The Middleman
Though the concept of credit has existed longer even than money, charge accounts became popular in the early twentieth century. With the invention and growing popularity of automobiles and airplanes, people now had the option to travel to a variety of stores for their shopping needs. In an effort to capture customer loyalty, various department stores and gas stations began to offer charge accounts for their customers which could be accessed by a card.
Unfortunately, people needed to bring dozens of these cards with them if they were to do a day of shopping. McNamara had the idea of needing only one credit card.
McNamara discussed the idea with Bloomingdale and Sneider and the three pooled some money and started a new company in 1950 which they called the Diners Club. The Diners Club was going to be a middleman. Instead of individual companies offering credit to their own customers (whom they would bill later), the Diners Club was going to offer credit to individuals for many companies (then bill the customers and pay the companies).
Previously, stores would make money with their credit cards by keeping customers loyal to their particular store, thus maintaining a high level of sales. However, the Diners Club needed a different way to make money since they weren't actually selling anything. To make a profit without charging interest (interest bearing credit cards came much later), the companies who accepted the Diners Club credit card were charged 7 percent for each transaction while the subscribers to the credit card were charged a $3 annual fee (begun in 1951).
McNamara's new credit company focused on salesmen. Since salesmen often need to dine (hence the new company's name) at multiple restaurants to entertain their clients, the Diners Club needed both to convince a large number of restaurants to accept the new card and to get salesmen to subscribe.
The first Diners Club credit cards were given out in 1950 to 200 people (most were friends and acquaintances of McNamara) and accepted by 14 restaurants in New York. The cards were not made of plastic; instead, the first Diners Club credit cards were made of a paper stock with the accepting locations printed on the back.
In the beginning, progress was difficult. Merchants didn't want to pay the Diners Club's fee and didn't want competition for their own store cards; while customers didn't want to sign up unless there were a large number of merchants that accepted the card.
However, the concept of the card grew and by the end of 1950, 20,000 people were using the Diners Club credit card.
The Future
Though the Diners Club continued to grow and by the second year was making a profit ($60,000), McNamara thought the concept was just a fad. In 1952, he sold his shares in the company for more than $200,000 to his two partners.
The Diners Club credit card continued to grow more popular and didn't receive competition until 1958. In that year, both American Express and the Bank Americard (later called VISA) arrived.
The concept of a universal credit card had taken root and quickly spread across the world.
