Did you ever have one of those days in high school when you sat down for lunch and none of your friends wanted to join you? You’d sit by yourself, wondering what you did — until one of your remaining friends clue you in on the nature of your recent breach of adolescent protocol.
Then, there were times when you knew exactly what you did to upset your pals.
That’s probably how it feels to be an American Express executive right about now. In recent weeks, its longtime “friends” Costco and JetBlue have announced they’ll no longer partner with the credit card giant.
In the case of Costco, the breakup is especially troubling for Amex, since Costco didn’t just offer a co-branded Amex card, it was the exclusive credit card partner of the warehouse retail giant. Customers could only use American Express credit cards at Costco, or debit cards from Visa and MasterCard. Now it’s unclear if Costco members will even be able to use their Amex at all in 2016, when this 16-year-long friendship ends.
In fact, Costco currently accounts for around 10 percent of all the American Express cards issued in the United States, and nearly 20 percent of its purchase volume.
The JetBlue breakup is less important, but no less painful. The upstart carrier decided to end its 10-year relationship and move onto Barclaycard, which is part of the MasterCard payment network.
What’s going on here?
Unlike high school, this isn’t personal. It’s all business. American Express charges retailers a higher merchant fee than Visa, MasterCard, or Discover. So it costs them more to accept American Express than other cards — sometimes as much as a full percentage point of sales.
Furthermore, it was somewhat of a coincidence that a U.S. district court judge recently ruled against American Express. It was a case against Amex’s practice of forbidding retailers from saying they’d accept other cards, too. Basically, merchants want the right to mention, “We also acept Visa and Mastercard” when their customers whip out their Amex — but Amex forbids them from doing so.
What does this mean for you?
Many people have signed up for Amex just so they can use it at Costco, so they may decide to re-evaluate their loyalty next year when that card is no longer mandatory.
Personally, I’m a big fan of American Express cards, but not because they’re accepted at Costco or because they’re co-branded with JetBlue. I love their cards that offer “Membership Rewards” points as well as their Starwood Preferred Guest card — which I’ve deemed one of the best reward cards out there. These points can be transferred to airline miles with several different carriers.
In the future, Amex may be forced to lower its merchant fees. That means the rewards they offer would also be cut back. So what’s a big win for Costco customers might be a big loss for reward-card geeks like me.