Elavon Costco Credit Card Processing: Is it Really the Best Choice for Merchants?

Elavon Costco Credit Card Processing: Is it Really the Best Choice for Merchants?

Here at Payment Depot, we have a lot of respect for Costco. We love the fact that it’s a membership-based business and the company lets shoppers buy merchandise at wholesale rates.

As you may know, we use a similar business model for payment processing. In the same way that Costco gives consumers access to lower prices, Payment Depot offers members wholesale payment processing rates to lower their costs. And instead of taking a percentage out of a merchant’s sales, we earn revenue through membership fees.

But as much as we admire the membership side of Costco’s business, we can’t say the same about Costco merchant services. Read our commentary below to find out why.

The basics of Elavon Costco merchant services and credit card transactions

First things first. Costco itself doesn’t handle their own Costco merchant services division. The company has partnered with Elavon, a credit card processor and a subsidiary of U.S. Bancorp. Costco serves a reseller, so if you sign up for Costco merchant services, you’ll be dealing primarily with Elavon.

This isn’t necessarily a bad thing and Costco is upfront about its relationship with Elavon. But you do need to aware of this. Many merchants who look into Costco’s merchant services mistakenly believe that they will be getting the same money-saving experience that Costco’s membership model offers. In reality, though, the Costco merchant services are pricier than most.

As Merchant Maverick puts it:

The most significant misconception about Costco Merchant Services is that, because the retail side of Costco’s business is so well-known for low prices, merchant accounts through the company must be less expensive as well. Unfortunately, nothing could be further from the truth. Costco Merchant Services offers few discounts over what you’d likely pay if you signed up directly with Elavon, and most of them are limited to Costco members. In fact, the company’s advertised tiered pricing plans could be even more expensive than working with Elavon directly, especially for a larger business.

The costs are higher than you think

Costco merchant services advertises its rates as follows:

  • On-Site & In-Store: 1.22%2 Plus 12¢ per transaction
  • Online: 1.99%2 Plus 25¢ per transaction
  • On-the-Go: 1.22%2 Plus 12¢ per transaction

While the rates look reasonable at first glance, it’s important to note that Costco merchant services operate on a tiered pricing model, which, as we discussed previously, is one of the worst pricing methods in the world of credit card processing.

That’s because this type of pricing sets credit card processing fees based on three categories (i.e, tiers): qualified, mid-qualified, and non-qualified.

Qualified card present transactions have lower processing fees, while non-qualified transactions incur higher rates. The credit card processor determines these rates based on a number of factors. For example, debit cards and non-reward credit card payments typically fall under the qualified rate, while transactions involving corporate cards and higher rewards cards would be under the non-qualified category. Whether or not the card was swiped or keyed in can also determine the tier of a transaction. Some processors may consider card-not-present transactions as non-qualified.

Here’s where it gets tricky: credit card processors that use this type of pricing (such as Costco/Elavon) usually only advertise their qualified rates when trying to lure in merchants. The costs mentioned above are the rates you’d pay for qualified charges, but Costco doesn’t promote its rates for mid-qualified and non-qualified charges.

And since a good chunk of your transactions will likely be considered as mid- or non-qualified, you can be sure that you’ll end up paying higher rates than the ones advertised.

Now, you might be able to switch to an interchange-plus pricing model. According to Merchant Maverick, Elavon can set up interchange-plus pricing upon request, so if you’re set on using Costco merchant services, you may want to ask Elavon to use this pricing model on your merchant accounts.  (Note: if you’re not sure what interchange-plus is, read this guide.)

Payment processing services savings

Costco’s merchant services do have a few bright spots, especially for Costco Executive Members. For starters, their merchant services don’t charge an annual fee, reporting fees, a cancellation fee or an early termination fee, batch fees, and authorization fees, which is good.

There are also payment processing services perks for Executive Costco Members. According to Costco, Executive Members aren’t required to pay the application fee ($25) or monthly statement fees ($4.95 per month) so that adds up to savings of around $84 per year in statement fees. If you choose to not upgrade your membership, or if you forget to do so, you can expect to be charged what non-executive members pay.

And be sure to double-check your monthly statement fees as we’ve seen reports of Executive Costco Members still being charged what the non-executive members pay.

Where Costco’s Membership Model Falls Short for Merchants

Costco, the renowned warehouse retailer, has established a strong reputation through its membership model, offering numerous benefits to consumers. However, when it comes to merchant payment processing, some shortcomings within Costco’s membership model have become apparent. In this blog post, we will explore the areas where Costco’s membership model falls short in terms of merchant payment processing, examining the challenges faced by merchants and the potential consequences for their businesses.

Higher Transaction Fees with their Pricing Model

Merchants utilizing Costco’s payment processing system may encounter higher transaction fees compared to other payment processors in the market. While they offer competitive rates to members, these rates may not be as favorable when compared to standalone payment processing providers. The higher transaction fees can erode profit margins for merchants, particularly for those operating on slim margins or dealing with high-volume sales. This financial burden may impact their ability to invest in other areas of their business, hindering growth and innovation.

Costco outsources their payment-processing capabilities to Elavon. Elavon uses a tiered pricing model that divides transactions into three sections: qualified transactions, mid-qualified transactions, and non-qualified transactions.

Unfortunately for retailers who sign up for Costco’s Merchant Services program, mid-qualified and non-qualified transactions are privy to a bevy of hidden fees that aren’t noted on Costco’s website. So instead of the membership-based credit card processing rates that customers expect based on Costco’s retail model, they get a sketchy, unpopular pricing model with tons of hidden fees.

The bottom line? Tiered pricing models lead to dissatisfied customers, so if Costco wants to step up the game (and popularity) of their Merchant Services Program, it’s time to affiliate themselves with a payment services company that offers a membership-based pricing model.

Limited Payment Options

One significant drawback for merchants within Costco’s membership model is the limited payment options available to them. Costco primarily relies on its proprietary payment system, which often requires merchants to adopt specific hardware and software solutions. This exclusivity restricts merchants from accepting alternative payment methods or utilizing advanced payment technologies that may be more convenient for their customers. As a result, merchants may experience difficulties accommodating the diverse payment preferences of their clientele, potentially leading to missed sales opportunities.

Lack of Integration and Customization

Costco’s payment processing system often lacks integration and customization options, which can pose challenges for merchants seeking to streamline their operations. Many businesses rely on integrated payment solutions that seamlessly integrate with their existing point-of-sale (POS) systems, inventory management software, and accounting platforms. However, Costco’s limited integration options may require merchants to work with separate systems, leading to inefficiencies and additional manual work. Moreover, the lack of customization options can hinder merchants from tailoring the payment experience to their unique brand identity and customer preferences.

Inflexible Contract Terms

Merchants who opt for Costco’s payment processing may encounter inflexible contract terms. Costco often requires long-term contracts, which can restrict a merchant’s ability to switch payment processors if they find better rates or features elsewhere. These contractual obligations can lock businesses into suboptimal arrangements, preventing them from adapting to evolving market dynamics or taking advantage of emerging technologies. The lack of flexibility in contract terms can hinder merchants from pursuing more cost-effective or innovative payment solutions, potentially limiting their competitiveness.

Limited Customer Support

Merchant payment processing is a critical aspect of business operations, and reliable customer support is essential. Unfortunately, Costco’s membership model may fall short in providing adequate customer support for merchants in their payment processing endeavors. Costco’s primary focus is on its consumer members, and while they offer support for merchants, it may not be as comprehensive or readily available as specialized payment processors. This can leave merchants with limited assistance when facing technical issues, transaction disputes, or seeking guidance on optimizing their payment processes.

Expensive Terminal Leasing

Credit card terminal leasing is one of the ways that payment-processing companies trick customers into over-paying for basic POS capabilities. The exact price of leasing a credit card terminal with Elavon isn’t easy to pin down, but Merchant Maverick does a great job of explaining some of the realities of renting a terminal with such a corporation. “Almost all terminal leasing contracts contain the same two provisions” Merchant Maverick reports:

“(1) a 48-month (four-year) term, and (2) a clause that makes the lease completely non-cancelable.”

In other words, since most terminal leasing contracts can’t be canceled during their 4-year lease term, even merchants who stop doing business with the terminal provider will have to continue paying for equipment they don’t own or use. This type of nickle-and-diming isn’t in keeping with Costco’s customer-centric retail model and is yet another reason why Costco’s Merchant Services Program – as conducted by Elavon – doesn’t live up to Costco’s reputation.

Auto-Renewal Clause

The ethics of auto-renewal clauses are debatable, in fact, Inc. Magazine refers to them as, “a sneaky way to get people to keep paying.” The contract on Costco’s Merchant Services Program through Elavon is a whopping 3 years, with an additional auto-renewal clause, which means that you may continue being charged for services even after your contract with the company has ended. So, your term automatically renews if you don’t provide written notice and there are reports of sellers receiving charges for Ladco equipment long after they cancel their contract with Elavon.

Costco’s Merchant Services Program risky business for sellers: Layer upon layer of hidden fees, poor customer service, and deceptive advertising are some of the top complaints listed against the program. Fortunately, there are plenty of other options out there for sellers and there is the possibility that, in time, Costco’s Merchant Services Program will more closely mirror their retail model.

Costco credit card processing review – It’s just too expensive!

Costco is a great place to buy lettuce, a TV, and maybe even a mattress. But it’s a terrible place to get your credit card processing!

At some point while Costco was selling cabbage, they decided they could make money by taking a percentage of your business sales. Yes, they want a percentage of YOUR BUSINESS! Is it a scam? A ripoff? No, it’s just too expensive.

Too Expensive!

Costco partners with a third-party provider called Elavon (formerly NOVA) to offer you credit card processing. When you use Elavon card processing, Costco is getting paid a commission on your business.

Costco payment processing review: 3 reasons you shouldn’t use Costco merchant services for your processing services:

1. Costco / Elavon offers you a card processing rate that doesn’t apply to most of your transactions.

The low rate is just for “qualified” transactions under a tiered pricing plan, which doesn’t include reward cards, business credit cards, or anything that isn’t a simple card that is present. Most cards have some rewards these days, so you’re out of luck.

2. Costco / Elavon wants to over-charge you for debit card transactions.

About 60% of all transactions involve a debit card, and it’s probably a higher percentage at Costco – since they don’t accept Visa and Mastercard themselves! Ever wonder why? Because the interchange (wholesale) rate passed along by Visa/MasterCard is 0.05%, but Costco / Elavon’s rate is 1.48%. That means they are raking in 1.43% from you. That’s your money they’re taking!

3. Costco / Elavon charges a ridiculous rate for “reward cards.”

Rewards cards now account for up to 70% of all credit cards (not including debit cards.) That means the rates Costco is quoting don’t apply to 70% of your credit cards! Be sure to discuss this with your payment processors and check your monthly statement fees for actual savings and overall annual processing rates. My conclusion for the Costco card processing review: way too expensive!

Ok, so you know you don’t want to be ripped off by Costco processing. This may explain some of the bad reviews they get online.

Buy your plastic forks from Costco, but don’t overpay for a merchant account at the same time.

Instead of paying them a percentage of your sales in these total monthly transaction fees, you can sign up with Payment Depot and get the direct Visa/MC interchange rate with no added percentage, just 25¢. Payment Depot is the new way to take credit cards. We don’t add a percentage, we give you the direct Interchange Pass Through rate so you know you’re getting no hidden fees and the best rate possible!

Conclusion

While Costco’s membership model has undoubtedly been successful in attracting and serving consumers, there are evident shortcomings when it comes to merchant payment processing. The limitations on payment options, higher transaction fees, lack of integration and customization, inflexible contract terms, and limited customer support can impede merchants’ ability to optimize their payment processes and adapt to changing market demands. Recognizing these challenges is crucial for merchants considering Costco’s payment processing services, as they should carefully evaluate their specific needs and explore alternative options that offer greater flexibility, affordability, and customization.

Alternatives to Costco merchant services

If you’re still shopping around for a payment processor, we highly recommend staying clear of providers that use tiered pricing (like Costco merchant services – even for Executive Members). This model can be misleading and cost you hundreds of unnecessary costs per month.

You’re much better off going with a merchant account provider that implements either interchange-plus pricing or a company that uses membership-pricing. The former adds a markup to the interchange rates of credit card issuers, while the latter charges a membership fee rather than a markup.

Payment Depot is a prime example of a membership-based payment processor. Unlike companies that use tiered pricing, we won’t mislead you by just advertising our low, “qualified” rates. We’re completely transparent about our fees and break everything down in your monthly statement.

Many merchants also prefer our membership payment processing model over interchange-plus pricing, because we don’t take a cut out of your sales. Like the retail side of Costco’s business, we give you access to wholesale credit card costs, for a low monthly fee.

If you’re looking to learn more about Payment Depot, feel free to get in touch. We’re also happy to review your statement or proposal and identify ways that you can save.

FAQ: Costco’s Membership Model and Merchant Payment Processing

Q1: Does Costco offer payment processing services exclusively to its members?

A: Yes, Costco’s payment processing services are primarily designed for its members. Merchants who wish to utilize Costco’s payment processing solutions are typically required to be members themselves.

Q2: Can merchants using Costco’s payment processing system accept credit cards and other popular payment methods?

A: Yes, Costco’s payment processing system allows merchants to accept credit cards, including major brands such as Visa, Mastercard, and American Express. However, the available payment methods may be limited compared to other payment processors.

Q3: Are the transaction fees charged by Costco’s payment processing competitive?

A: Costco offers competitive transaction fees to its members. However, it’s important for merchants to compare these rates with other payment processing providers to ensure they are getting the most cost-effective solution for their specific business needs.

Q4: Does Costco’s payment processing system integrate with other software and systems used by merchants?

A: While Costco’s payment processing system may offer integration options, they can be limited compared to specialized payment processors. Merchants should evaluate whether the available integrations meet their specific requirements and seamlessly integrate with their existing software and systems.

Q5: Can merchants customize the payment experience for their customers with Costco’s payment processing system?

A: Costco’s payment processing system may have limitations when it comes to customization options. Merchants should consider whether they require specific branding or tailored payment experiences for their customers, as this may impact their decision to use Costco’s payment processing services.

Q6: Are merchants locked into long-term contracts with Costco’s payment processing services?

A: Merchants using Costco’s payment processing services may be subject to long-term contracts. It is essential for merchants to carefully review and understand the terms and conditions of the contract before committing, as it may impact their ability to switch to other payment processors in the future.

Q7: What kind of customer support is available for merchants using Costco’s payment processing system?

A: While Costco does offer customer support for merchants, it may not be as specialized or readily available as support provided by dedicated payment processing providers. Merchants should consider their reliance on prompt and comprehensive support when evaluating Costco’s payment processing services.

Q8: Can merchants switch payment processors if they are currently using Costco’s payment processing system?

A: Merchants can switch payment processors; however, if they are under contract with Costco’s payment processing services, they may need to assess any early termination fees or contractual obligations before making the switch. It’s important for merchants to evaluate the potential costs and benefits of switching payment processors.

Remember, it’s crucial for merchants to thoroughly research and evaluate their specific business needs before making a decision on payment processing options, including Costco’s membership model. Comparing different providers and considering factors such as pricing, features, flexibility, and customer support will help merchants make an informed decision that aligns with their business goals.

t, we have a lot of respect for Costco credit card processing. We love the fact that it’s a membership-based business and the company lets shoppers buy merchandise at wholesale rates.

As you may know, we use a similar business model for payment processing. In the same way that Costco gives consumers access to lower prices, Payment Depot offers members wholesale payment processing rates to lower their costs. And instead of taking a percentage out of a merchant’s sales, we earn revenue through membership fees.

But as much as we admire the membership side of Costco’s business, we can’t say the same about Costco merchant services. Read our commentary below to find out why.

The Basics of Elavon Costco Credit Card Processing

First things first. Costco itself doesn’t handle their own Costco merchant services division. The company has partnered with Elavon, a credit card processor and a subsidiary of U.S. Bancorp. Costco serves a reseller, so if you sign up for Costco merchant services, you’ll be dealing primarily with Elavon.

This isn’t necessarily a bad thing and Costco is upfront about its relationship with Elavon. But you do need to aware of this. Many merchants who look into Costco’s merchant services mistakenly believe that they will be getting the same money-saving experience that Costco’s membership model offers. In reality, though, the Costco merchant services are pricier than most.

As Merchant Maverick puts it:

The most significant misconception about Costco Merchant Services is that, because the retail side of Costco’s business is so well-known for low prices, merchant accounts through the company must be less expensive as well. Unfortunately, nothing could be further from the truth. Costco Merchant Services offers few discounts over what you’d likely pay if you signed up directly with Elavon, and most of them are limited to Costco members. In fact, the company’s advertised tiered pricing plans could be even more expensive than working with Elavon directly, especially for a larger business.

The Costs Are Higher Than You Think

Costco merchant services advertises its rates as follows:

  • On-Site & In-Store: 1.22%2 Plus 12¢ per transaction
  • Online: 1.99%2 Plus 25¢ per transaction
  • On-the-Go: 1.22%2 Plus 12¢ per transaction

While the rates look reasonable at first glance, it’s important to note that Costco merchant services operate on a tiered pricing model, which, as we discussed previously, is one of the worst pricing methods in the world of credit card processing.

That’s because this type of pricing sets credit card processing fees based on three categories (i.e, tiers): qualified, mid-qualified, and non-qualified.

Qualified card present transactions have lower processing fees, while non-qualified transactions incur higher rates. The credit card processor determines these rates based on a number of factors. For example, debit cards and non-reward credit card payments typically fall under the qualified rate, while transactions involving corporate cards and higher rewards cards would be under the non-qualified category. Whether or not the card was swiped or keyed in can also determine the tier of a transaction. Some processors may consider card-not-present transactions as non-qualified.

Here’s where it gets tricky: credit card processors that use tiered pricing (such as Costco/Elavon) usually only advertise their qualified rates when trying to lure in merchants. The costs mentioned above are the rates you’d pay for qualified charges, but Costco doesn’t promote its rates for mid-qualified and non-qualified charges.

And since a good chunk of your transactions will likely be considered as mid- or non-qualified, you can be sure that you’ll end up paying higher rates than the ones advertised.

Now, you might be able to switch to an interchange-plus pricing model. According to Merchant Maverick, Elavon can set up interchange-plus pricing upon request, so if you’re set on using Costco merchant services, you may want to ask Elavon to use this pricing model on your merchant accounts.  (Note: if you’re not sure what interchange-plus is, read this guide.)

Payment Processing Services Savings

Costco’s merchant services do have a few bright spots, especially for Costco Executive Members. For starters, their merchant services don’t charge an annual fee, reporting fees, a cancellation fee or an early termination fee, batch fees, and authorization fees, which is good.

There are also payment processing services perks for Costco Executive Members. According to Costco, Executive Members aren’t required to pay the application fee ($25) or monthly statement fees ($4.95 per month) so that adds up to savings of around $84 per year in statement fees. If you choose to not upgrade your membership, or if you forget to do so, you can expect to be charged what non-executive members pay.

And be sure to double check your monthly statement fees as we’ve seen reports of Executive Members still being charged what the non-executive members pay.

Costco Credit Card Processing Review – It’s Just Too Expensive!

Elevon Credit Card Processing
Too Expensive!

Costco is a great place to buy lettuce, a TV, and maybe even a mattress. But it’s a terrible place to get your credit card processing!

At some point while Costco was selling cabbage, they decided they could make money by taking a percentage of your business sales. Yes, they want a percentage of YOUR BUSINESS! Is it a scam? A ripoff? No, it’s just too expensive.

Too Expensive!

Costco partners with a third-party provider called Elavon formerly NOVA) to offer you credit card processing. When you use Elavon card processing, Costco is getting paid a commission on your business.

Costco Payment Processing Review: 3 Reasons You Shouldn’t Use Costco Merchant Services for Your Processing Services:

1. Costco / Elavon offers you a card processing rate that doesn’t apply to most of your transactions.

The low rate is just for “qualified” transactions under a tiered pricing plan, which doesn’t include reward cards, business credit cards, or anything that isn’t a simple card that is present. Most cards have some rewards these days, so you’re out of luck.

2. Costco / Elavon wants to over-charge you for debit card transactions.

About 60% of all transactions involve a debit card, and it’s probably a higher percentage at Costco – since they don’t accept Visa and Mastercard themselves! Ever wonder why? Because the interchange (wholesale) rate passed along by Visa/MasterCard is 0.05%, but Costco / Elavon’s rate is 1.48%. That means they are raking in 1.43% from you. That’s your money they’re taking!

3. Costco / Elavon charges a ridiculous rate for “reward cards.”

Rewards cards now account for up to 70% of all credit cards (not including debit cards.) That means the rates Costco is quoting don’t apply to 70% of your credit cards! Be sure to discuss this with your payment processors and check your monthly statement fees for actual savings and overall annual processing rates. My conclusion for the Costco card processing review: way too expensive!

Ok, so you know you don’t want to be ripped off by Costco processing. This may explain some of the bad reviews they get online.

Buy your plastic forks from Costco, but don’t overpay for a merchant account at the same time.

Instead of paying them a percentage of your sales in these total monthly transaction fees, you can sign up with Payment Depot and get the direct Visa/MC interchange rate with no added percentage, just 25¢. Payment Depot is the new way to take credit cards. We don’t add a percentage, we give you the direct Interchange Pass Through rate so you know you’re getting no hidden fees and the best rate possible!

Alternatives to Costco Credit Card Processing

If you’re still shopping around for a payment processor, we highly recommend staying clear of providers that use tiered pricing (like Costco merchant services – even for Executive Members). This model can be misleading and cost you hundreds of unnecessary costs per month.

You’re much better off going with a merchant account provider that implements either interchange-plus pricing or a company that uses membership-pricing. The former adds a markup to the interchange rates of credit card issuers, while the latter charges a membership fee rather than a markup.

Payment Depot is a prime example of a membership-based payment processor. Unlike companies that use tiered pricing, we won’t mislead you by just advertising our low, “qualified” rates. We’re completely transparent about our fees and break everything down in your monthly statement.

Many merchants also prefer our membership payment processing model over interchange-plus pricing, because we don’t take a cut out of your sales. Like the retail side of Costco’s business, we give you access to wholesale credit card costs, for a low monthly fee.

If you’re looking to learn more about Payment Depot, feel free to get in touch. We’re also happy to review your statement or proposal and identify ways that you can save.

Want to save 40% on payment processing? Let's Talk!