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Bloomberg: Costco to pay near zero in new credit card deal

Apr. 17, 2015 3:45 PM ETCostco Wholesale Corporation (COST) StockCOST, AXP, C, VBy: Stephen Alpher, SA News Editor71 Comments
  • In the sort of things dreams are made of for retailers, Costco's (COST -1.7%) new deal with Visa (V -1.6%) and Citigroup (C -1.6%) will have the company paying next to nothing for transactions vs. the roughly 0.6% it pays current partner American Express (AXP -4.2%).
  • "The numbers didn't add up," said AmEx CEO Ken Chenault last month when telling his shareholders why the company let the Costco relationship go. "We couldn't accept their financial terms."
  • For Citigroup, it's plan is to make money by customers carrying loan balances, and for Visa it hopes to earn when customers use those cards at other retailers where fees are higher. Banks generally make about 80% of their credit card revenue from interest balances and other fees, with interchange making up the rest, according to Bernstein's Lisa Ellis.
  • To put some numbers on it, Costco had about $100B in sales last year, with its customers accounting for 20% of AmEx's loans and 8% of spending.

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