Starting Monday, shoppers can make purchases using the Costco Anywhere Visa Card or the Business Card by Citi, which replace the branded cards from New York-based AmEx.
"We have a strong relationship with our members and it's important that we're rewarding their loyalty to us," Costco CEO Craig Jelinek said in a statement. "Our new co-brand credit card agreement with Citi on the Visa network enables us to offer significant value and benefits for our members across 494 locations in the U.S. and Puerto Rico."
The card offers cash-back rewards of 3% on restaurant and travel purchases, 2% on Costco purchases and 1% on other purchases. Gasoline purchases up to $7,000 qualify for a 4% reward.
Credit card issuer American Express (AXP - Get Report) expects to book a gain of nearly $1 billion on to the sale of its $10.5 billion card portfolio to Citigroup. The credit-card issuer's stock fell sharply last year after Costco ended the companies' 16-year co-branding agreement. As of Tuesday, AmEx had dropped 11% this year to $61.95.
Although Citigroup received a "smaller portfolio" than originally expected -- estimates were as high as $14 billion when the deal was announced last year -- brokerage firm Keefe, Bruyette & Woods described that as only a "modest negative" in a note to clients.
"The key to judging the success of Costco will be if Citi can grow balances and billed business," Keefe Bruyette analyst Sanjay Sakhrani said in the note. "We previously were expecting no receivables growth over time, so our expectations for Costco are muted at the start."
Citigroup said the Costco acquisition and conversion wouldn't have a major impact on its earnings in 2016.
A co-brand relationship, in which issuers typically add a merchant's name and logo to a card, "give you the ability, the scale, the access to clients and terrific partners, the ability to create sticky incentives," Citi CEO Mike Corbat said earlier this month at a conference. He highlighted the Costco deal as well as an agreement with American Airlines.
"Between American and Costco, we've got two of those companies that are very strong, in addition to a larger portfolio and a diversification to the portfolio between airlines, between hotels, between merchants," Corbat said. "We've built, we think, a good portfolio."
Keefe Bruyette rates Citigroup's stock as "market perform," the equivalent of neutral, and has a target price of $51. Citigroup was trading at $42.70 on Tuesday, after a drop of about 18% so far this year. Visa climbed 0.04% to $77.31.
American Express retained Mitchell Eitel, Jared Fishman, Stephen M. Salley, Amanda J. Gill, Ronald E. Creamer Jr., Guy Inbar, and Spencer F. Simon of Sullivan & Cromwell LLP for legal counsel, while acquirer Citigroup used Shearman & Sterling LLP.