Citi has announced that it will be mailing information regarding its new Costco Anywhere Visa Card to existing Costco American Express cardholders in April with the cards themselves following in May. The announcement was made on a microsite launched by Citi to provide details of the new card – including rewards and benefits –  and declaring June 20 as the date of conversion from AmEx to Citi.

A comparison of the cash back earnings shows that Citi has done well to improve upon the value proposition of the TrueEarnings Card and also compares favorably to the American Express Blue Cash Everyday Card, which AmEx has been promoting in an attempt to retain some of the business. Improving the overall value proposition was important, and necessary, for Citi to keep loyal AmEx customers from defecting.

Cash Back Category Costco Anywhere Visa by Citi (from June 20) TrueEarnings Card from Costco and American Express (expires June 20) American Express Blue Cash Everyday Credit Card
Gas 4% up to $7k per year 3% up to $4k per year 2%
Restaurants 3% 2% 1%
Travel 3% 2% 1%
Costco Purchases 2% 1% N.A.
Supermarkets 1% 1% 3% up to $6k per year
Department Stores 1% 1% 2%
Other 1% 1% 1%

 

In February, AmEx confirmed that the terms of the sale of its Costco portfolio had been agreed with a scheduled close in June, the month of the now promoted conversion. In the run up to the deal AmEx invested significantly in promoting its Blue Cash Everyday Card, across a variety of channels, with the aim of replacing some of the lost business. In direct mail, AmEx used a strategy of targeting consumers with various sign-on incentive levels ranging from  $100 to $500 ramping to a peak of 76 million acquisition offers in Q4 2015, according to Mintel Comperemedia (see Predicting the end of the credit card incentive bubble).

In email, the message became increasingly urgent as the June conversion date began to formalize. While not explicitly stating the Costco relationship, most emails initially alluded to it. On November 19 2015, AmEx sent 1.57 million emails, according to Mintel ePerformance/eDataSource, selecting customers for an “exclusive offer” for the Blue Cash Everyday Credit Card, with some receiving a rich $300 sign-on incentive. The emails were effective, generating an inbox rate of 99% and a read rate of 35%, but the message was vague: “We expect that you will no longer be able to use your American Express card for any purchases beginning in mid-2016 because it will be discontinued” began the email and included no further explanation or reference to Costco.

In a follow up on January 19 2016AmEx sent an additional 1.32 million emails to customers with the subject line: “Don’t Forget [Name], Your Exclusive Offer is Expiring Soon” again generating an effective response (inbox rate: 99%, read rate: 33%). Once again, Costco was not mentioned explicitly but “the end of the partnership” was mentioned, as well as a link provided which opens with the heading: “Important Information about Costco and American Express.”

What we think

  • Citi has developed a competitive offering and loyal Costco customers should be satisfied with the rewards and benefits of the new card.
  • Customers will receive specific terms of their agreements in the mail next month and, only then, will we find out if pricing and terms are similarly competitive. If not, this may provide an opportunity for AmEx and others to target revolvers within the Costco base.
  • AmEx has been doing everything it can to work within the boundaries of its agreement with Citi and Costco while still trying to save what will be a significant volume of lost business. Despite rich incentives and targeted offers, it seems that it will be difficult to make significant inroads given the upgraded value proposition.
  • Much will depend on whether the transition runs smoothly and whether balances and accrued cash is transferred seamlessly from AmEx to Citi on June 20. Should it not go smoothly then this might open the door for AmEx and other issuers to pick off dissatisfied customers.

Andrew Davidson is SVP/Chief Insights Officer for Mintel Comperemedia. He is an expert in data-driven cross channel marketing intelligence, consumer behavior and global trends. As a thought leader and expert speaker, Andrew has consistently predicted the evolution of payments marketing for the past 23 years. He speaks at high profile industry events and has presented at conferences in the US, Canada, Australia, New Zealand, Hong Kong and Taiwan. Andrew is passionate about the global role of payments as the first step on the path to financial inclusion.

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