Beware of the Trickery of Costco Merchant Accounts

Let me first say that we absolutely love Costco! They have incredible deals on most products, and those giant bags of pita chips are irresistible around the office.

Please beware that the good deals stop when it comes to a merchant account.

You may have picked up a flyer on the way out the door or received a fancy looking email in your inbox. Here’s the problem. You’ve grown to trust Costco to provide you and your family with great prices on high quality products. On top of that, their return policy (especially on electronics) is the best.

As a small business owner, you may be asking, “Why wouldn’t Costco give me that same value with a merchant account?”

Well, here’s the catch! Costco partners with a third-party provider called Elavon (formerly NOVA) to offer you credit card processing. It’s there way of making extra cash without having to actually start another business segment. Essentially, Costco is simply providing referrals to Elavon, and Elavon pays them a commission.

You trust Costco to begin with.
Costco adds Elavon (big merchant account provider) to the mix.
Elavon now hopes you’ll trust them even more.

They are counting on the borrowed trust from Costco’s customers to get you to sign up without asking too many questions. Our advice…don’t trust Costco or Elavon!

Four Tricks Costco / Elavon Plays on Small Businesses

After speaking with a number of our own customers and conducting in-depth research of Costco customer complaints, here are the top four reasons why you shouldn’t go with their merchant accounts.

1. 

   Costco / Elavon lures you in with a low rate that doesn’t even apply to most of your transactions. This is the most common complaint from disappointed small businesses across the web. When evaluating their monthly statements, they found higher rates than the percentage advertised. The low rate that’s shown to the right (click to enlarge) is just for “qualified” transactions under a tiered pricing structure, which would only include non-rewards, non-business credit cards (standard Visa/MasterCard) that are swiped on the spot. This will be a very small percentage of your transactions.
2. Costco / Elavon doesn’t tell you that they’re over-charging for debit transactions.
   Up to 60% of all small business transactions involve a debit card. What you may not know is that the wholesale rate passed along by Visa/MasterCard is .62%. If you receive Costco / Elavon’s lowest rate which is 1.48%, they’ll be pocketing almost 1% from that transaction. They’re not really looking out for your small business, are they?
3. Costco / Elavon charges a much higher rate for “rewards cards.”
   As with anything, the fine print on their website (click the image to see a full-size version) is where important information is often hidden. In the case of Costco, the fine print is right on their own website. Read below:

   **Visa/MasterCard/Discover service is sponsored through U.S. Bank. Rates listed are for qualified transactions. Reward cards process at a higher rate. Contact Elavon for details. A monthly minimum charge applies when qualified transaction fees and per-item charges are less than $20 per month. Annual interchange or assessment increases by Visa/MasterCard or Discover may affect these rates. Rates and fees may change without notice. Rate and acceptance are subject to underwriting. Call Elavon at 1-888-474-0500 for all terms and conditions.

   Notice that it says – “Rates listed are for qualified transactions. Reward cards process at a higher rate.” Rewards credit cards are those cards that allow you to cash back, free travel, or other perks. Did you know that rewards cards now account for up to 70% of all credit cards? That means that the rates Costco is quoting don’t even apply to 70% of your transactions!

4. Costco will let you out of your contract…for a price.
   Once you discover rising rates and extra fees, you’ll probably do anything to get out of your contract. Costco / Elavon will be more than happy to let you out of the agreement…as long as you pay a $95 cancellation fee as well as your remaining monthly fees.

By the way, did you notice that they’re giving you a $300 gift card? That’s not just because they’re nice. They plan on making even more than that off you from hidden fees. Don’t just take our word for it. Do the research yourself and find out that the Costco / Elavon relationship is not in your best interest.

Buy your pita chips (and all that other yummy stuff) from Costco, but we’re strongly encourage you to think twice about a merchant account. There are much better solutions that will ultimately save you time and money.