By Grant Olson, Founder, Great Authorization Opportunities
Costco’s sixteen-year exclusive relationship with AMEX is coming to a close as Citi has purchased the Costco card portfolio from AMEX for a reported price of close to $1 billion. Citi will start mailing nearly 11 million new Costco Anywhere VISA cards near the end of May and the AMEX cards will stop working on June 20. Unfortunately, Account Updater programs from acquirers such as Paymentech will not support providing automated inter-brand card updates from AMEX, meaning subscription-based merchants will need to get new card information individually from cardholders. While Citi will remind cardholders to provide new card information to online retailers and companies that bill them automatically, many consumers will not actively reach out and provide the new card information to all recurring-billing merchants.
The impact of this transition will be felt by subscription billers as their AMEX decline rates will likely rise significantly after the AMEX Costco cards quit functioning on June 20. Declines impact cash flow, customer service costs, and customer attrition. How much the AMEX decline rate rises will vary for each recurring biller depending on the percentage of their AMEX customers who have Costco- branded cards and the percentage of customers who proactively provide their new card information. AMEX has reported that 10 percent of AMEX cards are Costco branded. If just 10 percent of a merchant’s cards used for recurring subscriptions are AMEX cards Costco branded and even half of those cardholders fail to notify the merchant of their new card information, an additional 5 percent of that merchant’s AMEX payments will start declining when Citi flips the switch in June. Since AMEX decline rates are typically 1-to-2 percent for recurring billers, an AMEX decline rate of 6-to-7 percent starting on June 20 might be a reasonable estimate.
There are several steps merchants that are exposed to a significant number of AMEX Costco cards can take when the issuing banks initiate the changeover this summer.