Dive Brief:
- Costco and American Express have severed their relationship, under which the card services company has provided the warehouse retailer with a branded affinity card for 16 years.
- About 10% of the 112 million American Express cards in circulation were Costco-branded cards, putting the venerable card services company into a tailspin, Bloomberg reports.
- Costco tapped Visa instead to provide customers with a co-branded card that was accepted in more locations; JetBlue soon switched to MasterCard.
Dive Insight:
American Express has been reeling from the disintegration of its partnership with Costco earlier this year, which took about 10% of all Amex cards out of circulation. The warehouse retailer negotiated better terms with Citigroup and Visa, slashing credit card costs to almost nothing while providing users with a more widely accepted card. JetBlue has taken its co-branded card away since, cutting into the approximately $230 billion in co-branded card sales Amex logged last year.
While the 165-year-old Amex brand is still strong, its presence is dwindling. The cards still attract high-value customers—Amex users spend $144 per purchase, on average, compared to $84 for Visa users and $90 for MasterCard. But a recent ruling from the U.S. Department of Justice says that merchants have the right to discourage use of Amex cards due to their higher swipe fees, which tend to drive up the price of goods unfairly. Amex plans to appeal the decision.
Swipe fees have long been a sticking point with retailers, since the prestigious Amex brand charges 2.5%, on average, and Visa and MasterCard charge 2.0%. Worse still for Amex, while mobile wallets are growing slower than expected, they will likely remove any cachet that arises from pulling out its cards.
