Citigroup Inc. (NYSE:C) announced they have been chosen along with Visa to provide the credit cards for the bulk wholesale retailers co-branded offerings. They will be replacing American Express as the exclusive providers to Costco’s customers. This means that Costco customers will only be able to use these co-branded cards to complete purchases made at the retailer. The terms were not disclosed but the high-profile partnership should be very lucrative for both parties. Costco customers are generally higher income shoppers as compared to those of discount retailers like Walmart and Target. Deals at those two are usually thin-margined and the opportunity for higher fees is more prevalent at Costco.
American Express had retained the rights to be the company’s only card offering up until last month when the two companies broke ties and stated their agreement would not be renewed. This left the door open for Citigroup Inc. (NYSE:C) to team with Visa and capitalize on the massive customer flow and transaction counts offered by Costco’s popular stores. American Express had stated the renewal deal was not economically feasible but the fact is the loss of the contract will affect earnings for at least two quarters.
The current Costco offerings of card loans have traditionally been a thin-margin opportunity but Citigroup Inc. (NYSE:C) has the leverage to change that with a portfolio of $146 billion in card loans to its name. The branding alone adds significant value to the deal as it exposes all of Costco’s customers to the company’s card. New signups could be positively affected also by the exposure giving added value also. This was also an important deal for the two brands as almost 90% of Citi’s cards are under the Master Card moniker and this could do much to compensate for that difference and bring the percentage of Visa card holders higher.
The stock has been on a significant uptrend but it is starting to face serious resistance at $54. Indicators are positive and the volume flow is consistent.
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