American Express’ co-branding and merchant acceptance agreements with the popular wholesale retailer Costco were not renewed in February 2015. Costco has decided to partner with Visa for their preferred Card Network, and signed Citigroup as the issuer of the co-branded cards. The change-over is scheduled for March 2016.
While merchants and co-branding partners often transition, this breakup is poised to leave a large wound with American Express. Such co-brands are established to build loyalty among specific types of customers. Cardholders often receive extra perks when the use the co-branded cards, while card companies and the merchant typically see higher levels of spending on those cards. Most of such deals, however, don’t require merchants to exclusively accept those cards, as is the case with Costco and American Express.
The U.S. Costco co-branded accounts generated an approximate 8% of American Express’ worldwide billed business in 2014. These co-branded accounts were responsible for approximately 20% of their worldwide card loans. In addition, Costco is one of the best card portfolios ever put up for sale – it generates a 1.5x higher average spend per card vs. the average Visa card and over 3x vs. Citi. Balances per card are 30% higher vs. Citi and 10% higher vs. Visa.
While it’s likely that Citigroup will eventually acquire the outstanding loan portfolio from American Express, the anticipated mass exodus of card members switching to the newly co-branded Costco Citigroup Visa card will be a daunting task. It comes at a time in which American Express has begun targeting small business acceptance, and several other initiatives to spur merchant growth.
One initiative in particular is the Full Acquiring program, we’re excited to announce that Newtek Merchant Solutions is offering the service to our customers. By offering American Express’ Full Acquiring service, Newtek provides the advantage of easy, convenient and cost effective American Express card acceptance to our merchant clients. The transactions are processed in the same manner as the other card brands and benefit the merchant by providing same-time funding, single statement reconciliation, single point-of-contact support, and streamlined reporting.
If you have any questions on American Express Full Acquiring, contact our Sales Team today at 1.800.277.6990.