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Bloomberg reports that Costco's deal with Citigroup and Visa means that it will be paying virtually nothing in transaction fees when consumers make purchases using the Citi Visa card. Visa will become the exclusive credit card taken by Costco next year, when it replaces the American Express card; Amex was unable to come to an agreement with Costco that would have extended their longtime exclusivity arrangement.

According to the story, "The arrangement shows the pressure that Costco, the biggest U.S. retailer that accepts just one brand of card, was able to exert on financial firms seeking one of the industry’s most coveted partnerships. AmEx has said Citigroup and Visa won because it wouldn’t agree to the conditions and risks needed to continue its exclusive 16-year relationship with Costco, which is now set to end in March ... While Costco will still incur small fees on Visa cards issued by other banks, incentives from Citigroup and Visa will offset them."

The Bloomberg story notes that "incentives are common in these types of deals and it doesn’t mean Visa and Citigroup won’t profit in the long-run. If customers carry loan balances on Citigroup’s Visa cards, the bank will reap more interest income. The lender will also benefit when customers use those cards at places where fees are higher, and Visa will get the additional volume."

Amex has said that it could not make a similar deal because the numbers "did not add up."
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