
Costco to Pay Almost Zero to Accept Credit Cards - prostoalex
http://www.bloomberg.com/news/articles/2015-04-17/costco-seen-paying-almost-zero-to-accept-cards-in-citigroup-deal?cmpid=yhoo
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pmorici
I wonder if the fact that you need a membership card to even get into a costco
store has anything to do with this. I'm guessing it is a lot harder to commit
credit card fraud which is what the justification for a lot of the fees the
credit card processors charge is.

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narrowrail
These cards can be used outside of Costco, where membership cards are not
required. The reason they were able to negotiate such low fees is that
Citi/Visa wanted access to this customer base. The Amex CEO was quoted saying
something like 'the math of Costco's proposed deal didn't make sense.'

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pmorici
It doesn't matter what people do outside costco if I know that I will have
significanty lower instances of fraud on transactions that happen at costco
then it makes sense to offer them extremely low processing fees if their
clientele is a customer base you want to attract.

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adventured
Costco has extraordinarily thin margins, so this is a very big deal for them.

Operating profit margin: 0.0285%

Net income margin: 0.0182%

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ajdlinux
There are stores that accept only one type of card? Is this kind of thing
common in the US?

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maxerickson
Costco is somewhat of a special case. The shopping pattern they encourage
means that getting an additional card to use there isn't a big blocker.

The majority of stores take Visa/Mastercard. Many do not take American
Express. Many stores do offer their own branded credit card (maybe with some
incentives specific to the store), but they do that in cooperation with a
lender and do not limit payments to that card.

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guan
It is worth noting that Costco currently accepts Visa and MasterCard debit
cards, but not credit cards. Most likely they will continue to accept
MasterCard debit cards (and perhaps also American Express prepaid debit cards)
after this change.

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needusername
I read the article but didn't understand what the deal actually was.

Do they pay no interchange on Citigroup issued Visa cards branded as Costco?
Do they pay no interchange on Citigroup issued Visa cards? Do they pay no
interchange on Visa cards? Do they pay no scheme fee on Visa cards? Do they
pay no fee to their acquirer?

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pkfrank
Do Costco shoppers have a higher percentage of "loan activity" on their cards?
The type of activity that is more lucrative for credit card companies.

I would think that a possibility, given that many small businesses stock their
shelves with products bought directly from Costco.

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kasey_junk
That is a large part of the American Express business model. They can offer
larger incentives for use (to make up for the lower acceptance rate) because
they get more in interest from the card as many small businesses use Amex as
their operating line of credit.

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teej
I thought the gap was bridged by the fact that Amex charges 2x per transaction
of the other CC companies.

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free2rhyme214
My guess is someone in management wanted to leave AmEx a long time ago.

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nickadam
Now AmEx is going to start hemorrhaging discounts and incentives as they lose
valuation. Could this be the blockbuster of credit cards? That was a fun two
years. So many "free" games and movies.

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comrade1
There's been articles the past few months about Costco's relationship with
Amex, with the conclusion being that the Costco Amex cash-back card will be
cancelled in 2016.

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narcissus
Possibly interesting to someone: Costco in Canada no longer has that Amex
relationship. Instead, they are associated with Capital One and their
Mastercard. There's a page on the costco.ca site with a heading of "Credit
Cards Accepted at the Warehouse" that says:

The following cards are accepted in our Canadian warehouse locations and at
our gas stations:

MasterCard Debit cards Costco Cash Cards

I didn't even think to try last time I was at Costco, but this does seem to
imply we can use our normal Mastercard credit card there now?

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speg
They will try and sell you theirs, but you can use any MasterCard.

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amelius
If both customers and retailers want a different method of payment, but can't
get it, there seems to be something broken.

Also credit cards are supposed to be expensive because of their insurance
function. But who needs insurance on their groceries?

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kasey_junk
Where is the overwhelming evidence that customers want a different method of
payment?

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amelius
They will want it when they find out that they are paying a hidden fee that is
being passed on by the retailer.

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kasey_junk
As opposed to? Any system of exchange has transaction costs. Even cash does,
to the point that many businesses prefer credit card transactions (fees and
all) to cash ones. Being able to lower the transaction cost is advantageous to
the entire ecosystem, but as an individual consumer it needs to offer more
than an altruistic benefit.

Right now credit cards are pretty great for consumers (assuming they can
handle the budget discipline required for their use). Virtually free 30 day
credit, consolidated purchasing, and fraud protection will be very hard to
replicate with any other transactional system.

The insurance angle is a red herring. I've never used it in my life, and the
credit card companies offer it because it is essentially free to offer due to
the systems they have to put in place for fraud/credit risk.

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needusername
You can (and we do) run a locally issued debit card system with no
interchange, a total annual fee to card holder of 20 to 30 bucks and a cost to
the merchant that is at least an order of magnitude lower than credit cards.

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kasey_junk
Of course you can make trade offs on feature/functionality to change what the
transaction costs are. Who said you couldn't?

The idea was that consumers were unhappy with credit cards. I haven't seen
that. And your system sounds like a poor trade off for my use cases. It is
several hundreds of dollars more expensive to me explicitly (based on card
rebates on a zero fee card) and is not accepted at as many places.

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needusername
That's a full MasterCard brand accepted globally.

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kasey_junk
How do you get no interchange fees then? Am actually curious.

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needusername
Historic reasons and federal price control. MasterCard wanted to introduce
interchange a couple of years ago but the government said no. The MasterCard
market share is high enough so that antitrust laws apply. There is still a
market development fee on it but no interchange.

It is may understanding that the EU views interchange as illegal but instead
of outlawing it decided to curb it at 0.3%.

