Where Costco’s Membership Model Falls Short for Merchants

By Jasmine Glasheen

Costco has an impeccable reputation. The company’s image for great customer service at low prices is so good, in fact, that many business-owners are stoked to realize that Costco has a Merchant Services Program dedicated to credit card processing–– after all, who doesn’t want to work with a company they can trust? However, if you’ve read any of Payment Depot’s past articles on the subject, you already know that the reality of Costco’s membership model for retailers is less-than-ideal.

Let’s talk about a few of the reasons why Costco’s retail model doesn’t (yet) live up to the company’s otherwise stellar reputation.

Tiered Pricing Model

First and foremost, 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.

Mediocre Customer Service

Elavon has a long list of customers that are dissatisfied with the company’s customer service (we’re talking a one-star review on Yelp) and, if you use Costco’s Merchant Services program, the reality is that you’re going to be dealing with Elavon’s customer service reps. Now, there are a few advantages to Elavon’s customer service program–– you get access to a 24/7 customer service hotline, for instance, and Elavon even offers on-site support when the company deems it necessary. Yet many Elavon customers cite dissatisfaction with the level of support they receive.

Elavon is one of the largest global payment processing companies on the market today. Unfortunately for customers of Costco’s Merchant Services Program, however, it appears that Elavon hasn’t learned how to offer personalized customer service at scale.

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.  

Top-Rated Alternatives

Payment Depot is often called “the Costco of credit card processing” because Payment Depot uses a membership model for credit card processing that is similar to Costco’s membership-based retail business. Since there are no middle-men, members only pay for the services they receive. On average, switching to Payment Depot saves retailers 40 percent per month, which is why Payment Depot is Merchant Maverick’s #1 pick for credit card processing.