Costco Ends American Express Canada Credit Card Partnership

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Last updated on May 13, 2021 Comments: 2

* This article was published in 2014 at the time of the Amex-Costco split. There have since been a number of developments in Costco’s credit card partnership, and those interested in learning more about which credit cards are best for earning back at Costco are advised to read this article instead.

It seems as though American Express Canada’s partnership with Costco has come to an end. While not officially announced, all American Express True Earnings Credit Card applications and marketing material have been pulled from Costco locations and the American Express website.

It looks like American Express is replacing the Costco True Earnings Card with a very similar and extremely competitive alternative which was launched in early August, called the SimplyCash Card from American Express. The SimplyCash Card from American Express offers 2.5% cash back in the first 3 months on purchases (up to $150 cash back). The 3-month promotion is quite high, and the 1.25% cash back rate on all other spend without any caps is among the richest for a no-fee cash back card in Canada. It’s now available to all Canadians, not just former Costco cardholders.

This is a massive loss for American Express Canada on multiple fronts. Firstly, from an issuing perspective we would estimate that the Costco program was one of Canada’s larger and more profitable credit card partnership programs, with close to $1B in credit card outstandings. We would expect it to be a relatively high performing portfolio with good spend and low losses due to the attractive demographics offered by the Costco membership. Let’s assume they earn a 3.5% ROA on the portfolio, that would indicate a $35M profit. Regardless, for a company like Amex Canada, losing such a significant amount of cardholders in a small country is going to hurt.

The second challenge for Amex will be the loss of the exclusive acceptance of American Express credit cards in Costco. Currently neither Mastercard credit cards nor Visa credit cards are accepted in Costco locations. That means Costco Canada’s approximately $16 billion in annual revenue was split between cash, interac and American Express cards. We don’t know the terms of the new agreement, but it’s possible that Costco starts accepting Mastercard, Visa, and Amex; just Mastercard and Visa; Visa alone; or Mastercard alone. If Amex is no longer accepted at Costco locations, assuming 40% of transactions are American Express (guesstimate), that would be around $6.5B in acquiring volume lost. Let’s assume Amex was charging somewhere around 1% in acquiring fees to Costco, that’s $64M in revenue lost on the acquiring side.

So who’s going to be the big winner? While it hasn’t been announced yet, we will try to make an educated guess. We believe that Costco switched partners in Canada to force American Express to sharpen its pencil for its relationship with Costco in the U.S. That would entail Costco selecting a U.S.-based issuer for its Canadian business, which could threaten to unseat Amex in the U.S. As a result we believe Chase or TD would be the strongest candidates.

However, we feel Mastercard has the most to gain from a network perspective. Given that CapOne is exclusively Mastercard in Canada, we think they were likely to have worked closely with Mastercard, both of whom might have overpaid slightly for the deal to get access to the U.S. and to improve their second-tier status in Canada. So CapOne’s our guess for Costco’s new partner in Canada, but at this point it’s only a guess.

* This post was not sponsored. The views and opinions expressed in this review are purely my own.

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Article comments

2 comments
Emily Reid says:

FYI Costco canada has accepted MC payments for years. I live in Alberta and have only ever paid my costco purchases and membership fees with my MC.

Nate Siegel says:

Hey Emily,

Thanks for pointing that out. This article is about the split between Amex and Costco which happened back in 2016. As of 2019 Mastercards work in Costco locations around the country and are even preferred, as you can see on our new list of the Best Costco Cards in Canada. As you’ll see, the best cards for Costco are now top tier Mastercard credit cards like the Rogers World Elite—a no annual fee card with 1.75% cash back in Canada and 4.00% abroad. Thanks again for posting.

GreedyRates