MasterCard and VISA credit cards
MasterCard and VISA credit cards are seen in this illustrative photograph taken in Hong Kong December 8, 2010. Reuters/Bobby Yip

Effective January 1, 2015, Costco Wholesale Corp. will no longer be accepting American Express Co. cards in its 88 Canadian stores, ending a 15-year-old relationship. Instead, it will switch to accepting MasterCard Inc.

David Barnes, AmEx spokesman, said the contract was really up for renewal, but unfortunately they could not make it. He said he was disheartened to end their relationship with Costco because the latter represented a "sizable portfolio" for AmEx in Canada.

Costco Canada said current TrueEarnings or American Express Platinum Cash Rebate card members will continue to earn cash rebates on those cards until Dec. 31, 2014, Costco Canada said.

A new co-branded MasterCard for Costco members will be immediately made that will serve as both credit card and Costco membership card.

Costco's 468 stores in the U.S. and Puerto Rico, however, will continue to accept AmEx cards. Ron Damiani, Costco Canada spokesman, said the retailer's U.S. stores have a different contract with American Express.

Apart from Canada and the U.S., Costco has another 107 outlets in seven other countries, according to its website.

The Toronto Star, quoting unidentified industry analysts, said merchant fees could have been the reason why negotiations between AmEx and Costco failed. It said retailers have been thumbing down credit card suppliers lately because processing fees are getting exorbitant.

Any increase in credit card fees, the experts said, will greatly hit Costco because its gross profit margins are leaner compared to other retailers. Experts pegged it to be as little as 15 per cent, maybe smaller.

In fact, merchant fees at AmEx's are higher than with Visa or MasterCard. Costco has only been able to enjoy smaller rates because it offered AmEx exclusively.

"Costco has some of the smallest margins in retail," Alex Arifuzzaman, a principal in retail consulting firm InterStratics, told Toronto Star. "Half a percentage point increase (in merchants fees) increase would be a bigger deal to Costco than to other retailers."

One of Canada's biggest retailers, Costco Canada's 2013 estimated sales was placed at $17.8 billion. It has about 110,000 members in each of its 88 stores.