Warehouse Retailer Costco Is Now Accepting ‘The Pays’

Notoriously picky about which payment forms it accepts, Costco Wholesale Corp. is now accepting Apple Pay, Google Pay, and Samsung Pay in its U.S. stores.

With 519 locations, Issaquah, Wash.-based Costco is the nation’s third-largest brick-and-mortar retailer, according to the National Retail Federation. In its warehouse-like stores, it accepts debit cards and Visa credit cards, including its cobranded Anywhere Visa card from Citigroup Inc. The MacRumors blog first reported the new mobile-payment acceptance, which comes after tests in a small number of locations.

Apart from confirming that mobile wallets are now accepted, Costco is saying little about its payment strategy. “We’ve added additional mobile-payment options to make your next visit more convenient than ever: Costco members can now use Apple Pay, Google Wallet [now Google Pay], and Samsung Pay at U.S. Costco locations,” says a brief company statement.

The move “speaks to the increasing demand for mobile payments by consumers,” including but not confined to Millennials, says payments researcher Thad Peterson, a senior analyst at Boston-based Aite Group LLC.

Costco’s move, however, isn’t just about mobile wallets, but also contactless-enabled cards, according to analyst Jordan McKee of 451 Research in Boston. He notes that the Citi-issued Costco card, which doubles as a membership card, supports contactless transactions using near-field communication technology, and that the retailer recently turned on NFC acceptance in its stores. 

“It’s surprising Costco has waited this long to enable contactless acceptance given their contactless-enabled Citi credit card has been available for more than two years,” McKee says by email. “Why a merchant would make a non-trivial investment in dual-interface cards [cards enabled for contact and contactless EMV chip card payments] only to delay contactless acceptance for multiple years is perplexing. What will be interesting to monitor is the extent to which Costco promotes acceptance of ‘the Pays’ versus its own contactless card.”

There’s an interesting added twist, too. Because of Costco’s exclusive credit card acceptance deal with Visa, which took effect in 2016 when Citi replaced American Express Co.  as Costco’s cobranded credit card issuer, an Apple Pay user who wants to pay with credit can only use a digitized Visa credit card. A Costco spokesperson would not say if that same policy applies to digital credit card payments with Google Pay and Samsung Pay.

Apple Pay uses smart-phone-based NFC while Google Pay uses a cloud-based NFC variant called host card emulation. Samsung Pay supports phone-based NFC, and also uses magnetic secure transmission, a technology that enables contactless transactions at traditional magnetic-stripe point-of-sale terminals.

Even if Costco isn’t taking every payment form the Pays support, mobile and contactless card payments will enable the company to increase throughput at checkout counters, according to Richard K. Crone of San Carlos, Calif.-based Crone Consulting LLC. For many retailers, the coming of EMV chip cards, the vast majority of which are contact-only, over the past three years has slowed payment card transaction speeds compared with the old mag-stripe cards despite network efforts to increase them, according to Crone.

“They [Costco] are a multilane national retailer, they measure the transaction checkout in milliseconds,” he says. “This is about about increasing store capacity, and getting rid of the EMV bottleneck.”