June 21, 2016Early indications suggest Costco’s move from American Express to Visa cards has resulted in a significant surge in declines for subscription merchants. Costco’s long-standing partnership with American Express came to an end this spring when Citi purchased the Costco-branded Amex card portfolio with intention of switching 11 million cards (10 percent of its global cards in force) to Citi Visa cards. Experts warned subscription merchants at the time to expect declines beginning on June 20, the date the companies agreed on for the switch to take place. According to one expert, decline rates on American Express cards are running from 11 to 16 percent yesterday and today, the first two days post-changeover, up from 1 percent last week. Grant Olson, a Denver-based payments consultant with expertise in recurring billing who was watching decline data closely yesterday morning, said it appeared American Express may have flipped the switch at midnight on the West coast as a batch processed around 2:30 a.m. ET did not show increased Amex declines, but one he saw at around 6:30 a.m. ET showed the much higher decline rate. Olson said the effect will moderate as time passes, but subscription merchants can expect significantly higher decline rates than expected for some time because Costco Amex cards appear to account for a significant percentage of American Express transaction volume and instructions from Citi advised cardholders to wait until June 20 to update their automatic payments with the new card information. Olson outlined several steps subscription merchants could take to moderate the impact of declines on their business in a May article on CardNotPresent.com including proactively notifying all American Express cardholders even though customers holding a Costco Amex might only account for a small percentage of their total American Express transactions. The decline data that came out yesterday may make that even more important advice. “Some merchants did send out a more general reminder to all Amex cardholders and others decided not to,” Olson said. “But, now that we understand the economics a little better, it might make more sense to take this step. A 5 percent additional decline rate on American Express cards is one business case versus a 15 percent decline rate.” Olson also noted that American Express is returning a generic processor decline code for the deactivated Costco cards. But, since the cards are truly dead, subscription merchants should treat generic declines as hard declines and not recycle these payments. That way, he said, customers will be notified immediately their payment was declined and know they need to provide their new Citi Visa card number to that merchant.