May 5, 2016
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. [hide for=”!logged”]
Proactive Customer Communication – You’ll want to remind Costco AMEX customers in several ways to provide their new Citi card information (via emails, messages on mailed statements, texts, on hold messages and at your company’s website). The challenge is that the Costco AMEX cards are comingled with other AMEX cards and you cannot identify the Costco branded AMEX cards using a specific BIN. This means that any communication would need to go to all of your AMEX cardholders in order to reach the 10-to-15 percent who have Costco-branded cards. These communications should be timed to arrive after the new Citi VISA cards are mailed and before June 20—the date when the AMEX cards will cease working and the Citi VISA cards start working. Customers usually respond to emails quickly, so sending an email on June 18 or 19 may be the best timing.
Track Daily Decline Stats By Card Type – Daily decline reporting is essential to monitoring the health of your payment card processing. Pay special attention to the AMEX decline rate before and after June 20. If your AMEX decline rate rises significantly after that date, you may want to send your AMEX customers another email reminder to make sure they have their latest card information on file.
Notify Customers After Payments Decline – An effective decline notification strategy includes notifying customers through emails, mailed letters, and messages on statements. Texting and push notifications are also effective for companies that have these abilities. The payment-decline communication should stress to customers the importance of supplying new card information and paying account balances as soon as possible at your company’s Website or by calling customer service.
Review Your Recycle, Soft/Hard Decline, and Account Updater Strategies – Properly optimized systems will clear nearly 40 percent of payments when recycling payments which are initially declined. You need to have your credit card processing system properly tuned to minimize your decline rate. If you are a subscription-based biller with a net decline rate of greater than 2.5 percent, it may make sense to bring in a specialist to help you understand industry best practices, which are constantly changing and especially important in tokenized environments.
The Costco conversion from AMEX to Citi cards will definitely cause some additional AMEX declines and demands on your customer service teams. Communicating proactively with your customers, tracking declines daily by card type, and effectively notifying customers after their cards are declined will minimize the impact during the transition.
Grant Olson is the founder of Great Authorization Opportunities. The company has decades of experience optimizing credit card processing for large subscription based billing companies. GAO specializes in decline reduction strategies through best industry practices in decline reporting, effective hybrid soft/hard decline configuration, decline recycling, tokenization, and Account Updater implementation. Learn more at greatauthorizations.com.