ISSAQUAH, Wash.-Warehouse club Costco Wholesale, which started partnering with banks to offer mortgage services online last year, has indicted it wants to get into auto lending and perhaps even student loans, and may be looking to partner with smaller banks and credit unions.
Costco's initial partners on mortgages have been five community banks and four small mortgage lenders, including its lead partner, $669 million-asset First Choice Bank of Lawrenceville, N.J.
Costco has not decided when it will start offering auto loans, or if it will introduce a student-loan service to its 64-million-strong membership base. In either case, Costco will partner with banks or credit unions, said Jay Smith, director of financial services.
In perhaps the most unusual twist to Costco's foray into banking, Costco receives no financial compensation from any of the banks in its mortgage partnership.
"We don't pay anything to Costco," Bill Blanton, the chairman and CEO of $57- million First Century Bancorp, of Gainesville, Ga., one of the lenders in the Costco partnership, told American Banker, an affiliate of Credit Union Journal. "We're not a broker of any sort and we don't get paid for the loans. We're not paid per loan, or per lead, or per click. More members are saving and when they save money and see value in membership, they're going to continue to renew."
Costco generated about $1.9 billion in membership fee revenue in its most-recent fiscal year, according to Costco's annual report. Costco posted total revenue of about $89 billion in its last fiscal year.
This is not Costco's first experience with mortgages. In 1998 it offered mortgages through real estate services firm Amerinet Financial Systems. Costco has been involved in other types of financial services for more than a decade. In 2007 it partnered with ShareBuilder of Bellevue, Wash., to offer discounts on 401(k) plan administration fees to some of its customers. ShareBuilder also had a program with Costco to offer reduced trading fees.
The new Costco mortgage offering is only available to its members, and is only available online. Costco doesn't employ in-store mortgage specialists. Customers can receive quotes from one of 10 lenders participating in the online platform, and customers choose which banks they want to contact them, Costco's Smith said.
Rigorous Due-Diligence
"You don't have to enter a lot of personal information," Smith said. "Some of our competitors will run FICOs and pull credit scores and credit reports."
The offerings include new purchases and refinancings, as well as mortgage loans for military veterans. First Century and CapWest participated in a rigorous due-diligence process conducted by Costco before being approved.
"(Costco officials) are fanatical about quality, about making sure the customer is taken care of, that they are given the best price," Blanton said.
