By Angela Chen
Costco Wholesale Corp. on Monday named Citigroup Inc. and Visa
Inc. as its new credit partners, replacing American Express Co. as
the exclusive network at its stores beginning in April of next
year.
Citi will become the exclusive issuer of Costco's co-brand
credit cards, and Visa will replace American Express as the
credit-card network for Costco's stores. Financial terms of the
agreements weren't disclosed.
Visa shares rose 2.3% premarket, while Citi edged up 0.6%.
Meanwhile, Capital One Financial Corp. and Mastercard Inc. declined
1.7% and 1.2%, respectively.
Last month Costco and AmEx announced the coming end of a 16-year
partnership in which Costco only accepted AmEx cards. AmEx and
Costco also issued a credit card together that could also be used
at other merchants. The unusual partnership had driven a
significant chunk of business to the New York card company.
American Express Chief Executive Ken Chenault said that the move
affects roughly one in 10 AmEx in circulation. The cards also
account for 20% of the company's loan portfolio.
The announcement that the companies would end the deal pummeled
AmEx's stock price and served as a fresh blow to the company, which
has already been falling short of some sales targets thanks to
increased competition in the space.
The Wall Street Journal previously reported that AmEx had
approached Costco several months ago to renew the relationship,
prompting the wholesale club to open up the process to other
potential partners, according to a person familiar with the
discussions. Costco had sought more favorable terms from AmEx, the
person said.
AmEx, which issues credit and charge cards and owns a processing
network, said it had been unable to reach a new agreement with
Costco on terms that "would have made economic sense" for the
company. It also won't renew its smaller co-brand card agreement
with JetBlue Airways Corp., according to people familiar with the
matter.
In the past decade, Costco has more than doubled its annual
revenue to $112.6 billion for the fiscal year ended Aug. 31 and
nearly doubled profits to $2.06 billion. Throughout that time,
customers couldn't make purchases with credit cards branded by Visa
Inc., MasterCard Inc. and Discover Financial Services. Costco,
however, does accept debit cards from Visa and MasterCard.
Such partnerships, called "co-brands," are established to build
loyalty among specific types of customers.
Write to Angela Chen at angela.chen@dowjones.com
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