Costco Switches from American Express to Visa

This Monday, Costco (NASDAQ: COST), the wholesale club, announced its new credit card policy which the company will no longer accept American Express cards and only take Visa, a dramatic changeover for a merchant with about 81 million members worldwide.

This move puts an end to a longtime checkout-line hassle for many Costco shoppers and opens up Costco to a lot more credit cards on the other hand. According to the Nilson Report, an industry newsletter, about 118 million people in the U.S. have at least one Visa card, about three times as many compared to American Express.

Costco’s transition has some of Visa’s biggest bank issuers vying for a share of the dollars spent there, which totaled $114 billion in 2015, according to the company’s annual report.

“The switch from American Express to Visa is a big win for consumers,” says Sean McQuay, NerdWallet credit card expert. He adds that Citi’s new Costco card is “a much richer card than the American Express incumbent.”

For 16 years, Issaquah, Washington-based Costco Wholesale Corp, known as a place for bulk buying in super-sized shopping carts, accepted only credit cards with the American Express label. But last year, Costco announced it would switch to Visa cards. Until today, the 16-year tradition eventually was over, moreover, June 19 was the last day Costco accepted the old co-branded cards or any others from American Express.

Aside from American Express, Costco accepts cash, checks, debit and ATM cards, Costco Cash Cards and Electronic Benefits Transfer cards for in-store purchases.

Even before the official announcement, the competition among Visa issuers is already undertaking, which generates better rewards to customers. For example, the Chase Freedom card got in on the action recently by extending its 5 percent cash-back bonus rewards for purchases at wholesale clubs, which was due to end June 30, through the end of the year. Elevated rewards apply not only to Costco, but also to purchases at Sam’s Club and BJ’s Wholesale Club. And Bank of America added wholesale clubs as a bonus cash-back category for its BankAmericard Cash Rewards credit card.

“Shoppers at wholesale retailers tend to spend more than the average consumer and also be more affluent — an ideal target customer for credit card issuers,” McQuay says. “Since Costco has opened its cash registers to all Visa cards, now all Visa-issuing banks can compete to offer better rewards at wholesale retailers. It’s a big win for consumers.”

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