Costco takes only a slice of Apple Pay

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Along with activating contactless payments at its store terminals, Costco has opened its checkout lines to Apple Pay, Samsung Pay and Google Pay. But there’s a catch.

Costco confirms it still accepts only Visa credit cards at its stores, including through digital wallets, as part of the deal it struck with Citigroup when it split with longtime cobranded credit card partner American Express in 2015.

Because Apple Pay and the other wallet apps are digital form factors for existing cards, the merchant sets the parameters on which cards to accept, and Citi’s deal with Costco specifically narrows acceptance to Visa. The same restriction does not apply to debit cards accepted at Costco.

Costco rolled out the Costco Anywhere Visa card in mid-2016, equipping the entire 7 million-plus credit card portfolio is with EMV contactless technology. For about two years, Costco co-branded credit card users were unable to use the feature at Costco stores until the terminals went live this month.

Costco continues to accept Visa, Mastercard and Discover credit cards for payment on Costco.com.

It’s no coincidence that Costco has opened Apple Pay and others along with contactless card payment at its terminals, said Richard Crone, CEO of Crone Consulting LLC.

“Cobranded card deals include specific interchange pricing, and Costco is getting that pricing from Citi and theoretically on Visa cards, so Costco wants to stick to that plan,” Crone said.

But time saved by speeding up customers at the checkout point also translates to more money in Costco’s pocket, so adding contactless and mobile payment is an advantage, according to Crone.

“EMV checkout is painful and slow, and Costco wants to find any way around that, first through activating contactless for the Near Field Communication-enabled Citi Costco co-branded cards, and now by riding the coattails of Apple Pay and others,” Crone said.

Contactless cards are ubiquitous outside the U.S., with mass merchant adoption in Australia, the U.K. and across most European markets. Up to 20% of all transactions are contactless in most of these regions, according to a report from A.T. Kearney.

U.S. issuers were late to the contactless card movement because of a false early start a decade ago when terminals weren't ready. Afterward, in the rush to meet the October 2015 EMV liability shift, most issuers skipped adding contactless technology because there was still no critical mass of NFC-ready terminals.

Costco’s U.S. gas pumps are designed accept contactless payments, but that feature is not yet live. The chip-card liability shift goes into effect for U.S. gasoline merchants in October 2020 and many are working to reconfigure their pumps.

Citi was the first U.S. issuer to commit to a fully contactless credit card portfolio, embedding the latest generation of EMV contactless in all of the Costco cards. EMV contactless payments are accepted at a few major merchants, including McDonald’s and Walgreens. Most older contactless-enabled terminals, including vending machines, do not recognize EMV contactless cards.

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