Credit-Card Game

In the nation's expense-account economy, nobody is anybody unless he can say "Charge it." Thus, the credit card has risen as a new symbol of status that enables one to rent a plane or boat or car, give parties in nightclubs, even go on a full-blown safari in Africa without putting down a penny. For businessmen it also provides a convenient record of all expenses to show the Internal Revenue Service. Last week the credit-card game provided businessmen with the spectacle of being wooed and fought over by a handful of companies trying to dominate the business.

Full House. While oil companies, hotels and airlines started their own credit cards years ago, the fast-growing new market for a broad new type of card was pioneered in 1950 when Lawyer Ralph E. Schneider, 49, Hollywood and Broadway Producer Alfred Bloomingdale, 42, and the late Frank X. McNamara founded Diners' Club. They built up a roster of 17,000 restaurants, hotels, motels and specialty shops that were glad to pay them a 7% fee for the business of their 750,000 members.

Diners' had no serious competition until old, bold American Express three months ago dealt itself into the card game, enlisted the aid of its worldwide contacts to drum up members. Through banks, American Express mailed applications to 8,000,000 depositors--people who obviously have some money to spend. President Ralph T. Reed also sent personal letters to 22,000 corporation presidents. More than 300 American Expressmen started knocking on doors of executive suites all round the U.S. to sell the credit card (charge: $6 per year for initial card, $3 for other members of the same firm). To bolster its membership, American Express bought out the Gourmet Guest Club (membership: 45,000). Diners' fought back by picking up the Esquire Club (100,000 members). Then American Express scored a real coup: last month it bought the American Hotel Association's Universal Travelcard (160,000 members and 4,500 hotels) that Diners' had long and vainly wooed.

New Tricks. Both American Express and Diners' furiously scouted out and signed up new services. American Express won a hand by signing Manhattan's Toots Shor restaurant, long a credit-card holdout. Diners' bounced right back by announcing a contract with the Stork Club, another holdout. American Express then scored by adding a galaxy of nonrestaurant services: Western Union, Greyhound Bus, Avis and Hertz car rentals, Kinney Parking Systems, Kelly Girls for temporary office help. Amexco spread the word that in any of its 303 international offices, a cardholder could charge a ticket or tour to any spot in the world. In return, Diners' Club, which already boasts such nonrestaurant services as liquor stores and florists, last week said it will offer travel policies from Beneficial Standard Life Insurance Co. ($5,000 to $10,000 life and accident coverage for $1 a month).

All this furor worried Sheraton Corp. of America, second biggest U.S. hotel chain. It announced that it would offer to its 850,000 cardholders, who got their cards for nothing, a new comprehensive card for $5. Hilton Hotels Corp., biggest U.S. chain, broke into a sweat; fearing the Sheraton competition, Hilton announced that it would expand the Hilton card, which is used in its 33 hotels in the U.S. and abroad, to cover outside restaurants and shops.

High Stakes. While the credit-card business sounds glamorous and profitable, it is no get-rich-quick scheme. The Gourmet and Esquire clubs never made money. Each member had to spend an average of $500 per year for the clubs to turn a profit--but spending ran far below that total. The business demands expensive hustle and hoopla. To recruit a new member costs $7 to $10. To check each applicant's credit status alone costs $2.50 to $4. Losses from deadbeats run high. Bookkeeping and promotional costs eat up almost all the clubs' 7% fees from restaurants and shops. Thus, most of Diners' profits come from the $5 annual charge per card. (It earned $1.29 a share in the fiscal year ended last March.)

Last week Hilton and Sheraton began to have sober second thoughts about barging into such a tough business. Sheraton started negotiations for a possible deal with American Express. Hilton sat down to dicker with Diners' Club. Under the deal being discussed, Hilton and Diners' would each take a small stock interest in the other and put out a new Hilton-Diners' all-purpose card. Hilton would retain his present card, good only for charging at Hilton hotels, invite the 1,000,000 holders to join the new club for a fee. Hilton hotels are expected also to honor the American Express card.

Wall Street figures there is room for both Diners' and American Express in the card game. But the giant share of the market eventually will go to the one company that can provide the widest array of services. Though Diners' has a sizable headstart in actual members, American Express is way ahead in worldwide credit facilities and cash resources for the roughshod battle ahead.

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