By Robin Sidel 

Citigroup Inc. and Visa Inc. won the sought-after credit-card contract for Costco Wholesale Corp., in a move that will significantly expand the kind of plastic that is accepted at the warehouse giant.

The pact reflects the financial industry's hunger for loyal and creditworthy customers, but it isn't clear whether Citigroup and Visa are getting a bargain worthy of the shopping club.

Customers, however, will get to use their Visa credit cards while shopping for everything from bulk-rate bathroom supplies to big-screen televisions, after 16 years of being restricted to cards issued by American Express Co., which previously had an exclusive relationship with Costco.

Starting April 1, 2016, Visa will be the only brand accepted at Costco. In addition, Costco will partner with Citi to issue a new co-branded card to replace an existing AmEx-Costco card.

The agreement means credit cards branded by MasterCard Inc. or Discover Financial Services still won't be accepted in Costco stores. Costco stores will continue to accept Visa and MasterCard debit cards.

Financial details weren't disclosed, but several people involved with the discussion said that Costco was driving a hard bargain with more favorable terms than it had in the AmEx deal. Costco also may have had the upper hand in negotiations because big retail-card portfolios aren't put up for bid very often, card analysts said.

The partnership highlights Costco's increasing clout as the second-largest retailer in the U.S. behind Wal-Mart Stores Inc. The company, which started in 1983 in Seattle, now has 671 locations around the world and a customer base that is loyal and affluent: Costco customer households in the U.S. had an average income of $91,862 in January, compared with an average U.S. household income of $68,664, the firm said. More than 90% of its customers renewed last year.

As a result, the Costco business was subject to fierce competition, including months of negotiations that pitted Visa against MasterCard and Citi against the card unit of J.P. Morgan Chase & Co., people familiar with the discussions said.

Costco's tough stance in the talks was highlighted last month when AmEx said it had been unable to reach a new agreement with Costco on terms that "would have made economic sense" for the company.

The deal is fairly unusual for Visa, which rarely gets the chance to be the only card brand a merchant accepts. In part because of Costco's brand loyalty, the deal "represents a solid win for Visa," wrote J.P. Morgan payments analyst Tien-tsin Huang in a note to clients. He said his view depended on the terms including "reasonable economics."

Citi is already a large issuer of plastic that builds loyalty among specific shoppers, providing cards for the likes of hotel chain Hilton Worldwide Holdings Inc. and Home Depot Inc.

"We believe that we're positioned well to partner with Costco and take advantage of their loyal customer base," said John Gerspach, Citi's chief financial officer, at a financial-services conference on Monday.

Although AmEx shares were pummeled when the company announced the partnership would end, the latest news had less impact on the new partners because their fortunes will be less tied to Costco. Citi gained 2% to $53.49, while Visa climbed 2.6% to $278.29.

The deal comes as credit-card companies are trying to grow, even as consumers remain skittish about spending. Visa is the largest payments network, ringing up more than $1.2 trillion in credit-card purchases each year. Visa also has 281.4 million credit cards in circulation, compared with 54.9 million cards for AmEx, the companies say.

Still, Citi's challenge will be to persuade Costco customers to use its new co-branded credit card instead of any other Visa card that may be in their wallets, analysts said. To do so, it will need to provide juicy rewards and other perks to persuade Costco customers like Beth Baker to use the new co-branded card.

Ms. Baker, who now uses a debit card because she doesn't have an AmEx card, said she would likely switch to her current Visa card that is issued by Capital One Financial Corp. so that she can get more rewards points on her existing account.

"I don't want another credit card," said the stay-at-home mom, 38 years old, who lives in Raleigh, N.C., and spends $150 to $200 on each Costco shopping trip every couple of weeks.

Costco didn't provide many details of the new Citi card, saying only that it "would provide generous rewards to Costco members."

Costco said it would provide more details about the cards in coming months. In a twist, Citi's card business is run by Jud Linville, a former top AmEx executive. The deal comes less than two weeks after AmEx announced its 16-year relationship with Costco would end next year. In that arrangement, AmEx was the only credit card accepted at Costco stores, and the two companies also issued a co-branded card that could also be used anywhere AmEx is accepted. For AmEx, Costco represented one of every 10 of its cards in circulation and 8% of its spending.

Christina Rexrode contributed to this article.

Write to Robin Sidel at robin.sidel@wsj.com and Angela Chen at angela.chen@dowjones.com

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