Why Costco Does Not Take Mastercard, American Express or Discover Credit Cards

Costco only accepts Visa credit cards in its warehouse stores. While many Costco shoppers find this inconvenient, you may like it a little better when you find out why Costco doesn’t take Mastercard, American Express or Discover credit cards.

The simple answer is: money. And while that might sound greedy, it actually is part of Costco’s mission to give you lower prices.

Here’s why: When retail stores accept credit cards, the store must pay a merchant processing fee on every single card transaction. This fee, usually between 1.5% and 4% of the purchase price, is split between the bank that issues your credit card and the card network that processes that transaction (Visa, Mastercard, American Express, or Discover).

While smaller retailers are often at the mercy of the card networks when it comes to merchant fees, a huge retailer like Costco (with lots of market power and adoring fans as customers) can negotiate those merchant processing rates down to a lower-than-average level. Which is exactly what Costco has done.

Costco used to only accept American Express at its stores, because American Express gave them the best deal on merchant fees. But when the contract with American Express ran out, Costco put its next contract up for bid, and that’s when Visa gave Costco the lowest merchant fees — provided that Costco gave Visa exclusive rights when it came to accepting credit cards in Costco stores.

So Costco doesn’t accept Mastercard or American Express or Discover because Visa gave them the best deal on merchant processing fees, which Costco would argue allows it to continue to give you great deals in its warehouses. If Costco accepted the other types of credit cards, they might have to charge you more to make up for the fees they pay. (However, we don’t know that for sure; Costco’s not telling how much they pay or how much they’re saving by only taking Visa.)

One strange addendum to this: Costco only takes Visa credit cards in its stores, but Costco will also accept Mastercard and Discover credit cards on its Costco.com website. (It won’t take American Express on Costco.com, though.) Why? Honestly, we don’t know. It may be that the selection and prices on the Costco website only include higher-profit items, which allows the company to tolerate the extra card fees, but that is just a guess — Costco has never explained why the difference between in-store purchases and online purchases.

Author: Adam Jusko