Costco (i.e., Elavon) 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 credit card 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 their merchant services. Read our commentary below to find out why.

The basics of Costco (aka Elavon) credit card processing

First things first. Costco itself doesn’t handle its merchant services division. The company has partnered with Elavon, a credit card processor and a subsidiary of U.S. Bancorp. Costo serves a reseller, so if you sign up for Coscto’s 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 company’s 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 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’s 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 tiered pricing sets credit card processing fees based on three categories (i.e, tiers): qualified, mid-qualified, and non-qualified.

“Qualified” 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 transactions 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’s merchant services, you may want to ask Elavon to use this pricing model on your account.  (Note: if you’re not sure what interchange-plus is, read this guide.)


Costco’s merchant services do have a few bright spots. For starters, they don’t charge cancellation, annual, and authorization fees, which is good.

There are also perks for Executive Members. According to Costco, Executive Members aren’t required to pay application fees ($25) and monthly statement fees ($4.95 per month) so that adds up to savings of around $84 per year.

Just be sure to double check your statements as we’ve seen reports of Executive Members still being charged these fees.  

Alternatives to Costco / Elavon merchant services

If you’re still shopping around for a payment processor, we highly recommend staying clear of providers that use tiered pricing. This model can be misleading and cost you hundreds of unnecessary costs per month.

You’re much better off going with a 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 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.