Will cash ever come back?
Credit cards started as a play boy's gimmick. Now, under our very noses, they're quietly taking over as legal (but costly) lender for just about everything Canadians need—or desire
IN 1887, PEERING round the curve of time. Edward Bellamy conceived in his novel Looking Backward, a hero who wakes in the year 2000. The world is moneyless. Anyone can have "whatever he desires whenever he desires it" by presenting a small piece of pasteboard, a "credit card."
yet moneyless, but three giant credit-card firms. I he Diners' Club. American Express ( Aniex ) and ( arte Blanche, are hustling us along the road toward Bellamv's vision. I hev claim their cards are "modern magic," not entirelv an idle boast, for with them and their little vest-pocket directories of places that honor them you can roam sans cent or centime through 96 world capitals and conjure up almost anything you want. One newspaperman in Madrid financed an evening's outing with a night-club dancer by listing her on his Diners' Club bill as "dessert."
"You can be in our hotel for a week and I can't think of any thing you d want that you couldn't put on your card. says (denn Brewer, manager of lorontos King Edward Sheraton Hotel. "You can rent a car. hire a steno, order roses, theatre tickets, sign for everything from a newspaper to a fur coat."
I he Sheraton chain, world s second largest, is linked w ith 1 he Diners' Club.
Until now. this had been no more than an interesting social phenomenon, a credit toy of todav's nouveau riche, the expense-account spender. But in the past few months, a fourth firm. International Charge Ltd., backed by several
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Businessmen carry six to ten credit cards. Soon the real spenders — the women — will use them
hundred million dollars, has launched a campaign aimed at the nation’s real money managers, the housewives whose day-to-day buying forms the bulk of all personal spending. Suddenly the implications are staggering.
International has no less an aim than to make its monthly charge cards acceptable for anything on sale in North America. “The small merchant needs credit to compete with department stores." says bris!, young Canadian manager D. J. Strupat. "With our card you can get your hair done, or have your TV fixed, buy records, anything you want. We pay the merchant three days after he sends in the account. It costs him an average of four percent, depending on volume.”
As portable credit importunes the housewife's purse, even thrifty old-fashioned cash customers cannot ignore what it portends. Credit is costly. There's advertising. Your credit to be checked. A record of your spending to make out monthly and mail you. Interest on the money that tides you over to month's end. Bad debts if you fail to pay up (.05 percent of total billings). More and more, the card companies are targets for opportunists like Joseph Miraglia, of New York, a slum kid who went on a $1 ().()()() binge on Carte Blanche. The company now checks its cardholders more carefully.
The $5 or $6 annual fee for most cards (International is free), covers only a fraction of this cost. The real pay-off for the card companies is the commission they collect on all the goods and services you buy—from four percent on air travel (Carte Blanche) to 10 percent (Diners') in gift shops. If the cards continue to mushroom, most firms will be forced to give credit, and this extra cost will be passed on to every consumer, including cash buyers.
International moved into Toronto last November. Today, in southern Ontario,
3.000 stores honor its cards, now held by
125.000 families. If you earn $320 a month in the city, or $280 in a small tow n, sometimes less, you can shop without money in every kind of store except dime stores and supermarkets. And an Ottawa company, Master Credit Service Ltd., has even signed, along with 450 shops, taxis and theatres, live IGA supermarkets and Woolworths.
"This could be the start of a countertrend. “ says Master Credit's founder, Alfred Ritchie, a former Ottawa city finance commissioner. "As far as I know this is the first time Woolworth’s or supermarkets have ever given credit. We've had enquiries for franchise rights from Newfoundland to Vancouver."
Diners', too, have glimpsed this promised land of credit. "The day is coming,” says Matty Simmons, a New York vicepresident. "when every housewife will carry a credit card. Someday money will be obsolete."
Already, in many luxury hotels and restaurants, twenty to sixty percent of the patrons flash cards instead of cash. A Toronto maître d'Iiôtel admits that he looks with some disdain on customers who flaunt a roll of bills. As the Institute for Motivational Research states, "Credit cards are a symbol of status."
There are now 15 million of these symbols in North Americy. according to, the financial weekly, Barron’s. Almost anyone who drives a car can charge his gas to one or more oil companies, which probably started the credit-card craze in the '20s. "People got them to go on vacation," says Arthur Bullied, secretarytreasurer of the Associated Credit Bureatis of Canada. "Then they got in the habit of using them. The same thing is happening with all-purpose credit cards." The' business boom of the '50s, which begot more and bigger expense accounts, also bred a proliferation of cards. The Bell Telephone Company, which has had cards for over 33 years, has four and a half times more card-holding employees now(37,100) than seven years ago.
T\yo months ago TCA and CNR sent out 30,000 cards good for everything tiiey both, provide except freight. For yachtsmen1 there's Cruise Clubs, Inc., listing 6,03.8 ports at which gas and dockage bills can be put on the cuff. In Victoria, B.C., you can show a card to watch the Cougars play ,hockey. There's even a card for cash, if you count letters of credit given to travellers.
"Anyone who goes to Europe wants to take -a credit card," says Jill Jeffery, an Amex representative in Toronto. "One of our clients has 26." The average businessman,“a Toronto credit expert estimates, carries six to ten cards.
“Charge a camel or a totem pole”
The avowed aim of the Big Three— Diners', Carte Blanche and Amex—has been stated by Amex president Ralph T. Reed of New York: "To liberate the wallet from its multiplicity of credit card«, and to substitute a single, all-inclusive card.”
In effect, the all-purpose card companiesare striving to make the world one huge department store, with results that give cause for reflection. With the Big Three s cards you can sign for a pair of skis at Ste. Agathe, a camel in Cairo, a surfboard at Waikiki. You can charge a totem pole in Vancouver, gambling debts at Reno, diamonds in Amsterdam and a postcard at Johannesburg's Gainsborough Gallery. You can sip schnaps in Stockholm, nibble France’s best foie gra.s in Strasbourg, have your hair high-styled in Rome and your snapshots developed in Punta Arenas, world's southernmost city at the tip of South America. You can bathe in a Tokyo geisha house, groom your poodle in Las Vegas, or get a moose stuffed in Anchorage, Alaska.
The cards have, as their sponsors claim, such "inexhaustible monetary potency" that when a Chicago businessman lost his job recently he turned in his Diners' card to avoid the temptation of living lavishly. You can charge a dinner for 40 as easily as four. When a T ransocean Air Lines pilot mislaid his company credit card while taking on fuel at Ontario, California, a passenger signed for $1.135.58 worth of gas.
Such potency is dangerous for the weak-willed. Motivational Research estimates that credit cards increase impulse buying by 25 to 35 percent. "When people don't have to pull cash from their pocket," says Sam Berger of Toronto's
Town Tavern, “they order champagne.” One Diners' bill to a Hollywood partygiver was $25,000. Another, after an .African safari, was $60,000. A couple
ho recently toured the world on the .s.S. Statendam was billed by Amex for $17.403.
The cards can also impose a crushing penalty for carelessness. Where once if you lost your wallet you lost only the cash you carried, you can now lose your entire life’s savings. Thieves that specialize in all-purpose credit cards can run up a bill of thousands of dollars before
you realize your loss—and until the card company is notified you're responsible for all purchases. After that, the hotel or merchant takes the rap. A few months ago in Toronto a man with a stolen card drove from hotel to hotel in a chauffeured Cadillac, cashing $500 cheques.
It is, indeed, impossible to distinguish the rich today without an income-tax return. Anyone with a $5,000 job and no visible bad debts can carry the magic pasteboards as long as he pays up at month’s end. Looking ahead, card-company officials foresee a two-class society:
a small proletariat of poor credit risks condemned to the degradation of fingering cash, and a huge elite whose credit rating merits an all-purpose card that will let you say “Charge it” for everything you buy.
A couple of years ago a cartoon in the Wall Street Journal showed one counterfeiter saying to another, “People are getting suspicious of cash. We’re gonna switch to credit cards." By last year the facts had caught up with the satire. A counterfeit ring, broken last September in Montreal, was bootlegging forged
Diners’ cards for as much as $300 each. The cheques they cashed with the cards in banks alone, said William Lewis, a Diners’ special investigator, added up to $250,000.
The modern credit card started accidently one February night in 1950. A man named Frank MacNamara worked late in his office at the Hamilton Credit Company in New York and before catching his train home he dined at a strange restaurant. When he reached for his wallet he found he’d forgotten it. Embarrassed, he waited two hours for his wife to rescue him.
It could happen to anyone, he indignantly told his lawyer, Ralph Schneider, the next day. Within an hour the two men had brainstormed the idea of a charge card payable monthly for New York restaurants. Gambling all their savings, eighteen thousand dollars, they hired a 26-year-old night-club publicist, Matty Simmons, to put the idea across.
Restaurant owners scoffed. “We should pay you seven percent for the privilege of holding our money!,” they told Simmons. “Let customers we don't know walk out without paying!” But he finally signed 14 restaurants and 200 friends joined as members. Within a year they had 20,000 members.
From a three-man office Diners’ grew to a mammoth with a staff of 1,200. Its billings in the past year are about $ 170,000,000, on which it expects to clear $1.60 a share, up from $1.43 last year. It is adding a thousand new members a day to its roster, which at the end of March was 1,200,000, including 65,000 Canadians.
Competitors immediately appeared. Diners' has bought out or overwhelmed 19 challengers. From one. Dine and Sign, it acquired its energetic president, Alfred Bloomingdale. This 39-year-old explayboy and movie producer, teaming up with Schneider, now chairman, bought out MacNamara who died in 1957. Stock in Diners' has risen in ten years from $8 to $80 a share.
In 1958 a company which no one could buy out muscled in. American Express, the I 10-year-old travel agency, with assets of $668 million, was simply doing what came naturally. With 400 offices around the world, Amex was uniquely equipped to offer, as it does, “Your passport to the world of service.”
It started fast by gobbling the Gourmet Club (47,000 members). Diners’ swallowed the Esquire Club (100,000 members), which had just absorbed Duncan Hines. Amex scooped up the Universal Travelcard (160,000 members) of the American Hotel Association (4,500 hotels). Worried, Diners’ traded Sheraton (53 hotels) a block of stock.
In the trade they were calling this the numbers game. “You need thousands of places on your list so the card will be like carrying cash,” says Stan Helleur, a former Toronto newspaper columnist, who is Diners' chief in Canada. “At the same time you need top places for snob appeal.” Amex signed New York’s Toots Shor Restaurant. Diners' countered with the Stork Club.
Amex, which had planned its attack for five years, scored with Greyhound Bus, Western Union, Avis and Hertz car rentals, Kinney Parking Systems, and Kelly Girls Inc., for office help. Diners' checkmated Kelly with Manpower Inc., also signed Greyhound and Hertz, then added to its florists and candy shops, clothing and liquor stores, theatres, sports events and accident insurance.
Last April, Hilton Hotels, world's biggest hotel chain, dealt itself into the card game. In two months it was billing mem-
bers at a $100,000,000-a-year clip, having started by sending its cards free to Hilton courtesy cardholders, charging them an annual $6 fee only if they use the card for anything outside Hilton hotels. Its Carte Blanche card, "a credential that you are accustomed to the finest service and attention,” is limited “to an important few.” now numbering over 1,300,000.
While Diners’ was being assailed from without it suffered revolt from within. In what became knowm as the Gastro Rebellion. 27 Seattle and Portland restaurants. nettled at paying a seven-percent commission to Diners’, hiked their prices to Diners’ members by five percent. Diners' cancelled their contracts. The rebels issued their own credit cards (later announcing that it only cost them 4'/2 percent). The revolt spread to 19 Cleveland restaurants, and the popular kerhulu restaurant in Quebec City quit Diners'.
Many restaurateurs complain they're paying seven percent on the bills of customers who formerly paid cash. "It's reaching dangerous proportions," says Sam Berger of Toronto's Town Tavern. "1 know places in the U. S. where 50 percent of the business is credit cards. When you're paying seven percent on that much business you're not making money." At a recent Canadian Restaurant Association meeting. Mrs. B. Buklin, owner of Csarda’s in Toronto, bitterly
proclaimed that Diners’ had driven her close to bankruptcy.
“Diners’ commission is too high,” agrees Joseph Garshon, office manager of Toronto’s Seaway Hotel. “But Carte Blanche’s 4Vz percent is hard to beat. It wouldn’t pay to use your own cards at that rate.” Carte Blanche, through its bank, also pays the restaurants immediately. Amex pays three times a month, Diners’ once.
Diners’ says that seven percent merely covers the cost of their credit checks, collecting the bill, paying the outlets and taking the rap on bad debts. Profits, they say, come from their $5 card fee. Their surveys show that cardholders spend “15 to 20 percent more” than they would if they had to pay cash. Their members, "free-spending businessmen, fill those extra tables," says Stan Helleur, head of Diners’ in Canada, "at no increase in overhead.”
Many restaurant owners admit that Diners’ prestige and promotion has boosted business by 15 to 30 percent. "It’s costly,” says Oscar Berceller of Winston Theatre Grill in Toronto, “but worthwhile. I’d say it was 60 percent of my business. It has grown 200 percent in the last three years.” Diners’ pay the Seaway Hotel about $10,000 a month, while Garshon admits that "the business from Carte Blanche is insignificant.”
"If the big restaurants want convention and tourist business,” says Mrs. F. G. Montgomery of the Canadian Restaurant Association, “they have to honor credit cards.” After a recent 10-month study the U. S. trade paper, Restaurant Management, concluded that "you can’t fight the inevitable. The credit-card idea is here to stay whether you like it or not.”
But travel agents remain opposed. After signing 1,000 in 1958, Diners’ only has 80 left, two in Canada. Diners’ charged them two percent plus $500 a year. "We got five percent from our clients,” says Gordon Girvan, former Canadian director of ASTA, the American Society of Travel Agents, “which means we were paying $500 a year for the privilege of giving away two fifths of our income.”
The Four Seasons Travel Bureau, with five Canadian branches, quit Diners’ recently after a year's trial. “We made $10,000 to $12,000 a month with them, two thirds of it new business,” claims Janislaw Kamienski, the president. But on tickets of $500 and up (now $150), the bureau had to phone for an okay to Los Angeles. “One tricky customer came in," says Kamienski, “and within three days bought three tickets, $120, $325, and $325. So we didn't phone. He didn’t pay, and Diners' deducted $770.”
Some hotels refuse to honor cards for rooms booked through travel agents, for it costs them a double commission, one to the agency and the other to the card company. Amex, with 600 travel agents, now waives its cut in this case, but most of the trade remains hostile. "The International Hotel Association,” says Girvan, "which includes 3,000 of the best hotels in Europe, have flatly refused to honor credit cards. The best hotel that American Express can list in Paris is a dump.” ASTA is now planning its own worldwide credit card for which the cardholder will pay all costs for a maximum $10 fee.
Everywhere else the opposition is folding. Last summer Amex signed New York Central, the first major railroad. Three others soon fell in line. Last September Hilton broke the solid front of the airlines, signing five. Amex and Diners' rushed in. "Airline business,” says Diners’ Matty Simmons, "is fantastic—$5,000 a day from Northeastern, about the same from Western.” Oil companies were holdouts last year. Now Helleur says, “We have 700 BP gas stations in Quebec, 200 Cities Service in Ontario, and 500 Home Oil in the west.” You can now charge auto repairs at Chrysler, Ford or Chevrolet garages. In the U. S., Amex has signed the Hamburg-Atlantic steamship line and now has 4,000 car service dealers, 141 aircraft service dealers, and 182 marinas.
Carte Blanche is discussing the creditcard buying of automobiles with the car manufacturers. In New York, Diners’ vice-president Maury Ash said recently, “Within 15 months, 85 percent of America’s men’s wear stores will find it imperative to otter some kind of credit - card plan. Diners’ is dickering with a mutual fund to put stocks and bonds on the cuff. Its cards are now good at slenderizing salons, beauty parlors and health farms.
As Diners’ eyes the housewife, biggest spender in the nation, three other firms have quietly invaded this vast field. They are International Charge in Toronto, Shoppers Club of Canada in Hamilton, and Alfred Ritchie's Master Credit Service in Ottawa. Forty thousand civil servants carry Ritchie’s cards, good for every kind of purchase from a power mower to a pound of butter. “We’re a kind of local Diners’ Club," explains Ritchie. “There’s more money spent at home than on the road.”
But the firm that is gaining fastest on Diners’ is International Charge. Behind it is Seaboard Finance, with assets of $320,000,000 and 550 North American branches. International tested its plan in Hawaii for a year. Then it leapfrogged last fall to Los Angeles, Chicago, Philadelphia and Toronto. Now it is ready to move on Quebec, and plans to be in Australia, Hong Kong and Denmark by June.
Out of the credit revolution a curious new competitor, the no-credit card, has been born. The Rozee Bonus Club and the Discount Club of America, both of New York, and Baltimore's Executive Travel Club, sell (for $5 a year) a card entitling its holder to u ten-percent discount for cash in affiliated hotels and restaurants, a few of them in Toronto and Montreal.
But the cash clubs are bucking the trend. The credit card epitomizes a longterm trend away from the use of money. Since the 1800s banknotes in circulation have gradually dwindled until today about eleven twelfths of the money supply is deposits in banks. "Economists have lost interest in cash," says Dr. Edward Neufeld, assistant professor of economics at the University of Toronto. "Business carries out the commerce of the country now by cheque, and credit cards make the common man a business.”
"People who pay cash, who sit down a couple of hours a month and write 30 or 40 cheques, will eventually issue a single bank draft," predicts Diners' Matty Simmons. Instead of laboriously drawing up our records by hand, IBM machines will do our figuring for us.
This is the real revolution of the breastpocket charge accounts. "It means more, but better bookkeeping," says Neufeld. “It means that everyone will have financial records. We’re all going to be efficient whether we want to be or not.”
In a way that Edward Bellamy, that prophetic political novelist, would never have believed, we are nearing his dream of a moneyless world. “No money,” enthuses Matty Simmons, "no robberies. Think of all the economies—the number of people who are hired just to guard money, the billions of dollars destroyed in fires. It's a simpler way to live. It’s the future.”