Will Costco US Replace American Express Too?

December 9th, 2014 · 16 Comments

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.

Could this be the end of American Express at Costco US?

Could this be the end of American Express at Costco US?

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.

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16 Responses so far ↓

  1. 1 Marc // 2015.01.02 at 4:09 pm

    I heard that Costco Canada is switching to Capital One. Capital One’s credit card support is horrible. I have wasted hours of my life on the phone with their support representatives and I cannot get that time back. Could have just been the 2-3 people in a row that I talked with, but it was bad enough to make me never get a Capital One card.

  2. 2 Ashley Sue (@AshleySue) // 2014.12.21 at 3:49 pm

    I am only curious if the new credit card company will offer the same rewards to Costco customers. Many customers, like myself, have become very used to these rewards and it justifies being an Exec member. I disagree with the commenter saying you must have a large family or business to justify using the co-branded card or shopping at Costco. My husband and I are a two-some, and we do almost all of our shopping at Costco. Including the mattresses we got last year, carpets, and more.

    I do agree, however, that it would be great to have a rewarded co-branded card that is more widely accepted.

    Bill, I don’t know where you live, or maybe you only really shop at large box stores where AMEX is widely accepted. I live in a thriving, large city with tons of affluence, and like Josh, I regularly encounter smaller businesses that do not accept AMEX. And it isn’t illegal for the not to use AMEX. It’s illegal for a business to require a minimum amount to use a credit card, but they can have a partnership with whatever credit company they want or not. Completely legal. Saying those companies are illegally denying AMEX would be like saying Costco is illegally denying our use of MasterCard or Visa in their store. But it is legal, and depends on what credit companies a retailer CHOOSES to have a partnership with.

    Many small retailers deny AMEX as a partner because the cost is much higher. PS. The company my husband and I are starting won’t be accepting AMEX for that very reason. I love using my Costco AMEX for customer rewards, but I will not get screwed by them as a small business. 🙂 And if you “shop local” often, you truly will find a lot of businesses who feel the same.

    Also, Greg, I don’t know if you had an AMEX before the Costco came into your life, but if you do, you’ve already been subjected to a retailer’s “bureaucratic whims and alliances”. The only reason I have this AMEX (and use it almost always) is because Costco dictated that I had to if I enjoyed shopping there so much. Messing with you to give you a MC / Visa might actually be to your benefit in the long run. Maybe.

    • 3 Bill // 2014.12.21 at 7:16 pm

      Many small businesses that claim not to accept AMEX actually do have an agreement in place to take it, but prefer not to because of the fees. That’s is in violation of their agreement with AMEX. I recently read on another board someone said that they went to a store that only takes AMEX once a year on Small Business Saturday. That’s not possible — they either have an agreement to take it or they do not. They may tell you that they don’t take it, but if they scanned it at the register it would be accepted.

      To address your comments on rewards, the money you get back from your Executive Membership has nothing to do with AMEX. That 2% is paid based on your paying Costco an extra $55 for your membership. The rebate you get on your AMEX bill is based on your spending on the card, and it’s no better than the Bank of America 3-2-1 card. Since they stopped offering 3% on restaurants, and I got a 2% on everything card from Fidelity, there’s really no benefit to the Costco AMEX card, at least not for me. If I want 3% back on gas I can use my Bank of America card, and I don’t have to wait a full year to get my rebate, and I can get it in cash.

      • 4 Ashley Sue @AshleySue // 2014.12.21 at 9:08 pm

        Hi Bill,
        While I understand that what you are saying *some* small businesses may do is true, and if so, does illegally violate their contract with AMEX, I think it would be highly unfair to presume that *most* small businesses that decline taking AMEX are guilty of that. Many, like myself, (will) have no contract or agreement with AMEX and therefore simply (and lawfully) will not accept AMEX at all. And that is common in my metropolitan area.

        And I realize you’re correct with how all my rewards are alloted with the co-branded card. It explains the two different rewards checks. Still, for most purchases, the combo it offers is better than other cards we choose to have. Assuming Costco moves to another credit partnership, we will/may lose the cash-back rewards we have learned to maximize in its current state. If so, we’d simply have to reevaluate in which ways we use which card.

  3. 5 Bill // 2014.12.19 at 3:21 pm

    Lizzy, I think if you check other credit cards you will find that they all have forced arbitration now. AMEX has historically been the most consumer friendly and if they are doing it, you can be fairly sure that others are as well. Also, you can get another AMEX cards. I have one from Fidelity that is issued by FIA (Bank of America subsidiary) that pays me 2% on all purchases. It works fine at Costco. And there is no annual fee. Ironically, if Costco switches to Visa or Mastercard, it will end up costing me money since I’ll get less of a rebate!

    Josh, not sure where you are located but I rarely find a store that does not take AMEX. Maybe some tell you they do not because they don’t want to pay the fees, but they do and are violating their merchant agreement by saying that they do not.

    Many people don’t realize that many AMEX cards these days are no fee. It’s not just the Costco card. Several of the AMEX Blue variety cards have no fee.

  4. 6 Josh // 2014.12.17 at 12:54 am

    If the newer cards such as Master or Visa cards have better than AMEX rewards programs and benefits, I am totally for it. American Express cards are not accepted most of small shops and most of businesses. It’s very hard to use overseas as well. Costco should just open up to look for someone else who can provide better deals for members.

    Also, their Ameriprise insurance also need to be reviewed as well.

  5. 7 Mike // 2014.12.17 at 12:04 am

    I would be absolutely devastated if this happens. No credit card company takes care of customers like Amex – their partnership with Costco is perfect. I saw Capital One was the Canada replacement and I have one of their cards, but am always underwhelmed with the service and the website.

    Is there a good email address we can write to for sharing our thoughts with Costco leadership?

  6. 8 John // 2014.12.13 at 6:56 pm

    I too had a Costco co-branded Amex card that I used almost exclusively albeit getting a hard time from some other smaller retailers who complained of the higher fees Amex charges vs the other 2 major cards. However, being from Canada, I have switched to the co-branded Capitol One MC with no hassles whatsoever, took only a few minutes to switch over some of my auto paid monthly bills like cable/cell phone etc. Plus the cusotmer service I received from Capitol one is far superior to what I ever received from Amex….Kudos to Costco for doing what’s better for their Members and hope Costco in the US does the same. Costco is tough, but fair in all negotiations with their Vendors, looking for the best deal for them and their Members, while at the same time ensuring that their Vendors remain profitable as well. Amex was benefiting greatly from their deal in Canada, something like 40-50% of Amex’s business in Canada was attibuted to their deal with Costco. Sometimes you don’t realize how good you have it until it’s gone, what’s that old saying, “don’t bite the hand that feeds you”?

  7. 9 lizzy // 2014.12.12 at 2:39 am

    I hope Costco drops AMEX, American Express takes away the Civil Rights of their customers, merchants and employees through FORCED ARBITRATION. What does that mean to you? As a Cardholder – if they “accidently” bill you $10k for a $1k charge, you will NEVER be able to sue them for your money back. They can laugh at you and keep your $$. As a Merchant, if they “accidently” take a withdrawal from your bank account of $100k when it was suppose to be $1k or $10k, oh well, you can not ever sue to get your money back and if they did this to 100 or 1000 other merchants, you can not ban together … because the arbitration forbids you too. As an employee they can walk up to you and say we are firing you for being disabled or for any “protected” class and guess what you can NOT ever sue them, due to FORCED ARBITRATION. KUDO’s to Costco! I hope they drop AMEX

  8. 10 eric // 2014.12.11 at 3:30 pm

    I too am an Amex costco holder and understand everyone’s pain about having to switch cards and/or apply.

    What you guys are failing to see is that Amex charges the highest interchange rates among the major credit card companies. That is probably the main reason Costco wants to switch to a different provider.

    Less fees to Amex = Lower prices for us.

  9. 11 Bill // 2014.12.11 at 11:33 am

    I think the Costco AmEx card is great. I get 2 checks a year, one from Costco and one from AmEx. Plus there is no annual fee for the AmEx card.
    Also, I disagree that you need to be a large family to shop at Costco. I’m single and Costco is the only place I shop.

  10. 12 nulle // 2014.12.10 at 12:51 am

    Given Costco moving away from AmEx, probably will cut down the # of AmEx cards I am transitioning over. Personally thinking the Costco AmEx is a joke, can easily get another AmEx to use at Costco…

    Personally I think Costco is a great company despite recent customer woes..however, I can’t justify the membership fees given what/how often I buy at Costco…

    I think it is a losing proposition with their memberships (Regular or Exec) unless your family is huge (size of 6-7, 4-5 children/teenagers) or own a business (for tax purposes)

  11. 13 Greg // 2014.12.09 at 9:32 am

    Costco is not my favorite company this week. Had a terrible experience with their customer service late last week – basically they went back on an agreement for a service portion of a special order that I prepaid. All details were agreed to in advance of my order and payment, and then at the last minute some bureaucrat jumped into the mix and basically altered the agreement to suit his whim because he said so. NOT AT ALL COOL, Costco. Issue was at the Costco location in South Austin.

    My research online about similar incidents tells me that more and more people are having similar customer experience issues with Costco – where they customer is just being treated poorly.

    I said before that having to change credit cards to appease Costco’s bureaucratic whims and alliances would not be cool. Given my experience last week and my checking online, I am beginning to believe Costco does not care a wit about customers any more. I have no love of Amex, but I also don’t like to be messed with to accommodate any retailer. Other local retailers are getting competitive on price and are seemingly more hungry to attract business service-wise than Costco is to retain it. This plus last week may be enough to tell Costco to get lost.

  12. 14 Noel // 2014.12.09 at 8:51 am

    Should this happen, I will drop Costco membership as well. Running numbers over the period, I have noted that Costco doesn’t give me ‘deal’ almost anywhere. Our local Costco are not the best either, plus a lack of organic grocery turns me off a big time. Now, I have reduced the number of Costco branded products as well, so doesn’t look like best bet for me. I will instead go for Amazon card, and prime membership

  13. 15 Bill // 2014.12.09 at 6:53 am

    I will be very upset if Costco does not keep American Express. I have used the card for everything for years. Even have some monthly bills such as Cable TV set up with it. It would be a huge pain in the neck to have to switch cards.

  14. 16 Sarah // 2014.12.09 at 5:28 am

    American Express sent us two rewards checks. They were months apart and we honestly didn’t remember getting the first one, so we cashed both, evidently. Then, a few months later, AmEx naturally caught the mistake and took the money back. It was a hit at a bad time and I really wish they just hadn’t sent the second check. Oh well, but still not a great experience.

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