Citicorp Diners Club, Inc.

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Citicorp Diners Club, Inc.

8430 West Bryn Mawr Avenue
Chicago, Illinois 60631
U.S.A.
Telephone: (773) 380-5160
Toll Free: (800) 2 DINERS
Fax: (773) 380-5300
Web site: http://www.dinersclubus.com

Wholly Owned Subsidiary of Citibank, Inc.
Incorporated: 1949 as Hamilton Credit Corporation
Employees: 3,500
Total Assets: $25.01 billion (2001 est.)
NAIC: 522291 Consumer Lending

Citicorp Diners Club, Inc., handles the North American business of its namesake charge card. Sister company Diners Club International Ltd. oversees the global network. The Diners Club brand maintains a low profile among the stable of credit cards pitched by its corporate parent, the financial services goliath Citibank, Inc., which also owns the prestige card Carte Blanche. Diners Club spawned a new industry when it launched the third-party charge card business in the 1950s. However, an influx of competitors in the following decades relegated it to a small corner of the market. Its principal customers are businesspeople and corporations. In 2004, Diners Club began an alliance with MasterCard International, greatly increasing the number of places its cards could be used.

ORIGINS

Diners Club is considered to be the inventor of the modern charge card. While merchants such as retailers, restaurants, and oil companies had offered credit accounts before, sometimes identifying account holders with metal tags, their use was limited to buying products from their issuer. The innovation of The Diners' Club, as it was originally known, was to bring a third party into the transaction.

Francis X. ("Frank") McNamara is credited with starting Diners Club in 1950. He controlled the Hamilton Credit Corporation, a small finance company whose principal business seems to have been suing deadbeats as it attempted to collect on the $35,000 in questionable loans it had on its books.

The Diners Club idea was hatched in a restaurant next to the Empire State Building. As retold in Lewis Mandell's The Credit Card Industry: A History, McNamara had noticed that one of his best customers was in the habit of lending his drug store charge account to others who were unable to obtain credit on their own. While lunching with his attorney, Ralph Schneider, and Alfred Bloomingdale, scion of the retail empire, McNamara wondered whether becoming such a middleman could help him grow his finance company. The proprietor of the grill where they were dining told them that restaurants would be willing to pay them a 7 percent premium in order to attract more customers.

The service was what is known now as a charge card, meaning balances were payable every month. The entrance of banks into the business later in the decade married loans to the "plastic money" concept. Diners Club cards were actually made of paper until the 1960s.

Launched in New York City, the Diners Club card spread to several other metropolitan areas in 1951 as it signed up more than 20,000 members. Bloomingdale started his own charge card operation in Los Angeles, but this was soon merged with Diners Club. Membership swelled to 200,000 in the mid-1950s.

Diners Club soon became an international phenomenon. The Canadian market was entered in 1953. Another 20 or so countries were added in the next couple of years, reaching as far abroad as Australia. Another hundred countries would be added in the coming decade. Foreign operations were typically franchised.

By the mid-1950s, the credit card business had dwarfed the finance company that spawned it, and Hamilton Credit Corporation was renamed The Diners' Club, Inc., in September 1955. Company founder Frank McNamara had bailed out after Diners Club lost $300,000 in the first year, selling his shares to Bloomingdale and Schneider. They soon took the company public.

Sales volume grew to $200 million by 1960, according to an estimate in Business Week. After Schneider's death, his family sold its stake to the Continental Insurance Company and the insurer acquired most of the remaining shares in 1970. According to Mandell, a proposed merger with Chase Manhattan Bank had fallen apart a few years earlier due to antitrust concerns. Bloomingdale resigned as chairman after earnings took a tumble in the late 1960s.

MEDIA MANIPULATION

An oft-repeated story about McNamara coming up with the idea for Diners Club after being caught without cash one evening was a fabrication, according to Matty Simmons, the company's original publicist, who later published a book about the credit card industry.

The company's early mythology nevertheless made good copy, helping the enterprise spread quickly among businesspeople across the country. The peak of its media saturation probably came in 1963, when Columbia Pictures released The Man from the Diner's Club, a slapstick comedy starring Danny Kaye and Telly Savalas. It premiered in the small town of Winsted, Connecticut, whose residents were all issued Diners Club cards as a one-day experiment with a cashless society that resulted in national media coverage.

Diners Club had its own long-running periodical, originally to promote the restaurants that accepted its card. At first called Diners Club News, it was eventually renamed Signature as it expanded into a general interest magazine.

COMPETITION EMERGES

The year 1958 saw a number of new competitors appear. The Hilton hotels chain started Carte Blanche. The most serious threat was a spinoff of existing competition. The American Express Company had been providing traveler's checks since the 1890s, and saw the new charge cards as a potential rival. It came out with its own card in October 1958.

Another new threat came from large banks. The Bank of America and Chase Manhattan Bank followed the lead of smaller, local institutions by introducing their own credit cards. Adding to their appeal was the addition of a revolving credit line to the cards, allowing users to carry balances.

As the market evolved, Diners Club expanded its service offerings by acquiring Fugazy Travel Bureau in 1967 for $5 million. Nevertheless, by the 1970s, Diners Club was consigned to the role of an alternate, or backup, card to its rivals. American Express proved to be more innovative in the travel and entertainment segment, while bankcards offered more appeal and utility for the masses. Diners Club revenues were $78 million in 1977.

COMPANY PERSPECTIVES

Diners Club is a premium global brand with a rich heritage as the world's first charge card and is issued today in more than 200 countries and 70 local currencies. Diners Club in North America is owned by Citigroup and is a key franchise within the Diners Club International network. Corporate headquarters are located in Chicago, Illinois. Diners Club is the smart payment choice for mid-to-large corporations, individual business people and professionals. It is the only card/payment solution provider that combines a superior product package, unsurpassed service, and award winning rewards with universal acceptance.

A PART OF CITIBANK

Citicorp bought The Diners' Club, Inc., in 1981. This was the original entity incorporated in New York in 1949 as Hamilton Credit Corporation. It was renamed Citicorp Diners Club, Inc., in 1983, and three years later it became Diners Club International Ltd., while a new Delaware corporation was formed with the name Citicorp Diners Club Inc. Both were subsidiaries of Citibank, Inc.; the latter was responsible for the brand's business in North America.

Citibank, the financial services giant, already owned a handful of other cards, including Carte Blanche, which it had acquired in 1978. Citicorp made Diners Club its businessperson's brand, while positioning Carte Blanche for affluent leisure travelers.

Carte Blanche had been launched in 1958 by the Hilton hotel chain. It had grown to annual billings of $135 million by the end of its first decade, observed Time magazine. Always oriented toward the high end of the market, Carte Blanche shaped the development of the industry when it introduced its Gold Club card in 1972. Soon copied by the gold and platinum cards of American Express and others, this ushered in the age of metallic plastic as status symbol. Diners Club relaunched Carte Blanche in 2000 as a prestige card.

Citibank acquired a number of international Diners Club franchises in the late 1990s, including large ones in Australia and Japan. However, most remained in the hands of independent owners in whole or in part. Citibank sold the franchise for most of Continental Europe to its Italian affiliate GTP Holding in 2000.

Diners Club introduced its own revolving credit line in 2000. Called Montage, it was intended to serve as a supplemental card for personal use. The program was quietly discontinued after five years, however.

Diners Club was a distant fifth among credit card brands in 2004, according to figures in the Nilson Report and Fortune. It handled an estimated 1 percent of the $1.4 trillion in transactions charged during the year, compared to 21 percent for American Express, which was third on the list. The bankcard giants, Visa and MasterCard, together accounted for 73 percent of transactions. Trade journals reported Diners Club was accounting for more than $30 billion in annual global charge volume; it had eight million members. By comparison, American Express had $300 billion a year in charge volume and 52 million cardholders.

Citigroup abandoned its North American card processing network in 2004, signing a deal to have Diners Club transactions handled by MasterCard International. MasterCard was then accepted by about 24 million locations globally, three times as many as Diners Club. Citigroup retained the network used by its overseas Diners Club affiliates. The alliance with MasterCard was seen as a way to counter the dominance of American Express.

KEY DATES

1950:: Diners Club is launched in New York City as the world's first multiple use charge card.
1958:: Carte Blanche is launched by Hilton.
1960:: Continental Insurance Company buys controlling interest in Diners Club.
1981:: Citicorp buys Diners Club.
2000:: Carte Blanche is relaunched as Citibank's prestige card.
2004:: Citigroup signs a deal to have Diners Club transactions handled by MasterCard International.

Since its earliest days, Diners Club had been innovative in exploiting the float time for checks, the scheduling of its payments and bills, and other schemes to maximize the amount of money it had available. Some of its more recent practices attracted a class action suit, which alleged that Diners Club and other cards went too far in the fees they charged for currency conversions on international transactions. The suit was settled in 2007 without admission of wrongdoing.

Frederick C. Ingram