How Much Does it Hurt Amex to Be Losing Costco?

Citibank significantly overpaid to grab the Costco co-brand away from American Express — even though the deal should have been worth more to American Express than to Citi.

Indeed, under the arrangement Costco’s credit card acceptance costs will be near zero.

Now, I knew this was a big deal for American Express. I’d previously written that Costco’s sales volume is ~ $100 billion, and of course they only accepted American Express.

But still this is staggering (HT: Hans M.)

The investors contend that the U.S. Costco co-branding contract was “highly material to AmEx’s business,” representing 8% of the company’s revenues in 2014; 20% of its outstanding loans and 10% of its cards issued worldwide.

Retaining Costco at terms similar to what Citi offered probably wouldn’t have been good for American Express’ bottom line or share price. But Citi’s aggressive offers — too aggressive for American Express to match — mean a real blow for Amex, and one reason why its share price continues to lag. Indeed, trading at a lower multiple of forward earnings than peers, only explanation would be that the market seems to believe that American Express has lower growth prospects in the future than they have in the past.

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. I have an AmX Costco rebate card that I use exclusively at Costo. I have always enjoyed the annual checks. I happen to find an uncashed one recently that I had overlooked and expired a full year ago. I called AmX to
    see what could be done. At first the agent, who was always very nice, said he could not re-issue because it was too long ago. But then he spoke to his supervisor and they decided to put the full amount, onto my current account as a credit. Good solution, very happy.
    It then occurred to me , at this time, AmX is likely to do a lot to keep Costco card holders happy.

  2. I will miss the points I get on my SPG Amex card that I use all the time at Costco… 🙁 I easily put in excess of $30,000 with personal and business spend at Costco.

    Ugh! Now I will have to find another way to get all those spg points. I guess I’ll be buying Costco cash cards online and then using those in the warehouse/online.

  3. AMX just wrote and said – your Costco card will no longer work after April 2016. Please consider applying this new AMX card, with no annual fee, that offers staggered cash rebates depending on what you are purchasing or what spending category you designate. And oh. If you spend $1000 on the card within three months we will give you a $300 statement credit. SOLD! My husband and I both applied with our little reservations # they provided. We may or may not use it much – but it does not matter.

  4. sounds like the deal I just got for opening a new simplycash business card, wondering if they will offer the same to convert my 2 AE costco cards, and if they are doing a credit pull.

  5. “American Express has lower growth prospects in the future”

    That means more and better sign up bonuses for you and me 🙂

  6. Amex made a big mistake, by not being more aggressive to retaining the Costco business. They lost everything! I still can’t believe that Amex didn’t see, that losing Costco customers, could be so costly to their bottom line. Costco customers are high end, big spenders that many times didn’t have the Costco Amex card, but were using other Amex cards. That loss of acceptance at Costco is the big deal! For consumers, we can find a Visa to use at Costco. Most of us won’t get the Citibank Costco Visa, it just doesn’t make sense for points and miles collectors. My Sapphire Preferred Card will get my Costco purchases, not my Citibank AAdvantage card.

  7. John B, are you sure Costco (in 2016) will accept any Visa, including the Sapphire? That would be great but Citibank Visa cards may end up enjoying contractual exclusivity. Citibank sold their soul for this deal. If they agreed that Costco can accept any Visa from Chase or 100s of others banks/issuers, then Citibank is an idiot. There will likely be restrictions in place although you may be free to use any card on-line as is now the case. Would be ironic if Amex is accepted for on-line sales.

  8. Well, now we sit back and see how desperate they get. Hopefully the bonuses flow freely…

  9. Signed up back in 2009 during the Hyatt 20% off certificates and paid $110 annually for the Executive membership & the AMEX card since. But parking problems, traffic, rowdy shoppers, very poor customer service practices, exuberant prices at this “discount” club makes it not worth a while even with a statement credit … count me out!

  10. My go-to credit card for the past nine years has been my Costco American Express card. TrueEarnings American Express Card doubled as customers’ membership cards.

  11. @Kent C

    I asked at my local Costco and they said they will just accept Visa. Costco employees are not happy about this change either. Because they have been given so few details. Supposedly Citibank got the cardholder list from Amex. I don’t have Costco Amex card, so I can’t say what is being offered to the Costco Amex holders by Citibank. But there are Amex cards from Citibank and Costco accepted those, so I wouldn’t expect other banks’ Visa cards to not be accepted.

  12. Gotta think AmEx is also being hurt by thee SkyPesos changes. The end of fixed price redemptions (“outsize value” as Gary puts it) have greatly shifted my spending patterns from AmEx to Chase, Citi, and Barclays.

  13. In Canada where Amex lost the Costco to Capital One + MasterCard, all MasterCards are accepted – doesn’t matter who the issuer/bank is.

    However, the Capital One card is poor. It’s a no-fee cashback card with 3% at restaurants, 2% at gas and 1% everywhere else. Double cashback for 3 months.

    Other cards in Canada offer 4% on restaurants (and other places) and a couple others offer 2% on everything (in points which can be redeemed on any airline, anytime).

  14. I think you all are over-looking the third party to this deal: visa. They are a part of this deal as well and from my perspective, the big winner.

  15. Did AMEX look at all at the spending profile of its cardholders who are also Costco members? I’m thinking there have to be a ton of AMEX cardholders that only have the card due to the Costco tie-in. It’ll be very hard to retain many of those customers, especially if they don’t understand cards and credit ratings. Why convert to a different AMEX card if you don’t ever want to use it? At the same time this must have been an agonizing decision for AMEX to decide that cost of acquisition of a Costco cardholder isn’t worth the low low transaction fees.

    And it’ll be interesting to see how Citi can entice current AMEX cardholders to switch. I’ve enjoyed my 4% gas cashback on my AMEX Costco Business card, in addition to the 2% Executive member rebate. I wonder how I’ll do this well in the future.

    @JohnB – seriously doubt AMEX gave Citi a list of cardholders, Costco may have given them a list of members who purchased using an AMEX.

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