Costco – Good for Fish, Bad for Credit Card Processing

February 1, 2009

February 1, 2009

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I am a Costco member and I like shopping at Costco because they generally have great deals on pretty much everything.  For example, this morning I went grocery shopping to buy some fish for dinner. Costco had an incredible price on a nice big piece of omega-3 rich salmon, yum, 2.38lbs for $16.68 ($6.99 / […]

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I am a Costco member and I like shopping at Costco because they generally have great deals on pretty much everything.  For example, this morning I went grocery shopping to buy some fish for dinner. Costco had an incredible price on a nice big piece of omega-3 rich salmon, yum, 2.38lbs for $16.68 ($6.99 / lb).

 

Costco Offers an Excellent Price on Salmon $6.99 per lb

At the regular grocery store next door to the Costco (Dominick’s, the Chicago version of Safeway) I found a comparable sized piece of fish for $8.99 / lb (marked down to $7.99 / lb if you have a frequent shopper card). Even at the sales price, Costco was 14% cheaper than the normal grocery store! That’s a great deal on salmon.

 

The Regular Grocery Store was 14% More Expensive

Costco also offers credit card processing, through a partnership with Elavon (formerly known as Nova).  Elavon is a subsidiary of USBancorp.  Unfortunately, unlike the fish example above, this credit card processing offer is only a mediocre deal.

Here is the Costco ad I recently got in my email box.  It sounds like a pretty great deal, 1.64% on card-present transactions and 1.99% when no card is present.

 

Costco Credit Card Processing Looks Like a Good Deal

I clicked through to look at the fine print, where I found this seemingly innocuous statement (in the red circle): “Rates listed are for qualified transactions.  Rewards cards process at a higher rate…Rates and fees may change without notice…Rates for American Express, debit and corporate purchasing cards may vary” (click on the image to enlarge).

Be Sure to Read the Fine Print!

Be Sure to Read the Fine Print!

That statement is a pretty big deal because rewards cards are currently 50-70% of all credit cards and are expected to increase to more than 90% within the next few years.  Additionally, most businesses can expect 5-15% of their customers to be using a business card, and depending on your industry that percentage can be quite a lot higher.  So, basically the fine print covers the majority of transactions while the advertised rate rarely, if ever, applies.

FeeFighters has customers who switched from Costco / Elavon to another processor that they found on FeeFighters, so we have examples of some of those customers’ bills to use for demonstration.  Here is an example of a typical Costco / Elavon customers’ bill:

 

Most Transactions Do Not Get the Advertised Rate.

Transaction categories that got the advertised rate of 1.64% are circled in green, while those that did not are circled in red.  Unfortunately for this business owner, 7/12 of the categories are red, accounting for 67% of the volume!

The overall rate this business owner is paying can be calculated by dividing the total charges (15.92 in per item charges + 155.11 in volume charges) into the total volume of 8028.96. The result is an overall rate of 2.13%, much higher than the 1.64% that was advertised.

How does this compare to other credit card processors?  Our free credit card processing calculator can answer that question.  I entered the information for this business into it and it resulted in this report, which tells us that Elavon and Costco are splitting about $28 / month in profit off this customer after subtracting the amount that they have to send to Visa and Mastercard.  More importantly, it compares the rate to rates from other merchants who have tried the calculator and tells us that the overall rate of 2.13% is only slightly lower than the average rate of 2.17% that other businesses in the same industry with a similar transaction mix pay.

For farm-raised atlantic salmon, Costco is the best deal going, but for credit card processing Costco is only slightly better than average.  If you do want to find a great deal on credit card processing, try out our free credit card processing comparison shopping tool.

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