Costco Names Citi, Visa as New Credit Partners -- 2nd Update

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 [e-mail]

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