Costco Wholesale (NASDAQ:COST) Joins Hands with Visa Inc. (NYSE:V): Who Benefits More?


Recently Costco Wholesale (NASDAQ:COST) ended their deal with American Express (NYSE:AXP), who has been company’s credit card partner for 16 years, after when the later failed to agree on the renewed terms of contract. However, Costco Wholesale (NASDAQ:COST) has found a new partner for itself and has joined hands with Visa Inc. (NYSE:V). This news has led to a rise in share value of both Costco Wholesale (NASDAQ:COST) and Visa Inc. (NYSE:V).

This deal with Visa Inc. (NYSE:V) was not so sudden, as according to the Wall Street Journal it was in negotiation for quite some time. Costco Wholesale (NASDAQ:COST) had been negotiating not only with Visa Inc. (NYSE:V), but was also involved in talks with Citigroup Inc. (NYSE:C), MasterCard Inc. (NYSE:MA) and JP Morgan Chase & Co. (NYSE:JPM). Each one of these parties had an eye on this deal, and only one company was able to finally meet the company’s terms, which shows that Costco Wholesale (NASDAQ:COST) indulged in a very hard bargain. However, no detailed announcement has been made by any one of the company so far. Whereas, Costco Wholesale (NASDAQ:COST) has only stated that the new card will be similar to one that was issued under American Express (NYSE:AXP) partnership.

As soon as the report of the final deal between Visa Inc. (NYSE:V) and Costco Wholesale (NASDAQ:COST) struck the market, the share value of Citigroup Inc. (NYSE:C) and Visa Inc. (NYSEV) jumped up by 2% and 3%. On the other hand, American Express (NYSE:AXP) saw a greater loss as soon as the deal ended and its share price went down by 6%. The True Earnings cards segment was also shaken, which composed of almost 10% of American Express (NYSE:AXP) credit cards. This means almost 5.5 million out of 55 million American Express (NYSE:AXP) cards were True Earnings cards. However, in comparison to the previously quoted data, Visa Inc. (NYSE:V) is running a network of 281 million which means that Costco Wholesale (NASDAQ:COST) would be co-branding less than 2% of Visa credit cards.

Furthermore, Costco Wholesale (NASDAQ:COST) would not be the only one that would greatly benefit from this deal, Visa Inc. (NYSE:V) will also reap a good amount of revenue, despite offering the service at low rates. It is being estimated that even Visa Inc. (NYSE:V) charges a 2% transaction fee, thus making $2.2 billion from all Costco Wholesale (NASDAQ:COST) purchases alone. If we use the figures of fiscal year 2014, then this would add 17% to Visa Inc.’s (NYSE:V) top line. However, we are just predicting this data by assuming the best case scenario, since we don’t know how many True Earnings cardholders would be shifting to the new credit card scheme.

Whatsoever, Costco Wholesale (NASDAQ:COST) has emerged as a clear winner. The company has been successful in signing a great deal which will earn it good revenues. By joining hands with Visa Inc. (NYSE:V) the company has given its retailers direct way to deal with the 281 million Visa cardholders instead of sticking to only 55 million American Express cardholders. As mentioned, the deal will also prove beneficial for Visa Inc. (NYSE:V), however, it is hard to gauge the extent of this benefit right now.

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