Costco AmEx divorce and a new alliance

Earlier this year, many of us received our regular February refund checks from American Express and some have already spent that cash back money. However, for those who use AmEx Costco cobranded card, next year checks might be the last ones; two companies are not extending 16 year partnership, and it is set to end by the end of March 2016.

How that will affect you or me – a typical Costco customer, who regularly buy containers of berries, a case of soda, along with laundry and bathroom essentials?

1. What will happen to my current Costco card?
2. How my credit score can be affected?
3. What card I will use for Costco shopping after 31 Mar 2016?
4. Will I be able to use any VISA or MasterCard credit card at Costco, finally?
5. Is it good or bad for me personally?

What will happen to my current Costco card?

Foremost, the case in not unprecedented – Before Costco-AmEx deal there was another one between Discover and Costco, which ended 16 years ago. Ok, if that was too far ago, here is another one – Costco Canada ended a deal with AmEx in September 2014.

After March 31, your Costco AmEx card will turn useless. Existing Costco True Earnings customers will likely receive a new offer from AmEx. The company will definitely struggle to retain these customers.

According to some insights from AmEx CFO Jeffrey Campbell, Costco customers accounted for about 10% of credit cards and 20% of lines of credit in an AmEx worldwide portfolio. What is even more important, these customers made on average about 70% of purchases outside of Costco.

Based on what happened in Canada, I would expect AmEx to offer one of the existing products – an AmEx Blue Cash Every Day card is very likely.

Blue Cash Everyday AmEx

compare

intro purchase APR 0% for 12 months	regular APR13.49 - 23.49% (V)
intro BT APR 0% for 12 months	3% BT fee $5 min
rewards 1% 2% 3% on $1	+$100 bonus

• earn 3% back at US supermarkets (limited by $6000 spending annually, then 1%)
• 2% on gas and in selected department stores
• 1% back on all other purchases
• $100 sign up bonus after spending $1000 in purchases in the first 3 months

good credit required

no annual fee

up to 2-3% cash back

Amazon Prime membership free

read review

The card has no annual fee and offers cash back for the following categories:

• 1% on all purchases
• 2% on gas (only US gas stations, wholesale retailers or buying club gas stations (i.e. Costco or Target) doesn’t participate), selected major US department stores
• 3% in US supermarkets (no discount stores or buying clubs – Walmart, Costco, Sam’s Club)

If my Costco card will end, will my credit score take a hit?

In case if you make a transition to a new card, your credit score will not be affected. If you prefer not to get a new card, your score may take a hit; this can happen if your total credit lines will shrink, and credit utilization ratio will rise. It is even worse if the Costco card was one of your oldest card accounts – closing an oldest card account can lower your score.

Hint: You can try to sugar the pill by lowering a balance on all your other card accounts or by opening a new credit card with a good credit limit.

How will I proceed to make shopping at Costco?

It was recently announced that an alliance of VISA and Citi Group won a new contract with Costco.

It is likely that there will be a transition period, when both cards will be accepted (and both AmEx and VISA payment options will be available at the checkout).

Then Citibank will issue a new Costco cobrand– a VISA card for your Costco shopping. The retailer will also start accepting all VISA cards.

Apparently, to keep customers interested in getting a new card and not just pay with any other VISA card, Citibank will need to offer a no annual fee card with an attractive rewards structure.

I expect a new card should be even better than existing AmEx true Earnings card with its 3% cash back on gas (including gas at Costco), 2% cash back on restaurants and travel purchases (including at Costco) and 1% on everything else.

Costco TrueEarnings by American Express

compare

intro purchase APR 0% for 6 months	regular APR15.24 - 15.24% (V)
intro BT APR 15.24%	3% BT fee $5 min
rewards 1% 2% 3% on every $1

• earn 3% back on gas ($4,000 annual limit, then 1%)
• 2% on travel purchases, dining out and Costco purchases
• 1% on everything else 

good credit required

the card was discontinued on March 2016

no annual fee with paid Costco membership

up to 3% back

read review

Certainly, a great deal for me as a customer is that I will get a card with a truly worldwide acceptance for my Costco shopping. 

Will I be able to pay any VISA or Master Card at Costco?

Yes, after April 1^st 2016 you will be able to use any VISA card at Costco checkout.

Is the whole thing good or bad for me personally?

I think it is has more positive effects than negative.

First, you potentially can receive offers for two new credit cards, with no hard pull for your credit score (at least no pull from an AmEx side).

Second, you will be able to pay with any VISA card at Costco if you opt not to get a new City Costco card.  

Finally, I expect a new co branded Costco card to be a better card than existing Amex Costco - with a better acceptance abroad and a reward structure geared towards everyday spending.