The History of Diners Club Charge Cards

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The History of Diners Club Charge Cards

Postby CreditCardGuru » Tue Jan 13, 2015 1:22 pm

The year 1950 marked the beginning of Diners Club, the world's first independent credit card company...

This pioneering and venerable mid-century charge card program was started by Frank McNamara and his attorney, Ralph Schneider. Initially they issued 200 cards (mostly to associates and close friends) which could be used at fourteen restaurants within New York City.

[imga=first Diners Club card"][/imga]
This card was such an instant hit, that by the end of the first year they already had over 20,000 customers and 42,000 by the end of the following year. The growth was so rapid that within these 12 months, the Diners Club office had to be moved on 3 different occasions (all of which were in the Empire State Building).

In 1951 the program was taken beyond NYC and rolled out in Miami, Boston, Los Angeles, Chicago, and San Francisco. Eight car rental agencies also came on board.

The cardholder base was primarily made up of affluent individuals who traveled often as well as entertained clients in fancy restaurants. They had no need to carry a balance since they could afford to pay in full but simply wanted the convenience of using a card, marking a system which today is called a charge card.

The card's annual fee jumped from $3 to $5 during 1952. However that didn't seem to affect the furious pace of growth; there were now 400 restaurants, 200 rental companies, 30 hotels, and 5 florists participating. This same year, McNamara decided to sell off his ownership in Diners Club for around $200k. The buyers were Schneider (his partner) and Alfred Bloomingdale (who yes, was heir to the department store fortune).

International Expansion
[imga=Diners Club magazine ad from 1959"][/imga]
By 1953 Diners Club had embarked on capturing the international markets, opening branch offices in 17 major cities across the globe. This was a historical accomplishment, because that meant Diners Club was the first internationally accepted charge card.

When Diners Club had its IPO in 1955, the stock offering raised additional funds to further finance growth. By this time there were over 200,000 members who could now use their card in over 20 countries.

During the 60's and 70's, the company continued its international growth, largely by selling franchises bearing its namesake – one franchise per country. On the domestic front, new partnerships continued to be fostered with hotels, airlines, and other travel-related companies. By the end of the 80's, there were 4.2 million cardmembers.

Competition Chisels Away Market Share
Even though Diners Club had the first-mover advantage, their dominance was short-lived:

  • American Express launched its first charge card in 1958. You can read about the AmEx's history and rapid growth here.
  • BankAmericard (Visa) Interbank MasterCharge (MasterCard) quickly dominated the US markets during the 60's. Throughout the 70's and 80's, the same was accomplished overseas.
In 1981, Citigroup purchased Diners Club International - the entity which owns the trademarks and payment network. However, many of the foreign Diners Club franchises today still remain separately owned and operated. In 1992, Diners Club purchased the Air Canada card, enRoute, to expand its market in Canada.

The Company Today
Diners Club struck a deal with MasterCard in 2004. The terms were that in the U.S. and Canada, Diners Club would now use MasterCard's logo and account numbering on the front. This strategic move was crucial to keep Diners Club in the game, as major credit cards like MasterCard had a significantly bigger network of merchants. Outside the US and Canada, Diners Club would have the MasterCard information on the back of the card instead.

In 2008, Citi sold Diners Club International to Discover for $165 million. This wasn't because Discover wanted to issue Diners Club branded credit cards, but rather it was the vast international payment network they desperately sought. As a result of the deal, Discover cards can now operate over the Diners Club network in foreign countries, giving them the ability to quickly compete with the other major payment networks overseas.

But even after the sale, Citibank still owned the North American franchise, which meant they still were the issuer of all US-based Diners Club accounts. However that changed in 2009, when Citi sold the franchise to Bank of Montreal (BMO).

It wasn't until late 2011 when Citi officially handed over the management of US accounts to BMO Harris. During the transition there were many customer complaints posted on CreditCardForum which you can read in this Diners Club USA post.

The two charge cards currently offered by Diners Club are:

Diners Club Charge Card
– Carries an annual fee of $95 and offers various travel benefits as well as one point per dollar spent.

Carte Blanche Charge Card
– With an annual fee of $300 this card offers extended travel benefits, but many would agree it falls far short of what the similarly priced Platinum Card from American Express offers.
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