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Visa Inc.’s branding and marketing strengths were what won Costco Wholesale Corp. over from American Express Co. in a set of exclusive acceptance and cobrand agreements announced early in March, according to Visa chief executive Charles W. Scharf, who spoke Thursday afternoon during a conference call to discuss Visa’s results for its fiscal second quarter, which ended March 31.
Decrying industry “gossip” about special pricing or other behind-the-scenes offers allegedly held out to Costco by Visa or Citigroup Inc., which will issue the new Costco cobranded card, Scharf called the Costco deal “a unique opportunity to capture that [Costco] volume and grow our products elsewhere.”
While Citi will issue the cobranded Costco/Visa card, under a companion agreement Visa will be the only general-purpose card brand accepted in Costco’s 474 stores in the U.S. and Puerto Rico.
The deal not only brings significant volume to Visa that was not previously available, it shuts out Visa’s rival, AmEx, Scharf said in explaining the agreement’s rationale. In that sense, he said, the deal was “unique.” The opportunity for a deal “just doesn’t exist for a merchant of this size that didn’t accept our product and now doesn’t accept our competitor’s product,” he said.
Scharf did not give an estimate of how much acceptance volume the Costco pact will generate. Digital Transactions News estimates Costco is seeing about $25 billion annually in sales on all AmEx cards, with most of the volume coming from the cobranded card. Besides excluding AmEx, the deal will also shut out MasterCard Inc., which is the network brand for Costco in its 88 Canadian stores.
The new Visa/Citi deal, whose terms are set to take effect next April, replaces a 16-year contract Costco has had in place with AmEx and under which the T&E giant has issued about 13 million cards while serving as the only general-purpose card accepted in Costco’s stores.
The new agreement depends on Citi acquiring the existing Costco portfolio. Asked by stock analysts about those negotiations, Scharf said “Everything we hear suggests confidence but we’re not a party to it.”
But when pressed on the question of whether heavy incentives or special acceptance pricing played a role in winning the Costco business, Scharf appeared to bristle, referring to how “amazing the gossip” is about the deal and pointing out that Citi wasn’t the only Visa issuer interested in the Costco contract. “We view Costco as something extremely unique,” he said. “We feel very good about what we’ve done here.” Elsewhere during the call, he said the deal will benefit Visa, but will benefit Visa issuers even more by opening Costco’s stores to Visa acceptance.
In other remarks, Scharf lauded progress Visa is making in digital products. Visa Checkout, the network’s online wallet, is now supported by 200 financial institutions and 140 merchants accounting for $46 billion in “addressable volume,” he said.
For the quarter, Visa logged total U.S. credit and debit payments volume of $627 billion, a 9% increase from the same quarter last year. Credit card volume jumped 12%, to $302 billion, while debit card volume came in at $325 billion, a 6% increase.
U.S. debit payments transactions totaled 8.6 billion, up 7%, while credit card transactions rose 15% to 3.6 billion.
Visa’s average U.S tickets slumped slightly, down nearly 3% on credit cards and half a percentage point on debit, to $83.38 and $37.98, respectively. This was caused in part by the dramatic drop in gasoline prices over the past year.
