Citi-Costco partnership shows its strength in Costco’s earnings report

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In its most recent earnings call, Costco provided another update on the performance of its Citi Visa co-branded card for members, which officially launched in June 2016.

The card is doing well across metrics, and is one of the major gainers in Costco’s margins, which fell slightly overall year-over-year (YoY).

  • New users are growing steadily. In the past year, Citi has added roughly 1.8 million new accounts and 2.4 million new cards — a discrepancy that most likely arises from multiple cardholders on a given account. This includes 270,000 new cards in the past 17 weeks, and represents a slowdown from the initial launch of the card, but still indicates a healthy growth rate.
  • And spend is on the rise. Costco reported that spending on the card is up YoY, not just as a result of new account acquisitions, but also organically. These shifts are reflected in numbers that Citi reported earlier this year — Costco’s $103 billion through Q2 2017 helped increase Citi’s card sales by a third. CFO Richard Galanti also noted that this is a card people tend to keep top-of-wallet, and the spend is coming not just from within Costco, but also from out-of-store, which is helping to propel growth. 

The performance of Costco’s product is a testament to why bigger is better for credit cards. When Amex owned the Costco co-brand portfolio, it was strong, posting $80 billion in billed business in its last full year. But it’s doing even better, and seems to be growing more quickly, under Citi — which is of benefit to Costco. That’s likely in part due to the card’s strong rewards proposition — cash-back offerings go as high as 4% for standard purchases, which is higher than those under Amex, and the firm is also running other promotions, like additional rewards on travel and discounts on Samsung purchases, which can incentivize high spending. But it could also be due to Visa’s wide acceptance network, which beats out Amex in the US, and could make it easier for users to turn to the product more regularly. At a time when credit appetite is high and firms are working to attract and engage customers, the scaling success of the Costco portfolio could be a lesson in how subtle changes that simplify and incentivize usage could make a big difference.

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