Costco Paying Minimal Card Fees with New Citi Visa Deal
Costco shook up the credit card industry in early March when it dropped its 16-year partnership with American Express and signed a new deal with Visa and Citigroup. Now, the retailer is in the envious position of paying almost no fees on credit card transactions under the terms of the new agreement.
According to Bloomberg, Costco was paying a transaction fee of roughly 0.6% under the American Express partnership. With the new deal, Costco will still incur a small fee on Visa cards that are not issued by Citi, but that will be offset by the incentives the company receives from Visa and Citi.
Costco only accepts one type of credit card in its retail stores, so the card issuer with the exclusive contract has a heavy hold on the competition. The grocery chain is ending its relationship with Amex in March of next year in favor of what we now know to be a less expensive arrangement with Visa.
“The numbers didn’t add up,” said American Express chief executive Kenneth Chenault said. “We couldn’t accept their financial terms nor their contract terms, some of which would have meant taking on more risk than we were comfortable with.”
Costco generated more than $100 billion in sales last year, so the loss of the contract could be a big blow for American Express. But with these low-cost fees, it is unclear how much Visa and Citi will actually profit from this arrangement.