Costco To Stop Accepting Amex Cards In 2016

(RTTNews) - American Express (AXP) said Thursday that it will not renew its exclusive U.S. co-branding and merchant acceptance agreements with membership warehouses operator Costco Wholesale Corp. (COST) that are set to expire on March 31, 2016.

Following the news, Amex shares are trading down more than seven percent in early deals.

The move comes after reports emerged that Costco had begun negotiations with other credit card companies in late 2014.

Amex card were the only ones to be accepted at Costco's U.S. stores. The Wall Street Journal reports that Costco likely got a highly negotiated service charge rate from Amex in exchange for the exclusivity.

Meanwhile, Costco had ended its exclusivity deal with Amex in Canada last year, and replaced it by striking deals with two credit card operators, MasterCard, Inc. (MA) and Capital One Financial Corp. (COF). The same deals could be extended in the U.S. also.

"We are proud of the value created over many years for Costco, for our Card Members and for our shareholders. Taking a very disciplined approach, we began discussions on a possible renewal with Costco well in advance of the contract expiration," Amex Chairman and CEO Kenneth Chenault said in a statement.

New York-based Amex noted that it was "unable to reach terms that would have made economic sense for our Company and shareholders."

Amex noted that its credit cards continue to be accepted at Costco warehouse stores in the U.S. and online on Costco.com until the expiry date of the current agreements. The co-branded cards can also be used until then at any place where Amex cards are accepted.

The Amex management is known for its ability to adapt to changing technology and customer preferences. However, it is currently facing operating challenges amid the stiff competition from new rivals that have entered the digital payment business such as Bitcoin digital currency and Apple, Inc.'s (AAPL) Apple Pay.

Amex noted that it will now focus on opportunities in other parts of its business where it sees significant potential for growth and attractive returns over the moderate to long term.