In many ways, the cooperative credit card operation was quite similar to the universal credit card operations that would soon follow. However, there were two important differences. First, although each retailer’s card could be used at a limited number of stores, each retailer also retained its identity and relationship with its customers. Second, cooperative credit cards still served only as a means of facilitating a well- established function—the extension of credit to customers as an aid to
Selling products, not as a profit-making operation. One last major conceptual step remained to be taken: a true “universal” credit card would be one that was tied to neither a single vendor nor a single product, and that not only allowed the user to purchase goods in many places but allowed the issuer to make a profit.
Initially, there were two types of universal credit cards (although the distinctions between them have dulled in recent years): the travel and entertainment cards that were issued by American Express, Diners Club and Carte Blanche, and the bank cards, issued by BankAmericard and MasterCharge. Although the T&E cards were developed first, they were overtaken by the much more numerous bank cards, which duplicated their services and for which comparable annual fees were ultimately charged.
The first universal card plan, though quite limited in scope, was developed by John C. Biggins, an innovative banker and consumer credit specialist at the Flatbush National Bank of Brooklyn, New York. In 1947, Biggins initiated a local community credit plan, which he called Charg-It, for a two-square-block neighborhood in the vicinity of the bank. Biggins’s plan was relatively successful and was later adopted by the Paterson Savings and Trust Company of Paterson, New Jersey, in 1950. His plan had much greater significance, however, for the credit industry because it ushered in the era of the third-party, universal credit card—without a doubt, the most important development in the history of credit cards.
Although Biggins was the first to develop a true universal credit card, Diners Club, as we have already seen, was the first to implement and market such a card successfully on a large scale. Only a year after its formation in 1949, Diners Club had managed to sign up 285 establishments and 35,000 cardholders, who were each charged $3 per year for their cards. At the end of the following year, 1951, Diners Club was in the black, showing a profit of $61,222 on total sales of $6.2 million.
The quick success of Diners Club caused it to expand rapidly, not only geographically but also in services. The company pushed to sign up merchants in such industries as hotels, airlines, gas stations, retail stores, and automobile rental companies. In the mid-1950s, Diners Club expanded into Europe through franchise agreements. This period was marked, however, by strong resistance from merchants to the plan. The Diners Club card, and later, the other universal cards, was resisted for two reasons: many companies did not wish to pay the discount, and the existence of a credit card that could be used at all types of establishments substantially weakened the retailer’s relationship with its customers.
Leading the opposition to the T&E cards were European and U.S. hotel trade associations, which prohibited their members from accepting credit cards that had discounts, effectively ruling out the T&E cards. In England and Switzerland, members who accepted such cards were thrown out of their hotel trade associations. As a result, the British and Swedish hotel and restaurant associations left the international association and created their own association. In so doing, they established the BHR credit card, which later became the EuroCard. Initially, EuroCard attempted to operate without a merchant discount, charging only the cardholder. That practice resulted in significant losses, and consequently, EuroCard was forced to add a discount for restaurants and hotels. The European hotel associations held out the longest in their opposition to the T&E cards. Eventually the competition and market pressures forced them to drop their boycotts of the cards, and they agreed to pay discounts of up to 5 percent.
Following a similar course, the American Hotel Association introduced its own credit card, the Universal Travel Card, which did not have a discount for the hotels. The plan was neither successful nor inexpensive, and in 1958 the Universal Travel Card was taken over by American Express, which thus gained about 4,500 merchants and 160,000 cardholders.
In 1957, the oil companies, then embroiled in a major marketing war, entered into an industrywide interchange agreement in an attempt to block out all third-party universal cards. All of the major oil companies except Texaco agreed to honor the cards of each other through the exchange network. The oil companies resisted outside credit cards primarily because of the discount that they were forced to pay.
It should be noted that the boycott of universal cards by the oil companies was only a last-ditch effort after their own attempts at developing a universal gas card had failed. In 1949, the Frontier Refining Company of Denver gave its dealers permission to accept sales made on “foreign” credit cards, provided that a 6 percent service charge was made. And in 1951, National Credit Card, Inc., an independent credit agency, initiated a universal credit card for the oil companies with a $20 membership fee for dealers and a 6 percent service charge for dealers.
Aside from the smaller oil companies, which did not operate their own credit card plans, there was not much acceptance of this independent universal credit card. According to the 19 November 1952 issue of National Petroleum News, the obstacles to a universally accepted credit card in the early 1950s included the cost of accepting such cards (reckoned at 2.50 per gallon), the lack of understanding by members of the general public, who would not like the idea of being billed by a “strange” company, and the small amount of business that most stations could hope to attract in largely pre-expressway America. With the failure of National Credit Card in 1954, the universal credit card did not exist in the oil industry until the interchange agreement three years later.
Another major obstacle to the T&E card was the boycott by the International Air Transport Association (IATA). Like the hotel organization, the IATA had its own travel card, the Universal Air Travel Plan (UATP). By 1958, UATP was maintaining regular deposits of $425 from each of its over 800,000 cardholders. It had no interest in allowing the T&E cards to enter into competition with it for this lucrative market. The refusal of the airlines, particularly the international airlines, to accept the T&E cards did not really end until 1964, when the prohibition was lifted with the help of the U.S. Civil Aeronautics Board (CAB).