Visa Is the Only Credit Card That WorksWide moat
Costco Wholesale (COST) — moat facet
The one page in this collection where a merchant, rather than a bank or a network, set the terms of a payment — and the members simply got a Visa.
Almost nothing in retail illustrates Costco's power over its own suppliers better than what it did to the payment networks — and it is the exact inverse of how the card business normally works.
The usual arrangement is that the party choosing the network does not pay for it. A cardholder picks a card, pays nothing, and often earns points; the merchant pays the fee and has no say in which card arrives at the terminal. That asymmetry is why two enormous networks have competed for fifty years without ever cutting the merchant fee.
Costco is the exception, because its customers cannot go anywhere else. In 2015 it signed a long-term co-brand credit card agreement with Citi and an acceptance and co-brand agreement with Visa, and from 1 April 2016 Visa replaced American Express as the credit card network for Costco in the United States and Puerto Rico1 — ending a sixteen-year exclusive and, at a stroke, removing acceptance of every non-Visa credit card from 500-odd warehouses. Members did not leave. They got a Visa.
The 10-K describes the resulting arrangement flatly: warehouses "accept certain credit cards, including Costco co-branded cards, debit cards, cash and checks, Executive member 2% reward certificates, co-brand cardholder rebates, and our proprietary stored-value card"2. "Certain" is doing a great deal of work in that sentence.
What Costco bought with the switch shows up in the accounts. The co-branded credit card programme has been named repeatedly as a positive contributor to gross margin, including in fiscal 2025 and in the third quarter of fiscal 20263, and credit card incentive receivables are large enough to be listed among the principal components of the receivables line4. Costco is being paid by a bank for the exclusivity, and the agreement now runs to June 2029.
The falsifier is a return to multi-network acceptance. Costco has held single-network exclusivity for a decade because its members will carry whatever card they are told to carry. If that ever stops being true, the concession goes with it — and so does the margin contribution.
The exclusivity has held for a decade and the Citi agreement now runs to June 2029. Nothing about the arrangement has changed in either direction.
Costco dropped American Express and is paid under its Citi and Visa agreements, which the 10-K names as a margin contributor. A return to accepting several networks, or the card no longer being cited, would say the concession has gone.
Source: Costco Form 10-K, FY2025 (MD&A) ↗- ReportedIn 2015 it signed a long-term co-brand credit card agreement with Citi and an acceptance and co-brand agreement with Visa, and from 1 April 2016 Visa replaced American Express as the credit card network for Costco in the United States and...Retail Dive, 'Costco to replace its Amex card with Citi, Visa' - Citi became the exclusive issuer and Visa replaced American Express as the credit card network accepted in Costco's U.S. and Puerto Rico warehouses — Effective April 1, 2016 · publ. 2015 · source ↗
- ReportedThe 10-K describes the resulting arrangement flatly: warehouses "accept certain credit cards, including Costco co-branded cards, debit cards, cash and checks, Executive member 2% reward certificates, co-brand cardholder rebates, and our...Costco Form 10-K, fiscal year ended August 31, 2025 - Item 1 Business (membership counts and renewal rates, warehouse and gas-station counts, under 4,000 SKUs, Executive tier and the 2% reward, human capital and wages, competition, Kirkland Signature) — FY2025 · publ. October 8, 2025 · source ↗
- ReportedThe co-branded credit card programme has been named repeatedly as a positive contributor to gross margin, including in fiscal 2025 and in the third quarter of fiscal 2026, and credit card incentive receivables are large enough to be listed...Costco Form 10-K, fiscal year ended August 31, 2025 - Item 7 MD&A (net sales $269,912M, membership fees $5,323M, gross margin 11.12%, SG&A 9.25%, comparable-sales composition, capital expenditure, dividends and repurchases) — FY2025 · publ. October 8, 2025 · source ↗
- ReportedThe co-branded credit card programme has been named repeatedly as a positive contributor to gross margin, including in fiscal 2025 and in the third quarter of fiscal 2026, and credit card incentive receivables are large enough to be listed...Costco Form 10-K, fiscal year ended August 31, 2025 - consolidated financial statements and notes (income statement, balance sheet, Note 11 segment reporting, disaggregated revenue by merchandise category, legal proceedings) — FY2025 · publ. October 8, 2025 · source ↗
- Costco Wholesale Form 10-K, fiscal year ended August 31, 2025 (SEC EDGAR)
- Co-Branded Credit Card Program Agreement, Citibank N.A. and Costco (SEC EDGAR, Exhibit 10.1)
- Retail Dive — Costco to replace its Amex card with Citi, Visa