In September I wrote about Costco Canada replacing American Express with Capital One MasterCard as their exclusive credit card provider. Now it seems that Costco US might be considering replacing American Express too. This would be a really big step for Costco US, as well as a big change for all of the Costco US members.
Currently, Costco US accepts one single credit card, American Express, in their stores. Although, you can always use your debit card or cash (you remember what that is, right?). Costco US also has a co-branded membership card with American Express that a lot of members, including myself, have used for years. But now it looks like there is at least the potential for a change in that relationship. It has been reported that Costco US is accepting bids for both an issuer and a payment network for their co-branded credit card and stores. I speculated that the change at Costco Canada could spell a cooling of the relationship between Costco and American Express. This news definitely makes it look like that is indeed the situation.
For years and years, Costco has had an exclusive relationship with American Express, not just in the US but also in several of their other locations around the world. This kind of exclusive relationship with a retailer is extremely rare, almost unheard of really, but it definitely represented a great way for American Express to build up their membership with a certain type of consumer and have access to the Costco demographic without much advertising or work. The only reason a lot of Costco members have an American Express is because of the co-branded card with Costco. If that is no longer an option, a lot of Costco members will probably just get rid of their American Express in favour of using an existing card or signing up for the new co-branded card.
This potential change could cause huge financial losses at American Express in 2015. According to various analysts the loss of the deal with Costco US could result in a loss of anywhere between 15 to 30 cents of profit per share. That kind of negative impact on earnings would prove very detrimental for American Express, and their shareholders. And I’m not even sure that accounts for all of the other spending that American Express could lose out on if Costco members canceled their cards altogether. That could be really huge.
Given that thinking, it is hard to believe that American Express won’t try their utmost to keep hold of the relationship with Costco. This news came out about a month ago, but so far I haven’t heard anything to indicate that Costco has made a decision or a change to their credit card relationship with American Express.
I know a lot of people have expressed displeasure about how they’ve been treated by American Express, especially with regards to getting their rewards checks. So, if Costco US does change card providers I’m wondering if people will be happy or sad about it. I’m also wondering how this will change the exclusivity agreements that Costco and American Express have in the UK, Japan, and Korea. I’ll be sure to keep an eye on how this develops and post about it as soon as I hear the outcome.
For more information:
- Bloomberg News: Costco Weighs Dropping AmEx as U.S. Card Partner
- Bloomberg News: AmEx Costco Card Seen as Crown Jewel Worth 15 Cents EPS