As of June 27th, Costco no longer accepts American Express. The change will affect more than just how 81M people pay for their 10-gal. tub of peanut butter. The bigger impact is downstream, in other places where those members' cards were stored.
For more than twenty years, Costco has issued an American Express card. In total, there were more than 11m Costco-branded AmEx cards in circulation. This makes up about 10% of all AmEx cards in circulation. (per Bloomberg). For every Card Not Present merchant holding AmEx cards, that means the potential to churn 10% of their AmEx users in the coming months.
So, what's merchant to do?
In ordinary circumstances, this would be a non-event. After all, we've seen card breaches that resulted in 40m cards being turned over. As the issuing banks send out replacement cards, Account Updater goes into overdrive, and services continue to flow for merchant and consumer alike. Why is this one different?
In a nutshell, it's all about vested interests. In a traditional breach, the issuing bank has a massive incentive to ensure you keep using their card. They want to make sure that transactions that used to come to them, keep coming to them. If you have a Visa card from ABC Bank and ABC has to send you a new Visa card, they want to ensure you continue to use their Visa card, and not swap over to XYZ's MasterCard that you also carry. ABC is going to work hard to ensure that merchants get that new card number so that the next time you make a CNP transaction, the transaction just “happens” and you don't even have to think about it. By replacing your old card number with your new card number, ABC bank has retained your transactions for their bank, so they keep making money.
In the Costco example, though, the parties' interests are not aligned. AmEx is losing the business. There is no new card for them to issue to you, so there's no update for them to provide. They have no incentive to help transition from your old AmEx card to a new Visa card. Of course Citigroup would love to be able to replace your old AmEx card on file with their new Citi Visa account- but they have no way to make the connection. They'd need to be able to tie the new Visa card to the old AmEx card number- which is an unlikely scenario.
We have heard rumor of a payment processor who said they might address the issue. It would involve coding a special AU process to connect the old AmEx card to a new Citi Visa card. However, since that was only one processor (and not one of the largest ones), it seems unlikely this is going to get addressed. It's a one-off event, so it just doesn't make it over the list of things that have long term impact. That's a real problem for CNP merchants, including Vindicia clients.
What does this mean to our clients?
On average, AmEx accounts for 7% of credit card traffic. Given that 10% of those cards might turn over, that's .7% of all active subscriptions. That is non-trivial, and we certainly expend more energy for smaller returns than this. However, in this case, there's no way for a merchant to get an automated update.
I've been asked about this several times in recent meetings. While I have acknowledged that we can't fix this, I'm also trying to point out that Vindicia has significantly helped our merchants in other similar situations. For example, last fall, Capital One had a bug in their account updater process, and they provided incorrect updates to merchants. If a merchant requested a card update for John Smith, they could end up with a new card number that actually beloved to Sam Brown. That was a disaster for CNP merchants. In that instance, we were able to identify all accounts that had received a new card number from Capital One through Account Updater. We contacted every one of our clients and gained their approval to back out those updates immediately, and to request new updates once the problem was fixed at Capital One. This meant that our merchants had only a very small impact from the problem instead of it being a huge disaster. Folks running an in house billing system might not have the resources to address these problems as they come up. However, as a service provider with over 180m cards on file, it is worth our energy to develop solutions to issues like this and to apply that fix across our entire merchant base.
So, what's our advice to merchants right now? If you're on CashBox, make sure you have configured email templates for hard billing failures. It is definitely in your interest to have an automated outreach to your card holders if they hit “terminal failure”, so that they are reminded to come and update their card.
Meanwhile, get ready to use that new Citi Visa card to buy more peanut butter…