Source: Market Watch Personal Finance
When Costco
COST, -0.95%
and American Express
AXP, -2.26%
announced a year ago they would be ending their exclusive partnership of 16 years, investors and consumers were worried.
Just after the news about the severed relationship, the credit-card company’s stock fell 6.4%, its largest one-day percentage decline since August 2011.
And cardholders were concerned. There are a lot of bargains to be had at Costco, but the average transaction can be pretty steep (giant packs of paper towels, huge bottles of lotion, big-screen television sets and brontosaurus-sized steaks add up) and paying with a credit card offers shoppers more convenience and flexibility than cash or debit cards.
Costco later announced Visa
V, -2.39%
would replace American Express, starting in spring of 2016, and Citigroup would be the exclusive issuer of Costco co-branded credit cards, leading to a bump in share prices of both Visa and Citigroup
C, -6.50%
.
American Express’s Chief Executive Ken Chenault has said losing the partnership with Costco will impact one in 10 AmEx cards in circulation and would likely eat into the company’s earnings in 2015 and 2016.
For some consumers, American Express’s exclusive relationship with Costco was the only reason to get an American Express card at all, said Eric Wasserstrom, a managing director at Guggenheim Securities LLC, who covers American Express.
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This isn’t the first time a retailer and credit-card issuer have split up.
In 2014, Wal-Mart Stores Inc. switched its co-branded credit cards from Discover to MasterCard. And in 2013, Capital One sold its Best Buy co-branded credit-card portfolio to Citigroup. After that switch, Best Buy changed its credit-card processing partner from MasterCard to Visa.
“People do tend to be pretty brand loyal and hold onto their credit cards for a long time,” said Matt Schulz, a senior industry analyst for credit-card website CreditCards.com. “And AmEx, more than any credit-card issuer has cultivated that sort of brand loyalty over the years. People are like, ‘Well, I’m an AmEx user,’ and when that changes, that can be disruptive.”
For consumers who have a Costco American Express card, there are a few important things to know.
1. The transition isn’t happening quite yet.
In October 2015, Costco sent a note to its customers, explaining that the company wouldn’t be renewing its partnership with American Express, assuring them that with the new Citi and Visa cards, customers would have “the opportunity to earn generous rewards,” and that they would not have to apply for any new credit cards, or take any other immediate action.
Although originally Costco told consumers the transition would happen “sometime after March 31, 2016” when the partnership expires, the company has now said they will extend their agreement with American Express until “mid 2016,” “to allow for adequate time to properly transition to our new credit card partners, Citi and Visa.”
Costco will accept the Costco/American Express credit cards (as will all other locations that accept American Express) until the company determines the final transition date.
2. There are some opportunities for consumers.
It’s clear the end of the partnership isn’t good for American Express, but for consumers who are willing to endure the transition, there could even be some upside.
Because the card companies are always in tight competition with one another, and they want to preserve their reputations, experts said the companies involved will try to cut down on consumer headaches during the transition.
Costco will also accept non-cobranded Visa cards.
“Citi and Visa will try to make (the transition) as seamless as possible,” said Jason DeLeeuw, a senior research analyst at Piper Jaffray who covers American Express. “American Express has incentive to make it as seamless as possible also. Any time you’re getting a new card, that’s somewhat disruptive, but they will try to do it as seamlessly as possible for the consumer.”
For Costco shoppers loyal to the store, there isn’t much choice involved, pointed out John Hecht, a senior research analyst who specializes in consumer finance at Jefferies and covers American Express. Despite having to switch to new cards, they may just view the temporary disruption as the cost of doing business there.
And there may even be ways for consumers to benefit, he said.
American Express will likely try to recapture the customers it’s losing because of the Costco deal, he said. As a result, in the coming months American Express may come out with some appealing offers, to offer incentives to consumers who they’ll lose to Visa and Citigroup.
“If they haven’t already started, soon they’ll be starting to pick off as many of those Costco customers as they can,” Wasserstrom said. American Express didn’t respond to a request for comment, when asked if there will be any new offers for Costco cardholders.
Costco customers should check their mail for any offers in the coming months, Schulz said.
“This situation sort of makes the former Costco/American Express cardholders a free agent,” he said. “They might find themselves being offered some interesting bonuses from AmEx to stay with a different AmEx card because AmEx knows those people did a pretty good job paying their bills, and they want to keep them around. Meanwhile Costco might do the same.”
3. The transition should not affect your credit score.
Personal-finance company NerdWallet explained on its blog that switching to a new card will most likely have no impact on consumers’ credit scores.
When banks purchase an entire credit-card portfolio, as is the case for the American Express transition to new Costco co-branded cards, transfer and account numbers will change, but the accounts’ average age won’t. (Opening a new card factors negatively into a credit score because it lowers the average age of all the credit-card accounts a consumer has; a longer credit history signifies more stability.) The new issuer also should not have to make a “hard credit inquiry,” which can lead to the deduction of a few points on one’s score, because the company already has the consumer’s credit-card activity on file.
But note, if you do apply for a new American Express card (meaning the one American Express is offering doesn’t just arrive in the mail), the application process actually could dock your score if American Express has to do a “hard pull” to approve you for the card, NerdWallet points out.
4. You can still carry an American Express balance.
On American Express’s frequently asked questions page, the company also noted that when the partnership ends, consumers will not be required to pay their balance in full; they will be allowed to still carry a balance. Of course, shoppers should be careful with this; that’s a plus for American Express, which will be collecting interest.
5. You will have to re-enter your credit-card information for any recurring payments you make on your Costco AmEx card.
Because the new card will have a new number, consumers will have to be careful and make adjustments to their information on any recurring online payments.
It’s similar to the process consumers go through after a data breach, Schulz said. He recommends keeping a spreadsheet at all times of any automatic credit-card payments to keep track of them easily.
Source: Market Watch Personal Finance
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