Capital One Ends Its Partnership With Costco
In 2014, Costco decided to end a 15-year partnership with American Express to marry Capital One, the issuer of The Capital One® Mastercard®, exclusively for Costco members.
Today, Capital One announces that this partnership will end by late 2021 and decides to withdraw completely from the Partnerships business (Costco, Hudson’s Bay) to focus on its own branded credit cards.
Capital One will close its call center in Montreal and Toronto by September 2021, suggesting that a new issuer’s transition will have to take place in the summer of 2021.
We do not doubt that Costco has already launched a tendering process to replace Capital One with the various credit card issuers. But this decision by Capital One will certainly make any new issuer think twice about incorporating this type of arrangement.
Certainly, owning Costco members can be something attractive to a financial institution on paper. However, Costco is known for negotiating hard.
According to some sources, for example, Capital One had to agree to receive little or no interchange fees for purchases made at Costco. Capital One then relies on credit card spending outside of Costco to catch up.
That’s why the cashback rate of The Capital One® Mastercard®, exclusively for Costco members for most purchases, is very low: 0.5% to 1%. This does not really encourage Costco members to use this card outside restaurants (3%) and gas (2%): this is not a sufficient volume of purchases to allow Capital One to recoup its investment.
In addition to Capital One’s minimal interchange fees, the company has been competed for head-on by all other Mastercard credit card issuers. Indeed, it didn’t take long for other issuers like BMO, NBCor MBNAto put forward the acceptance of their Mastercard credit cards at Costco!
Especially since customers can accumulate other types of rewards such as :
- AIR MILES miles with the BMO AIR MILES World Elite Mastercard;
- travel points as with the HSBC World Elite Mastercard (3 points per dollar) or up to 2 points per dollar with the National Bank World Elite Mastercard or the MastercardMD MBNA World Rewards Card EliteMD!
Customers also realized that they could use Visa credit cards on Costco.ca!
Finally, when Capital One won the contract with Costco in 2014, the company did not get American Express Costco credit card customers’ portfolio. This meant a colossal marketing effort to win back Costco members.
Who hasn’t seen these gigantic banners in the warehouses, as well as the acquisition statistics of new customers?
Especially since American Express had also invested in marketing and products with two new cashback credit cards: the SimplyCash Cards. To retain Costco Customers with these new Cards.
If you currently have The Capital One® Mastercard®, exclusively for Costco members, you don’t have to do anything at the moment. Apart from checking our ranking of the best credit cards for Costco to find a better one!
We can’t wait to see who will be the new Costco credit card issuer who decides to embark on this adventure!