UPDATE 3-Costco ties up with Citigroup, Visa for U.S. co-branded cards
* Tie-up to come into effect from April 1, 2016
* Visa shares hit all-time high (Adds comment from Citigroup CFO, analyst)
By Avik Das and David Henry
March 2 (Reuters) - Warehouse club Costco Wholesale Corp has chosen Citigroup Inc and Visa Inc to run its co-branded credit card starting next year, replacing American Express Co, which lost the coveted tie-up last month.
Citigroup will exclusively issue the Costco branded cards and Visa will provide the payment network in the United States and Puerto Rico from April 1, 2016, Costco said. The deal means that Costco customers will only be able to use Visa credit cards at its stores, as is currently true with American Express cards.
While terms were not disclosed, the high profile partnership could be lucrative for both companies given that Costco caters to relatively high-income customers compared with Wal-Mart Stores Inc and Target Corp. Still, margins on such deals can be thin.
American Express said in February that it had been unable to reach a deal with Costco that would have made "economic sense" even though the loss of the contract would hurt its earnings for the next two years.
The Costco portfolio of card loans has been a "thin margin" business, but Citigroup - the world's largest credit card issuer - has the scale, with some $146 billion of card loans, to manage it, analyst Glenn Schorr of Evercore ISI wrote in a note.
Visa shares rose 2 percent to a record high of $277.00 in early trading, while Citi shares rose 1.5 percent to $53.22. Continued...