Agreed, the question here is not so much of the top line but ROE and bottomline. Amex's biggest problem was was the .6% or .4% they were charging Costco but dolling out rewards to SPG and Membership Rewards cardholders at Costco. Sure, they made money from their loan portfolio but until recently, Amex has been all about transaction and annual fees. Reading between the lines from what Amex has said about their Costco business that it was very important because of the visibility, not because of profitability.

I think that's a lingering misconception. American Express (USA) has issued revolving credit cards for 30 years, and ~20% of their revenue comes from finance charges. All of the co-branded airline, hotel and retailer products are credit cards, as well as their own Blue and Everyday lines.

I'm not sure we can solely blame the Costco deal for Citi's devaluations, especially considering all the people in the Citi AA threads churning cards every month or two and asking for point matches (among other things).

The gas category is capped, IIRC. 3% for dining/travel is also not out of line considering other competitors' offerings and Visa Signature's interchange levels (note: Costco's food court isn't considered a restaurant by Chase IME; this is likely the same for Citi). Costco could easily be covering the 2% themselves too given the cash back given to Executive members.

Isn't the Costco just a regular Visa?

I looked on Citi's site again and it appears the Business card is definitely Visa Signature. However, it also looks like the consumer one is Signature for some too based on Google image searches.

EDIT: even if one had the non-Signature version, interchange for restaurants is still close to 2%. That last percentage point shouldn't be hard to make up depending on Citi's estimate of how often people spend at restaurants vs. other categories.

Likely varies based on credit worthiness of the card holder. Mine is a Visa Signature.

Totally agree with two things....one, they make money from interest and finance charges and that it's importance has increased in the past couple of years. Still, if you compare the importance of interest/finance charges to Synchrony, Capital One, or even JPM, Amex relies much more on transaction fees and annual fees.