Visa, Citi Replace Amex As Costco Credit Partners

(RTTNews) - Membership warehouses operator Costco Wholesale Corp. (COST) has struck credit card partnerships with Citigroup Inc. (C) and Visa Inc. (V), after it decided to end its exclusive U.S. partnership with American Express Co. (AXP) on March 31, 2016.

Costco said Monday it has entered into a new long-term co-brand credit card program agreement with Citigroup and a co-brand incentive agreement with Visa. The company noted that the implementation of these agreements is subject to the purchase of the existing co-brand credit card portfolio by Citigroup.

Under the terms of the agreements, Citigroup, the world's largest issuer of consumer credit cards, will become the exclusive issuer of Costco's co-brand credit cards. Meanwhile, Visa will replace American Express as the credit card network for Costco in the U.S. and Puerto Rico beginning April 1, 2016.

Once issued, Costco's co-brand Visa credit card would provide rewards to Costco members, serve as the Costco membership card, and also be accepted at Costco locations in the U.S. and Puerto Rico, as well as all merchants worldwide that accept Visa credit cards.

In mid-February, American Express or Amex said it will not renew its exclusive U.S. co-branding and merchant acceptance agreements with Costco, that are set to expire on March 31, 2016. The move comes after media reports emerged that Costco had started talks with other credit card companies in late 2014.

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

Amex cards were the only ones to be accepted at Costco's U.S. stores. Costco is said to have likely got a highly negotiated service charge rate from Amex in exchange for the exclusivity.

However, Costco had ended its exclusivity deal with Amex in Canada in 2014, and replaced it by striking deals with two credit card operators, MasterCard, Inc. (MA) and Capital One Financial Corp. (COF). The same deals were seen as being extended in the U.S. also.

American Express is known for its ability to adapt to changing technology and customer preferences. However, the company 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 has said it will 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.