For all the many selling points of warehouse giant Costco—cheap hot dogs, rotisserie chickens, car tires, and the ability to buy everything from steak to diapers in mass quantity—the store does throw one significant curveball at consumers. It happens during checkout, when new members realize Costco only accepts Visa as a form of credit card payment.
For a major retailer, that’s unusual. While not all storefronts accept credit cards in an effort to avoid the two to three percent merchant fees associated with the transactions, most do. But Costco has a financial incentive to keep your payment options limited.
From 1999 to 2016, Costco only accepted American Express cards. Why? AmEx was able to offer them a favorable merchant fee in exchange for exclusivity. For a credit card company, that’s a big deal. It means the 79 million members walking into Costco with anything other than cash or a check are going to charge the purchase to the card network of Costco’s choosing.
That deal dissolved in 2017, with Visa taking the place of AmEx. Normally, Visa wouldn’t likely budge on the merchant fee associated with using the card. But being the sole method of plastic payment at Costco meant Visa was willing to negotiate that fee down to a reported 0.4 percent. Put simply, Costco wants you to use a Visa card because it saves them a considerable amount of money in transaction fees.
You can still use most branded debit cards at the register, since the “swipe” fees are much lower for merchants. And Mastercard and Discover are accepted on the Costco.com website. But for in-store credit purchases, Costco is banking on the fact that members aren’t going to go anywhere else.
[h/t Reader’s Digest]