it would be ending a 16-year relationship with American Express. Even though the company’s switch to Visa and Citigroup will not go into effect until next year, Costco’s revenues are already taking a dive due to the transition.
As part of its deal with American Express, Costco got a “finder’s fee” for every new customer that signed up for a co-branded credit card through their store. AmEx is no longer offering those co-branded credit cards, and Visa will not be providing theirs until March, 2016. This transitional period is projected to cost Costco as much as $15 million.
Despite the temporarily slowed earnings hit with this transition, the new deal with Visa and Citigroup is projected to save Costco money in the long run. With American Express, Costco pays a transaction fee of approximately 0.6%, but Citi and Visa are reportedly charging a smaller fee for Visa cards that are not issued by Citi. Costco will receive a number of other incentives with its new deal, so the company should still come out on top.
Costco’s profits for the third quarter this year were $480 million, only slightly behind the $496 million from the same time last year.