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After a sixteen year run, American Express and Costco will end their exclusive relationship. Effective March 31, 2016, American Express cards will no longer be accepted at Costco, effectively ending Amex’s monopoly on Costco credit transactions. This will also spell the end of the co-branded TrueEarnings Card and the corresponding business version, though they’re still available for the time being.
American Express and Costco were unable to reach a new agreement, with American Express Chief Executive Ken Chenault stating, “It’s not easy to see a long-standing partnership end, but when the numbers no longer add up it’s the only sensible outcome.” Costco currently accounts for roughly 8% of total spending on all American Express cards.
Historically, American Express has charged merchants higher fees to accept their cards compared with the competition. Merchant fees do vary from business to business, but Amex charges around 3% per transaction, while MasterCard, Visa, and other companies charge around 2% per transaction.
Those higher fees have caused Amex to be shunned by small businesses, with many refusing to accept American Express altogether, prompting Amex to launch its annual Small Business Saturday promotions. However, Costco is no small business, and losing the wholesaler’s business will be a major hit to Amex.
The credit card market is crowded and highly competitive, with companies offering large sign-up bonuses and perks to earn customers, all of which are great for the consumer. Amex has thrived for a long time on its reputation as the card of choice for big spenders, but has more recently made moves to attract customers across a wider spectrum by releasing products like the Amex EveryDay card, which is targeted at new cardholders with limited credit history. These efforts have helped attract new cardholders, but Amex is also facing increased competition in the premium market, with products like the Citi Prestige and Ritz-Carlton Rewards Credit Card taking market share away from the Platinum Card from American Express.
With this increased competition, I have to wonder whether American Express will be forced to lower its merchant fees, and if so, will the company then be forced to offset the loss of income by limiting the rewards and benefits available to cardholders? Personally, I hope Amex goes the other direction and invests even more in the travel and premium rewards space, and less in cash back and groceries. Hello more Centurion Lounges?
We’ll have to wait and see, but the shakeup between Costco and Amex will surely provoke changes in the company’s future business plan, with results potentially affecting cardholders.
What are your thoughts on the Costco Amex breakup?
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