Those problems were exacerbated by the abrupt nature of the switch. On June 19, consumers could use their American Express rewards cards at the chain and then the next day, those cards went dead and the new Visa cards provided by CitiGroup (C -1.45%) became active. In addition, on that day, Costco not only moved its rewards card to Visa, it also stopped taking American Express entirely.
Even though the company's rewards card members did not have to do anything other than activate their new cards, it was not a smooth transition. The confusion has led to longer checkout times in stores, long wait times for customer service from Citigroup, and discontent among some customers. Early problems with the switch led to more than 1.5 million calls to Citigroup, according to a spokeswoman for the card issuer.
Now, however, 30 days into the change, Citigroup spokesperson Jennifer Bombardier says that things are back on track with the Costco Anywhere Visa cards. In an email interview with The Motley Fool she acknowledged that there have been problems, discussed how they are being addressed, and laid out where Costco's customers now stand.
Here's where Costco's credit card program stands
"With any conversion of this magnitude and a brand this beloved, call volumes were unprecedented," she acknowledged. "As a result, some customers experienced longer-than-desired wait times in the first few days of the launch. In response, we swiftly took action to better meet the demand for the new cards and since then, average call wait times have lessened significantly."
Bombardier explained that even though call volumes were initially high, many, if not most, of the calls were not from angry cardholders.
"It is important to note that despite some of the reports in the media and elsewhere, the vast majority of call volume was related to a number of topics including card activation, payment queries, online setup and things of that nature. Not complaints," she wrote. "In addition, since the previous Costco card had not been offered since November 2015, what we are seeing is tremendous pent up demand."
What went wrong?
While stressing that things are going well now, Bombardier admitted the early days of the transition between credit cards was difficult.
"With a portfolio of this size -- converted over a single weekend -- and eight months of pent up demand, call volume was unprecedented and not unexpected," she wrote. "It is worth noting that while new cards were mailed to existing customers, we couldn't address questions on the new product or existing accounts until June 20th because the portfolio was with a different issuer."
She also noted that Citigroup had staffed up to meet expected call demand but had to "swiftly" take action to meet the higher-than-forecast call volume.
"Since then, average call wait times have lessened significantly," she wrote. "We have been steadily hiring over the past year, adding a few thousand people to support servicing, and will continue to add representatives on a regular basis."
Where does Costco go next?
This switch was a massive one for Costco. As Bombardier pointed out, the company had literally stopped taking new credit card rewards program members for eight months as it geared up for the change. Now, with the new card provider in place, the program has been opened up to new applications.
"Consumer interest and engagement with this card has been extraordinary," Bombardier wrote. "On Day One, approximately 60,000 applications were processed -- more than triple any one day in Costco's 17-year history with Amex. Since then, there have been over 550,000 total applications to date and we don't anticipate the demand to diminish anytime soon."
Those are impressive numbers for Costco that suggest that any bad press -- and there has been plenty of it -- regarding the credit card switch has not impacted consumer interest in Costco. That's to be expected because while the pain may have been acute for some people -- whether it be confusion at the register, not receiving a new card, or having trouble activating one -- it was relatively short.
It was a bad few first days with problems, or at least customer concerns, exceeding initial projections. That caused long phone wait times, led to problems at checkout in the stores, and generally caused confusion. Now, however, those problems appear to be in the past and Costco looks to have come out of a very difficult transition, perhaps a little bruised, but with no long-term damage.