1 00:00:01,827 --> 00:00:03,568 Get your paper, read all about it! 2 00:00:07,007 --> 00:00:08,791 It's 1949, 3 00:00:09,574 --> 00:00:12,360 and a struggling young executive named Frank McNamara 4 00:00:12,360 --> 00:00:14,884 is about to experience an uncomfortable moment. 5 00:00:16,320 --> 00:00:19,497 One that was all too common at the time. 6 00:00:19,497 --> 00:00:21,064 Look, I want your business 7 00:00:21,064 --> 00:00:24,459 and I want you to feel taken care of. 8 00:00:26,287 --> 00:00:27,157 Thank you. 9 00:00:28,332 --> 00:00:31,335 Dinner's on me. Please, I insist. 10 00:00:31,335 --> 00:00:32,728 Thank you. 11 00:00:32,728 --> 00:00:35,165 At the time, there are three ways of paying. 12 00:00:35,165 --> 00:00:38,212 One is cash, second is by personal check. 13 00:00:38,212 --> 00:00:40,301 The third one is to have an in-house credit account 14 00:00:40,301 --> 00:00:42,042 with that specific restaurant or store. 15 00:00:52,182 --> 00:00:54,315 He realizes that he does not have enough cash 16 00:00:54,315 --> 00:00:55,316 to pay the bill. 17 00:00:55,316 --> 00:00:57,274 He has no idea what to do. 18 00:00:57,274 --> 00:00:59,146 The banks closed at like 2:00 PM back then, too, 19 00:00:59,146 --> 00:01:00,625 so he's in danger of having 20 00:01:00,625 --> 00:01:02,714 to wash dishes to pay off the meal. 21 00:01:02,714 --> 00:01:03,976 Everything okay there? 22 00:01:03,976 --> 00:01:05,717 Yeah, everything's fine. 23 00:01:05,717 --> 00:01:06,588 Good. 24 00:01:08,111 --> 00:01:09,547 McNamara doesn't know it yet, 25 00:01:09,547 --> 00:01:11,375 but this embarrassing moment 26 00:01:11,375 --> 00:01:13,595 kick-starts what will become 27 00:01:13,595 --> 00:01:16,902 the $6 trillion global credit card industry. 28 00:01:19,122 --> 00:01:22,386 The commerce of the America we know 29 00:01:22,386 --> 00:01:25,607 is driven by credit card purchases. 30 00:01:25,607 --> 00:01:27,739 Pioneered by a pair of mavericks. 31 00:01:27,739 --> 00:01:29,306 It's called a charge card. 32 00:01:29,306 --> 00:01:31,221 The idea that you could pay for a meal 33 00:01:31,221 --> 00:01:32,396 with a Diners Club card, 34 00:01:32,396 --> 00:01:33,963 was very revolutionary. 35 00:01:33,963 --> 00:01:36,226 But it's a really odd sales pitch, 36 00:01:36,226 --> 00:01:39,186 pay us a fee so strangers can buy goods from you? 37 00:01:39,186 --> 00:01:40,926 Their groundbreaking concept 38 00:01:40,926 --> 00:01:43,059 ignites a wave of competition. 39 00:01:43,059 --> 00:01:44,887 We can do better. 40 00:01:44,887 --> 00:01:48,847 Visa became the go-to for international transactions. 41 00:01:48,847 --> 00:01:50,980 American Express was really honing in 42 00:01:50,980 --> 00:01:52,851 on the people who were spending a lot of money. 43 00:01:52,851 --> 00:01:54,592 We charge a dollar more. 44 00:01:54,592 --> 00:01:57,421 As the battle to be number one heats up, 45 00:01:57,421 --> 00:01:58,814 That's my best and final offer. 46 00:01:58,814 --> 00:02:00,381 They wanted to buy the competition. 47 00:02:00,381 --> 00:02:02,078 It leads to big mistakes. 48 00:02:02,078 --> 00:02:03,688 We didn't do this. 49 00:02:03,688 --> 00:02:05,821 They start extending lines of credit to strangers. 50 00:02:05,821 --> 00:02:08,215 Pets got cards, children got cards. 51 00:02:08,215 --> 00:02:10,217 It was outrageous. 52 00:02:10,217 --> 00:02:12,828 And even bigger breakthroughs. 53 00:02:12,828 --> 00:02:15,613 This plastic card, it didn't get ripped and torn. 54 00:02:15,613 --> 00:02:18,094 That magnetic strip makes it much more secure. 55 00:02:18,094 --> 00:02:19,051 How secure is this? 56 00:02:19,051 --> 00:02:21,010 It's good enough for the CIA. 57 00:02:21,010 --> 00:02:24,405 Forever changing how people around the world, 58 00:02:24,405 --> 00:02:27,059 They shifted us from a cash-based economy 59 00:02:27,059 --> 00:02:28,670 to a plastic one. 60 00:02:28,670 --> 00:02:30,802 Pay for almost everything. 61 00:02:30,802 --> 00:02:32,804 It's one quick swipe and you're done. 62 00:02:53,825 --> 00:02:56,001 Today there are over a billion 63 00:02:56,001 --> 00:02:57,873 in circulation in the US alone. 64 00:02:59,179 --> 00:03:00,832 Globally, they're used to purchase 65 00:03:00,832 --> 00:03:04,358 $6 trillion of goods and services a year. 66 00:03:05,924 --> 00:03:07,056 But in 1949, 67 00:03:08,927 --> 00:03:11,669 credit cards don't exist. 68 00:03:11,669 --> 00:03:12,670 This was in the days where you either 69 00:03:12,670 --> 00:03:15,064 had to have cash or a check. 70 00:03:15,064 --> 00:03:16,152 That's it. 71 00:03:17,632 --> 00:03:20,983 Something all too familiar to Frank McNamara. 72 00:03:20,983 --> 00:03:24,160 Frank McNamara ran a company called Hamilton Credit, 73 00:03:24,160 --> 00:03:25,640 that made small commercial loans. 74 00:03:25,640 --> 00:03:28,033 But he is $35,000 in debt. 75 00:03:28,033 --> 00:03:30,949 Bill drops, go to reach for my wallet, 76 00:03:30,949 --> 00:03:31,733 what do you know? 77 00:03:34,736 --> 00:03:36,259 So what did you do? 78 00:03:36,259 --> 00:03:39,393 Ralph Schneider is McNamara's lawyer and friend. 79 00:03:39,393 --> 00:03:42,178 McNamara uses him whenever he needs to sue people 80 00:03:42,178 --> 00:03:44,311 for not paying back their small commercial loans. 81 00:03:44,311 --> 00:03:45,790 What do you think I did? 82 00:03:45,790 --> 00:03:47,314 I called my wife, told her to get down there 83 00:03:47,314 --> 00:03:48,750 and bring her purse. 84 00:03:48,750 --> 00:03:49,881 Why don't you tell them 85 00:03:49,881 --> 00:03:51,622 you'd come back tomorrow and settle up? 86 00:03:51,622 --> 00:03:56,018 Schneider is a working class guy, a mid-level lawyer, 87 00:03:56,018 --> 00:03:57,715 but he was growing profoundly 88 00:03:57,715 --> 00:04:00,327 disenchanted with the world of law 89 00:04:00,327 --> 00:04:02,938 and he wanted to build something of his own. 90 00:04:02,938 --> 00:04:04,418 I did. 91 00:04:04,418 --> 00:04:06,811 They just didn't want to hear it. 92 00:04:06,811 --> 00:04:09,379 Schneider thought, shouldn't there be an easier way 93 00:04:09,379 --> 00:04:12,164 to take out your family or take out your clients, 94 00:04:12,164 --> 00:04:13,775 and be able to pay for it? 95 00:04:13,775 --> 00:04:16,908 What if, what if we had something, 96 00:04:16,908 --> 00:04:19,650 some sort of proof to show that we were good for it? 97 00:04:19,650 --> 00:04:20,782 Like a card. 98 00:04:22,174 --> 00:04:23,393 A card? 99 00:04:23,393 --> 00:04:25,961 What, you mean like a greeting card? 100 00:04:25,961 --> 00:04:30,270 No, no. Like an official identification card. 101 00:04:34,448 --> 00:04:37,712 A light bulb goes off in his head. 102 00:04:37,712 --> 00:04:40,323 What if there was some way to pay for your meal, 103 00:04:40,323 --> 00:04:41,759 without having to carry a checkbook 104 00:04:41,759 --> 00:04:43,544 or go to the bank for cash? 105 00:04:43,544 --> 00:04:46,286 A way to charge your dinner. 106 00:04:46,286 --> 00:04:48,418 Convinced they might be onto something big, 107 00:04:48,418 --> 00:04:51,987 Schneider and McNamara take out a $30,000 loan 108 00:04:51,987 --> 00:04:55,382 and go all in on their radical idea. 109 00:04:55,382 --> 00:04:57,209 At the time, cash was king, 110 00:04:57,209 --> 00:04:59,473 but McNamara was determined to change that. 111 00:04:59,473 --> 00:05:01,301 New business here in Midtown Manhattan. 112 00:05:01,301 --> 00:05:02,824 Yes, my name is Ralph Schneider. 113 00:05:02,824 --> 00:05:04,565 Ralph Schneider believes 114 00:05:04,565 --> 00:05:07,219 that with enough vision and proper management, 115 00:05:07,219 --> 00:05:08,917 he's going to have a hit. 116 00:05:08,917 --> 00:05:12,312 So they're gonna work together to make this a success. 117 00:05:12,312 --> 00:05:14,096 Yes, it is called a charge card. 118 00:05:14,096 --> 00:05:16,316 The idea of a credit card is so new and strange, 119 00:05:16,316 --> 00:05:17,621 they're not even sure where to begin. 120 00:05:17,621 --> 00:05:19,580 They just launch dead ahead, 121 00:05:19,580 --> 00:05:21,582 trying to convince restaurants to get on board. 122 00:05:21,582 --> 00:05:22,409 Is this the Sea Breeze? 123 00:05:22,409 --> 00:05:23,845 City Kitchen? 124 00:05:23,845 --> 00:05:25,890 They went to a variety of high-end restaurants, 125 00:05:25,890 --> 00:05:27,414 right in Midtown. 126 00:05:27,414 --> 00:05:29,633 They're not looking for your mom and pop diner. 127 00:05:29,633 --> 00:05:31,548 That's easy to pay for with cash. 128 00:05:31,548 --> 00:05:33,202 They want a place that's going to have 129 00:05:33,202 --> 00:05:35,422 the bill at the end of the meal be sizable. 130 00:05:35,422 --> 00:05:36,684 Can I explain it again? 131 00:05:36,684 --> 00:05:38,207 Customers would present 132 00:05:38,207 --> 00:05:41,123 this exclusive card at the end of the meal 133 00:05:41,123 --> 00:05:44,605 and the meal would go on Schneider and McNamara's tab. 134 00:05:44,605 --> 00:05:46,868 The customer would then be responsible 135 00:05:46,868 --> 00:05:48,957 for paying Schneider and McNamara back. 136 00:05:48,957 --> 00:05:50,175 We hold ourselves responsible 137 00:05:50,175 --> 00:05:51,742 to pay at the end of every month. 138 00:05:51,742 --> 00:05:54,528 As long as customers pay their bills on time, 139 00:05:54,528 --> 00:05:56,443 Schneider and McNamara don't charge them 140 00:05:56,443 --> 00:05:57,748 any kind of interest rate, 141 00:05:57,748 --> 00:05:59,184 but they make money on the other end. 142 00:05:59,184 --> 00:06:00,882 Seven percent. 143 00:06:00,882 --> 00:06:03,885 They've charged the restaurant 7% of each bill. 144 00:06:03,885 --> 00:06:05,887 You'll more than make your money back, promise you. 145 00:06:05,887 --> 00:06:07,845 And they'd say, if more of you take on this credit card, 146 00:06:07,845 --> 00:06:09,412 you'll find that the clients 147 00:06:09,412 --> 00:06:12,502 are coming to spend more money at your restaurant. 148 00:06:12,502 --> 00:06:13,677 Unfortunately, 149 00:06:13,677 --> 00:06:14,852 - Hello? - Hello. 150 00:06:16,724 --> 00:06:18,639 No one's willing to take a chance 151 00:06:18,639 --> 00:06:21,076 on their unconventional concept. 152 00:06:21,076 --> 00:06:22,904 It's a really odd sales pitch, 153 00:06:22,904 --> 00:06:24,296 if you think about it. 154 00:06:24,296 --> 00:06:26,342 Pay us a fee, so strangers you have never met 155 00:06:26,342 --> 00:06:27,561 can buy goods from you? 156 00:06:28,866 --> 00:06:29,650 Yes, good evening. 157 00:06:29,650 --> 00:06:30,912 Frank McNamara. 158 00:06:30,912 --> 00:06:32,087 My name is Ralph Schneider with, 159 00:06:33,001 --> 00:06:34,002 My name is Ralph Schneider. 160 00:06:34,002 --> 00:06:35,090 Frank McNamara, I'm calling. 161 00:06:35,090 --> 00:06:36,091 Yes, good evening. This is, 162 00:06:36,091 --> 00:06:37,222 Yeah, Frank McNamara calling, 163 00:06:38,963 --> 00:06:39,703 Yeah, I just wanted to talk to you. 164 00:06:39,703 --> 00:06:41,444 Are you still there? 165 00:06:41,444 --> 00:06:42,924 Maybe you wanna think about it? 166 00:06:43,751 --> 00:06:44,708 Yes, that's correct. 167 00:06:44,708 --> 00:06:46,580 Okay. 168 00:06:49,365 --> 00:06:52,150 Okay, great. I look forward to it, too. 169 00:06:52,150 --> 00:06:53,021 Thank you. 170 00:06:54,457 --> 00:06:56,111 Finally, after a week of NOs, 171 00:06:58,156 --> 00:06:59,506 We got a yes. 172 00:07:02,683 --> 00:07:06,426 Little by little, they get 11 restaurants signed up, 173 00:07:06,426 --> 00:07:09,124 growing outwards from Midtown Manhattan. 174 00:07:09,124 --> 00:07:10,908 Then, they turned their attention 175 00:07:10,908 --> 00:07:12,780 to recruiting customers. 176 00:07:12,780 --> 00:07:15,783 So who do they target? Salesmen. 177 00:07:15,783 --> 00:07:17,001 These were people who would be 178 00:07:17,001 --> 00:07:18,873 taking clients out for business dinners 179 00:07:18,873 --> 00:07:22,354 and really needed an easier way to pay for it. 180 00:07:22,354 --> 00:07:24,182 But to take advantage of the card, 181 00:07:24,182 --> 00:07:26,620 you had to pay the full balance at the end of the month. 182 00:07:26,620 --> 00:07:28,360 If you didn't, you would just be shut off 183 00:07:28,360 --> 00:07:29,536 and you wouldn't be able to continue using it. 184 00:07:29,536 --> 00:07:31,363 So if you're a consumer, 185 00:07:31,363 --> 00:07:33,453 obviously you're unsure about this. 186 00:07:33,453 --> 00:07:34,802 Yet in two weeks, 187 00:07:34,802 --> 00:07:37,631 they managed to get 100 salesmen on board. 188 00:07:39,676 --> 00:07:42,113 Now, all they need is the actual card. 189 00:07:44,420 --> 00:07:46,291 Possibly inspired by 190 00:07:46,291 --> 00:07:48,990 this incredibly embarrassing experience that McNamara has, 191 00:07:48,990 --> 00:07:51,514 they figured that the card should be 192 00:07:51,514 --> 00:07:54,169 small enough to fit into your wallet, 193 00:07:54,169 --> 00:07:57,564 so that you have it in just such an emergency. 194 00:07:57,564 --> 00:07:59,566 The embarrassing dining experience 195 00:07:59,566 --> 00:08:04,309 also inspires the card's name, the Diners Club. 196 00:08:05,528 --> 00:08:07,312 When we say the word credit card, 197 00:08:07,312 --> 00:08:10,490 today, we always are talking about a piece of plastic. 198 00:08:10,490 --> 00:08:13,231 This was not the case back then. 199 00:08:13,231 --> 00:08:16,365 The first Diners Club card was flimsy paper 200 00:08:16,365 --> 00:08:18,323 and it had your name printed on it. 201 00:08:18,323 --> 00:08:20,369 When you're used to paying cash for everything 202 00:08:20,369 --> 00:08:21,892 and now someone gives you a piece of paper 203 00:08:21,892 --> 00:08:25,026 and says you don't need cash, that is unique. 204 00:08:25,026 --> 00:08:27,376 On February 8th, 1950, 205 00:08:27,376 --> 00:08:31,336 the world's first charge card officially launches. 206 00:08:33,469 --> 00:08:35,340 So like with anything new, 207 00:08:35,340 --> 00:08:37,647 Diners Club was slow to catch on. 208 00:08:37,647 --> 00:08:38,648 But as members see 209 00:08:38,648 --> 00:08:40,345 how convenient the card is, 210 00:08:40,345 --> 00:08:42,347 word spreads quickly. 211 00:08:42,347 --> 00:08:43,784 This card is a status symbol. 212 00:08:43,784 --> 00:08:45,046 To be able to whip this out 213 00:08:45,046 --> 00:08:46,613 at the end of a business meal, 214 00:08:46,613 --> 00:08:47,831 and charge it. 215 00:08:47,831 --> 00:08:49,833 It's very, very cool. 216 00:08:49,833 --> 00:08:51,661 And the customers with Diner Clubs 217 00:08:51,661 --> 00:08:54,882 were, in fact, more apt to spend more money in a restaurant. 218 00:08:54,882 --> 00:08:59,539 Let's that extra prime rib roast, for everyone. 219 00:08:59,539 --> 00:09:03,107 It's on me, I've got a Diners Club card. 220 00:09:03,107 --> 00:09:04,892 As more restaurants across Manhattan 221 00:09:04,892 --> 00:09:07,895 accept the card, membership grows. 222 00:09:07,895 --> 00:09:09,287 By the end of 1950, 223 00:09:09,287 --> 00:09:13,030 they had 20,000 members all over New York. 224 00:09:13,030 --> 00:09:15,424 A year later, that number more than doubles 225 00:09:15,424 --> 00:09:18,993 to 42,000 throughout New York City. 226 00:09:23,563 --> 00:09:25,869 More and more people signed up for Diners Club, 227 00:09:25,869 --> 00:09:28,306 but Schneider and McNamara looked at each other. 228 00:09:28,306 --> 00:09:29,873 Where's the money? 229 00:09:29,873 --> 00:09:32,702 Two years, 42,000 members, 230 00:09:32,702 --> 00:09:35,183 and yet somehow we ended up 231 00:09:35,183 --> 00:09:36,924 losing more money than we started with. 232 00:09:37,925 --> 00:09:39,491 Their only stream of revenue 233 00:09:39,491 --> 00:09:42,277 was making a small percentage off each transaction, 234 00:09:42,277 --> 00:09:44,409 but they still had to pay for overhead, 235 00:09:44,409 --> 00:09:48,022 accounting fees and customers who don't pay their bill, 236 00:09:48,022 --> 00:09:49,545 so they were losing money. 237 00:09:49,545 --> 00:09:51,286 By early 1952, 238 00:09:51,286 --> 00:09:53,549 they're over $58,000 in debt, 239 00:09:54,811 --> 00:09:58,946 or roughly $700,000 in today's money. 240 00:09:58,946 --> 00:10:01,165 Staring at it's not gonna change it. 241 00:10:01,165 --> 00:10:03,298 The debt really put a strain on their relationship 242 00:10:03,298 --> 00:10:05,126 and they started to have different outlooks 243 00:10:05,126 --> 00:10:06,736 on the future of the company. 244 00:10:07,955 --> 00:10:09,739 I've been thinking. 245 00:10:09,739 --> 00:10:14,135 What if we charge a small membership fee, just $5 a year? 246 00:10:14,135 --> 00:10:16,398 Schneider thought the key to making money 247 00:10:16,398 --> 00:10:18,835 was to charge an annual fee, 248 00:10:18,835 --> 00:10:22,317 but McNamara was not too excited about this idea. 249 00:10:22,317 --> 00:10:24,188 I can't keep doing this anymore. 250 00:10:24,188 --> 00:10:25,015 Frank? 251 00:10:25,015 --> 00:10:25,799 No. 252 00:10:29,454 --> 00:10:31,979 McNamara really didn't see the potential of Diners Club 253 00:10:31,979 --> 00:10:33,981 in the way that Ralph Schneider did. 254 00:10:33,981 --> 00:10:36,766 I'm sorry, I'm out. 255 00:10:36,766 --> 00:10:39,377 Just two years after co-founding Diners Club, 256 00:10:39,377 --> 00:10:41,815 McNamara sells his share of the company 257 00:10:41,815 --> 00:10:44,469 back to Schneider for $200,000. 258 00:10:45,732 --> 00:10:46,950 Well, it's hard to know 259 00:10:46,950 --> 00:10:47,777 whether it was just too much stress 260 00:10:47,777 --> 00:10:48,952 or he was just restless, 261 00:10:48,952 --> 00:10:50,650 but McNamara cashed out, 262 00:10:50,650 --> 00:10:52,695 left the finance business entirely 263 00:10:52,695 --> 00:10:54,915 and became an executive at a lumber company. 264 00:10:54,915 --> 00:10:58,179 Now, Ralph Schneider is at a crossroads. 265 00:10:58,179 --> 00:11:00,137 This is definitely a make-or-break moment 266 00:11:00,137 --> 00:11:01,704 for Diners Club. 267 00:11:01,704 --> 00:11:03,575 Do you soldier on and try to make a profit, 268 00:11:03,575 --> 00:11:05,012 or do you cut your losses 269 00:11:05,012 --> 00:11:06,361 and move on to the next idea? 270 00:11:12,715 --> 00:11:14,499 In 1952, just two years 271 00:11:14,499 --> 00:11:16,240 after co-founding Diners Club, 272 00:11:16,240 --> 00:11:19,374 Frank McNamara has thrown in the towel, 273 00:11:19,374 --> 00:11:21,681 but Ralph Schneider isn't ready to give up. 274 00:11:22,812 --> 00:11:25,641 Even with mounting debts, 275 00:11:25,641 --> 00:11:28,470 Ralph Schneider knows he's already got a customer base 276 00:11:28,470 --> 00:11:30,864 and he believes he can grow Diners Club 277 00:11:30,864 --> 00:11:33,170 far beyond the island of Manhattan. 278 00:11:34,694 --> 00:11:35,999 In a last ditch effort, 279 00:11:35,999 --> 00:11:38,393 he gambles on an unconventional idea, 280 00:11:39,786 --> 00:11:41,222 pioneering what will become 281 00:11:41,222 --> 00:11:44,486 a staple for the credit card industry. 282 00:11:44,486 --> 00:11:46,575 Yes, correct. They will pay $5 a year. 283 00:11:48,185 --> 00:11:51,058 The annual fee. 284 00:11:51,058 --> 00:11:52,407 Ralph Schneider started charging 285 00:11:52,407 --> 00:11:55,410 a membership fee of $5 a year for Diners Club. 286 00:11:55,410 --> 00:11:57,194 This was a brand new concept. 287 00:11:57,194 --> 00:11:58,500 It wasn't very common then. 288 00:11:58,500 --> 00:11:59,501 It wasn't like it was today, 289 00:11:59,501 --> 00:12:01,938 so, it was certainly a risk. 290 00:12:01,938 --> 00:12:06,029 But surprisingly, he saw use of the credit card increase 291 00:12:06,029 --> 00:12:08,510 'cause the customers want to get their money's worth. 292 00:12:08,510 --> 00:12:10,381 So, they used it more often. 293 00:12:10,381 --> 00:12:12,427 By the end of 1953, 294 00:12:12,427 --> 00:12:15,169 Diners Club finally starts turning a profit, 295 00:12:15,169 --> 00:12:18,825 raking in as much as $6 million a year, 296 00:12:18,825 --> 00:12:21,697 allowing Schneider to expand to restaurants 297 00:12:21,697 --> 00:12:23,264 well beyond New York 298 00:12:23,264 --> 00:12:26,920 and rebrand as Diners Club International. 299 00:12:26,920 --> 00:12:28,269 In its first five years, 300 00:12:28,269 --> 00:12:30,750 Diners Club extended to having offices 301 00:12:30,750 --> 00:12:33,665 in London, in Frankfurt and Paris. 302 00:12:33,665 --> 00:12:37,626 And so, this really made the card applicable globally. 303 00:12:37,626 --> 00:12:38,758 The first charge card 304 00:12:38,758 --> 00:12:40,760 accepted around the world, 305 00:12:40,760 --> 00:12:43,414 Diners Club is in a class by itself. 306 00:12:44,676 --> 00:12:46,896 But their meteoric success 307 00:12:46,896 --> 00:12:50,987 unwittingly inspires a banker 3000 miles away, 308 00:12:50,987 --> 00:12:52,946 desperate to climb the corporate ladder. 309 00:12:54,686 --> 00:12:56,906 JP Williams is originally from Philadelphia, 310 00:12:56,906 --> 00:12:59,735 moved out west to California after World War II 311 00:12:59,735 --> 00:13:01,389 and then got a job at one of 312 00:13:01,389 --> 00:13:04,871 the largest regional banks, Bank of America. 313 00:13:04,871 --> 00:13:06,742 Williams has recently been put in charge 314 00:13:06,742 --> 00:13:08,613 of finding ways to increase 315 00:13:08,613 --> 00:13:10,877 the bank's meager profit margins. 316 00:13:10,877 --> 00:13:12,400 Prior to World War II, 317 00:13:12,400 --> 00:13:14,663 a lot of energy in banking 318 00:13:14,663 --> 00:13:18,275 was spent approving smaller personal loans. 319 00:13:18,275 --> 00:13:22,366 They'd take the same amount of time as a really large loan 320 00:13:22,366 --> 00:13:24,804 and Williams felt it wasn't really worth their time. 321 00:13:26,283 --> 00:13:27,632 Now, Williams thinks 322 00:13:27,632 --> 00:13:30,070 he can improve on the Diners Club model 323 00:13:30,070 --> 00:13:32,333 with a totally new kind of card. 324 00:13:36,250 --> 00:13:37,294 The BankAmericard. 325 00:13:39,906 --> 00:13:41,342 Not limited to restaurants, 326 00:13:43,561 --> 00:13:47,348 accepted everywhere in the state of California. 327 00:13:47,348 --> 00:13:49,524 It's genius, because Diners Club 328 00:13:49,524 --> 00:13:52,396 had carved its niche in restaurants 329 00:13:52,396 --> 00:13:54,355 and the Bank of America really wanted 330 00:13:54,355 --> 00:13:57,184 it to be accepted everywhere. 331 00:13:57,184 --> 00:14:00,187 To incentivize more businesses to accept their card, 332 00:14:00,187 --> 00:14:02,363 JP Williams boldly says 333 00:14:02,363 --> 00:14:06,758 that he's only gonna charge merchants 6% of the total price, 334 00:14:06,758 --> 00:14:10,414 1% less than Diners Club. 335 00:14:10,414 --> 00:14:12,547 But Bank of America was based in California 336 00:14:12,547 --> 00:14:14,505 and there were a lot of regulations in place 337 00:14:14,505 --> 00:14:15,855 where they could only do banking 338 00:14:15,855 --> 00:14:18,074 in the state that they were based. 339 00:14:18,074 --> 00:14:20,381 So, JP Williams convinced his bosses 340 00:14:20,381 --> 00:14:23,123 that it was a great opportunity to test the concept, 341 00:14:23,123 --> 00:14:25,516 to see if it was something they wanted to take nationally. 342 00:14:25,516 --> 00:14:26,648 And Williams thinks 343 00:14:26,648 --> 00:14:28,824 he's found the perfect place. 344 00:14:28,824 --> 00:14:32,001 Bank of America decided to limit their exposure 345 00:14:32,001 --> 00:14:35,004 by testing it in one marketplace. 346 00:14:35,004 --> 00:14:36,658 So, they sent out credit cards 347 00:14:36,658 --> 00:14:38,660 to their clients in Fresno, 348 00:14:38,660 --> 00:14:41,228 even if they haven't asked for these credit cards, 349 00:14:41,228 --> 00:14:43,883 and it's known as the Fresno Drop. 350 00:14:43,883 --> 00:14:46,668 At the time, you have to think how crazy this was, 351 00:14:46,886 --> 00:14:48,583 how revolutionary this was. 352 00:14:48,583 --> 00:14:51,803 You open your mail and you get a credit card. 353 00:14:51,803 --> 00:14:54,154 On September 18th, 1958, 354 00:14:54,154 --> 00:14:56,591 60,000 Bank of America clients 355 00:14:56,591 --> 00:14:58,854 suddenly get lines of credit, 356 00:14:58,854 --> 00:15:02,684 each equivalent to more than $3,000 today. 357 00:15:02,684 --> 00:15:04,904 Now you have 60,000 people 358 00:15:04,904 --> 00:15:06,949 excited about this piece of paper, 359 00:15:06,949 --> 00:15:09,256 which allows you to buy goods and services 360 00:15:09,256 --> 00:15:12,694 that normally you may not have cash in hand to buy. 361 00:15:12,694 --> 00:15:15,088 So, the economy is jump started. 362 00:15:16,393 --> 00:15:18,265 You'd be at your local department store 363 00:15:18,265 --> 00:15:21,529 and the sales clerk would be handwriting the information 364 00:15:21,529 --> 00:15:22,922 that was on your credit card. 365 00:15:22,922 --> 00:15:24,575 It was quite a lengthy process, 366 00:15:24,575 --> 00:15:26,621 but people would be gathered behind you, 367 00:15:26,621 --> 00:15:28,971 taking a look at how it really works. 368 00:15:28,971 --> 00:15:30,059 While it's revolutionary 369 00:15:30,059 --> 00:15:32,366 to offer a credit card to anyone, 370 00:15:32,366 --> 00:15:34,890 it's also a much bigger risk. 371 00:15:34,890 --> 00:15:36,283 They just flooded the market 372 00:15:36,283 --> 00:15:39,460 with no fraud protection, no credit checks. 373 00:15:39,460 --> 00:15:41,810 Anyone and everyone with a pulse 374 00:15:41,810 --> 00:15:43,812 could use one of these BankAmericards. 375 00:15:43,812 --> 00:15:45,683 But if people weren't paying them on time, 376 00:15:45,683 --> 00:15:47,947 or if a customer defaults on that debt, 377 00:15:47,947 --> 00:15:49,774 this wouldn't work out that great. 378 00:15:49,774 --> 00:15:51,472 It could spell complete and total 379 00:15:51,472 --> 00:15:54,083 disaster and failure for the company. 380 00:15:57,043 --> 00:15:58,392 Meanwhile, 381 00:15:58,392 --> 00:16:00,307 less than two weeks later in New York City, 382 00:16:00,307 --> 00:16:02,831 a senior executive at a financial company 383 00:16:02,831 --> 00:16:05,965 is also looking to cash in on credit cards. 384 00:16:07,662 --> 00:16:09,794 Any plans for the weekend? 385 00:16:09,794 --> 00:16:11,013 I was thinking of taking the wife 386 00:16:11,013 --> 00:16:12,101 over to check out that new restaurant 387 00:16:12,101 --> 00:16:13,102 that opened on Seventh. 388 00:16:13,102 --> 00:16:14,625 Yeah, that'd be great. 389 00:16:14,625 --> 00:16:17,498 Howard Clark went to several Ivy League schools, 390 00:16:17,498 --> 00:16:19,195 including Harvard and Columbia. 391 00:16:19,195 --> 00:16:21,632 So this is a guy who's extremely driven 392 00:16:21,632 --> 00:16:24,505 and wants to be a key player in the credit card space. 393 00:16:25,636 --> 00:16:26,681 You have one of these? 394 00:16:27,595 --> 00:16:29,075 I've heard of them. 395 00:16:29,075 --> 00:16:30,990 $6 million idea, 396 00:16:32,426 --> 00:16:34,906 but you could only use it in restaurants. 397 00:16:34,906 --> 00:16:36,343 And not this one. 398 00:16:36,343 --> 00:16:37,909 Over the last couple of years, 399 00:16:37,909 --> 00:16:40,564 Howard Clark sees the success of Diners Club 400 00:16:40,564 --> 00:16:43,089 and he wants to launch a credit card too, 401 00:16:43,089 --> 00:16:47,832 but his dilemma is, how do I make mine stand out? 402 00:16:48,833 --> 00:16:49,878 All right, what's your pitch? 403 00:16:51,836 --> 00:16:53,012 We issue our own card, 404 00:16:55,057 --> 00:16:56,711 open it up to all kinds of businesses. 405 00:16:58,278 --> 00:16:59,540 How's that any different 406 00:16:59,540 --> 00:17:01,498 from what Bank of America's doing? 407 00:17:01,498 --> 00:17:04,458 BankAmericard is only good in California. 408 00:17:04,458 --> 00:17:06,155 We're not a bank, 409 00:17:06,155 --> 00:17:09,463 which means we can operate in any state we want to. 410 00:17:09,463 --> 00:17:11,204 The company Clark works for 411 00:17:11,204 --> 00:17:13,293 is a former package delivery service 412 00:17:13,293 --> 00:17:16,557 called American Express. 413 00:17:17,949 --> 00:17:19,299 In the mid 1850s, 414 00:17:19,299 --> 00:17:21,083 American Express was born 415 00:17:21,083 --> 00:17:23,651 and they were essentially a package delivery service 416 00:17:23,651 --> 00:17:27,046 trying to rival the United States Postal Service. 417 00:17:27,046 --> 00:17:30,310 They then expand their business in the late 1800s, 418 00:17:30,310 --> 00:17:33,878 and they start doing travelers checks and money orders, 419 00:17:33,878 --> 00:17:35,924 which become their primary business 420 00:17:35,924 --> 00:17:38,057 for the next seven or eight decades. 421 00:17:38,057 --> 00:17:39,841 Now, Clark is convinced 422 00:17:39,841 --> 00:17:42,887 that the company's future is in credit cards, 423 00:17:42,887 --> 00:17:44,846 but he wants his to feel unique. 424 00:17:46,108 --> 00:17:48,415 Diners Club charges a $5 annual fee? 425 00:17:50,199 --> 00:17:51,418 Let's undercut them at four. 426 00:17:52,549 --> 00:17:57,076 No, we charge a dollar more. 427 00:17:57,076 --> 00:17:59,078 The idea with American Express 428 00:17:59,078 --> 00:18:01,906 was exclusivity, cache, 429 00:18:01,906 --> 00:18:05,780 setting themselves up as the higher breed of credit card. 430 00:18:05,780 --> 00:18:10,219 Now, we're the premium card. 431 00:18:10,219 --> 00:18:11,786 Clark's ambitious plan 432 00:18:11,786 --> 00:18:14,484 will ignite a credit card frenzy, 433 00:18:14,484 --> 00:18:17,444 as three rival companies across the country 434 00:18:17,444 --> 00:18:21,274 race to make their card the only one in peoples' wallets. 435 00:25:41,061 --> 00:25:43,019 The Diners Club International 436 00:25:43,019 --> 00:25:46,196 would like to purchase the American Express credit card. 437 00:25:47,807 --> 00:25:52,551 All rights, products, services, and trademarks. 438 00:26:03,692 --> 00:26:05,172 They wanted to buy the competition, 439 00:26:05,172 --> 00:26:07,740 because they wanted to expand into the travel business 440 00:26:07,740 --> 00:26:09,568 that American Express already had. 441 00:26:11,047 --> 00:26:12,658 That's my best and final offer. 442 00:26:16,400 --> 00:26:18,359 Howard Clark was recently made president 443 00:26:18,359 --> 00:26:20,100 of all of American Express, 444 00:26:20,100 --> 00:26:22,885 so he wants to focus on what the company does best 445 00:26:22,885 --> 00:26:25,366 which is travelers checks, money orders, 446 00:26:25,366 --> 00:26:27,020 and their newest operation, 447 00:26:27,020 --> 00:26:28,978 which is corporate loans. 448 00:26:28,978 --> 00:26:31,415 So selling off the credit card division 449 00:26:31,415 --> 00:26:33,592 would be the simple answer to all of his problems. 450 00:26:42,035 --> 00:26:43,471 I appreciate the offer, 451 00:26:47,388 --> 00:26:49,477 but it's not for sale. 452 00:26:49,477 --> 00:26:52,915 But Ralph Schneider's offer backfires on him. 453 00:26:52,915 --> 00:26:54,656 When Howard Clark realizes, hey, 454 00:26:54,656 --> 00:26:56,702 my company must have enough value 455 00:26:56,702 --> 00:26:57,833 that the industry leader 456 00:26:57,833 --> 00:26:59,618 is trying to take me off the board. 457 00:27:00,488 --> 00:27:01,315 Good luck. 458 00:27:02,838 --> 00:27:04,753 So, he decides he's gonna stay in the game 459 00:27:04,753 --> 00:27:07,626 and rejects the offer from Diners Club. 460 00:27:07,626 --> 00:27:10,063 Now Clark needs to make sure 461 00:27:10,063 --> 00:27:13,153 he didn't just make the biggest mistake of his career. 462 00:27:16,286 --> 00:27:19,159 Across the country in 1961, 463 00:27:19,159 --> 00:27:22,075 Bank of America hires a new senior director 464 00:27:22,075 --> 00:27:24,817 to clean up JP Williams' costly mistake. 465 00:27:27,602 --> 00:27:30,692 Rudy Peterson had experience loaning people money 466 00:27:30,692 --> 00:27:33,260 during the depression for things like refrigerators, 467 00:27:33,260 --> 00:27:35,175 but a lot of people couldn't pay their bills. 468 00:27:35,175 --> 00:27:38,265 And so, his experience in telling 469 00:27:38,265 --> 00:27:40,223 whether someone was a good or a bad credit risk 470 00:27:40,223 --> 00:27:42,356 became very vital. 471 00:27:42,356 --> 00:27:44,271 Peterson convinces the top brass 472 00:27:44,271 --> 00:27:46,142 that he can make BankAmericard 473 00:27:46,142 --> 00:27:47,535 the number one card in the world, 474 00:27:49,885 --> 00:27:54,281 and his first idea is to copy American Express. 475 00:27:54,281 --> 00:27:57,893 Even though Amex was struggling financially, 476 00:27:57,893 --> 00:28:00,679 Peterson could see that this plastic card 477 00:28:00,679 --> 00:28:02,942 was the future of the industry. 478 00:28:02,942 --> 00:28:03,943 But Peterson knows 479 00:28:03,943 --> 00:28:05,814 a plastic version of their card 480 00:28:05,814 --> 00:28:07,816 will not be enough to become number one. 481 00:28:09,600 --> 00:28:12,778 He establishes some guardrails around these credit cards 482 00:28:12,778 --> 00:28:15,781 for both the company and for consumers. 483 00:28:15,781 --> 00:28:19,132 He created one of the first anti-fraud units, 484 00:28:19,132 --> 00:28:21,830 closing accounts when people are using them improperly, 485 00:28:21,830 --> 00:28:24,224 late charges start under him, 486 00:28:24,224 --> 00:28:27,793 and instead of small businesses paying 6% transaction fees, 487 00:28:27,793 --> 00:28:29,359 now they're down to 3%, 488 00:28:29,359 --> 00:28:31,797 which makes them more eager to allow 489 00:28:31,797 --> 00:28:33,799 people to use credit cards in those businesses 490 00:28:33,799 --> 00:28:35,365 all over the California market. 491 00:28:38,673 --> 00:28:40,893 Less than a year into Peterson's new role, 492 00:28:40,893 --> 00:28:43,765 BankAmericard sees its first profit, 493 00:28:43,765 --> 00:28:48,596 clearing $179,000 by the end of 1961. 494 00:28:49,945 --> 00:28:51,860 He cleans up the mess left by Williams 495 00:28:51,860 --> 00:28:54,776 and he helps establish credit cards 496 00:28:54,776 --> 00:28:58,084 as a more legitimate business for the bank. 497 00:28:58,084 --> 00:28:59,563 But instead of celebrating, 498 00:28:59,563 --> 00:29:01,914 Peterson takes a different approach. 499 00:29:03,393 --> 00:29:05,308 Don't publish that. 500 00:29:05,308 --> 00:29:08,094 I mean, normally you want to advertise your success 501 00:29:08,094 --> 00:29:10,487 to increase usage and revenue, 502 00:29:10,487 --> 00:29:13,403 but Peterson sees that as counterproductive. 503 00:29:13,403 --> 00:29:15,101 He actually wants people to believe 504 00:29:15,101 --> 00:29:16,842 that his business is failing, 505 00:29:16,842 --> 00:29:18,887 to discourage competitors 506 00:29:18,887 --> 00:29:21,281 from entering into the business, into the industry, 507 00:29:21,281 --> 00:29:22,848 before he's had a chance to figure out 508 00:29:22,848 --> 00:29:24,327 how to go national first. 509 00:29:24,327 --> 00:29:26,460 It's a risky move. 510 00:29:26,460 --> 00:29:27,591 While the BankAmericard 511 00:29:27,591 --> 00:29:29,550 begins to rise from the ashes, 512 00:29:33,728 --> 00:29:34,860 Let me call you back. 513 00:29:37,036 --> 00:29:38,646 We've got a problem. 514 00:29:38,646 --> 00:29:40,561 American Express is in danger 515 00:29:40,561 --> 00:29:43,129 of going into freefall. 516 00:29:43,129 --> 00:29:46,045 In the 1960s, Amex had begun giving 517 00:29:46,045 --> 00:29:49,613 massive corporate loans to various businesses. 518 00:29:49,613 --> 00:29:51,964 One of the largest recipients 519 00:29:51,964 --> 00:29:56,533 was the Allied Corporation, who made soybean oil. 520 00:29:56,533 --> 00:29:59,580 On the surface, Allied was 521 00:29:59,580 --> 00:30:02,931 this really successful, thriving company, 522 00:30:02,931 --> 00:30:06,065 but it was all smoke and mirrors. 523 00:30:06,065 --> 00:30:10,809 Allied was filling their soybean tanks with 90% water. 524 00:30:11,810 --> 00:30:13,202 They were defrauding investors, 525 00:30:13,202 --> 00:30:16,075 defrauding the government and defrauding Amex. 526 00:30:16,075 --> 00:30:19,992 And now American Express is left holding the bag 527 00:30:19,992 --> 00:30:22,690 on these millions of dollars worth of loans. 528 00:30:24,170 --> 00:30:26,607 After news of the scandal breaks, 529 00:30:26,607 --> 00:30:30,350 Allied files for bankruptcy on November 19th, 1963. 530 00:30:31,960 --> 00:30:34,223 So American Express is now on the hook 531 00:30:34,223 --> 00:30:36,443 for tens of millions of dollars that they loaned out, 532 00:30:36,443 --> 00:30:40,273 based on this faulty tankers full of oil. 533 00:30:40,273 --> 00:30:43,537 American Express is this trusted financial authority, 534 00:30:43,537 --> 00:30:46,366 who trusted a bunch of crooks. 535 00:30:46,366 --> 00:30:49,238 And however they choose to react to this 536 00:30:49,238 --> 00:30:51,284 is going to determine their future. 537 00:30:51,284 --> 00:30:53,329 We're not required to cover the debt. 538 00:30:53,329 --> 00:30:56,724 And now the decision to turn down the Diners Club offer 539 00:30:56,724 --> 00:30:58,552 seems like it was a massive error. 540 00:31:04,732 --> 00:31:07,604 In 1963, American Express is 541 00:31:07,604 --> 00:31:10,259 at the center of a massive scandal, 542 00:31:10,259 --> 00:31:13,045 leaving them on the hook for millions of dollars 543 00:31:13,045 --> 00:31:15,003 in bad commercial loans. 544 00:31:15,003 --> 00:31:16,222 Legally, we're not liable. 545 00:31:17,788 --> 00:31:19,921 Our counsel is saying because it was fraud, 546 00:31:19,921 --> 00:31:22,228 we're not required to cover the debt. 547 00:31:22,228 --> 00:31:24,143 So facing a massive, 548 00:31:24,143 --> 00:31:28,887 if not career ending, blow to American Express's reputation, 549 00:31:30,018 --> 00:31:31,846 Clark chooses to do something 550 00:31:31,846 --> 00:31:33,543 that no one could have predicted. 551 00:31:34,805 --> 00:31:35,589 What if we did? 552 00:31:39,810 --> 00:31:41,073 What if we did cover the debt? 553 00:31:43,075 --> 00:31:44,990 He starts paying back the loans. 554 00:31:44,990 --> 00:31:46,687 American Express ends up shelling out 555 00:31:46,687 --> 00:31:49,733 about $60 million to cover these debts, 556 00:31:49,733 --> 00:31:51,648 and that is a big risk, 557 00:31:51,648 --> 00:31:53,912 but it also sends a signal to small businesses 558 00:31:53,912 --> 00:31:56,218 that if a customer who's using 559 00:31:56,218 --> 00:31:58,655 an American Express credit card defaults on that debt, 560 00:31:58,655 --> 00:32:00,048 that that small business is not gonna be 561 00:32:00,048 --> 00:32:01,441 on the hook for that money, 562 00:32:01,441 --> 00:32:05,053 and that builds confidence in American Express. 563 00:32:05,053 --> 00:32:08,709 Thanks to Clark's bold decision, by 1964, 564 00:32:08,709 --> 00:32:11,930 American Express hits more than 1 million card holders, 565 00:32:13,496 --> 00:32:16,456 double the number from just three years ago, 566 00:32:16,456 --> 00:32:17,892 and is accepted in roughly 567 00:32:17,892 --> 00:32:21,896 85,000 establishments around the world. 568 00:32:21,896 --> 00:32:24,855 Credit cards before this point weren't really trusted, 569 00:32:24,855 --> 00:32:27,075 but the simple decision to pay 570 00:32:27,075 --> 00:32:29,643 their creditors back $60 million, 571 00:32:30,949 --> 00:32:33,821 gives people confidence and reinvigorates 572 00:32:33,821 --> 00:32:36,084 the entire credit card industry as a whole. 573 00:32:37,912 --> 00:32:40,045 But not everyone reaps the rewards 574 00:32:40,045 --> 00:32:41,481 of this credit card boom. 575 00:32:43,091 --> 00:32:46,442 In 1964, Diners Club president Ralph Schneider 576 00:32:46,442 --> 00:32:50,272 unexpectedly dies at the age of 55. 577 00:32:50,272 --> 00:32:52,840 Today it's hard to imagine a world without credit cards, 578 00:32:52,840 --> 00:32:55,147 but what's amazing is that Diners Club, 579 00:32:55,147 --> 00:32:57,758 the brand that started this whole industry, 580 00:32:57,758 --> 00:32:59,934 is now virtually forgotten by everybody. 581 00:32:59,934 --> 00:33:01,588 Eventually, the company will be bought out 582 00:33:01,588 --> 00:33:05,505 by the Discover Card, then by Capital One. 583 00:33:05,505 --> 00:33:06,767 But if it wasn't for 584 00:33:06,767 --> 00:33:09,117 the groundbreaking work of Diners Club, 585 00:33:09,117 --> 00:33:12,425 we'd literally be bringing chunks of cash with us 586 00:33:12,425 --> 00:33:14,166 all over the world. 587 00:33:14,166 --> 00:33:15,994 By the mid 1960s, 588 00:33:15,994 --> 00:33:19,127 Diners Club falls from first place. 589 00:33:19,127 --> 00:33:21,303 But it's no longer only American Express 590 00:33:21,303 --> 00:33:24,002 and BankAmericard vying for the top spot. 591 00:33:25,742 --> 00:33:29,050 Credit cards were becoming the dominant form over cash, 592 00:33:29,050 --> 00:33:31,444 and so we saw increasing competition. 593 00:33:31,444 --> 00:33:35,665 In 1966, a group of banks created the Master Charge card 594 00:33:35,665 --> 00:33:37,711 which became, ultimately, the MasterCard. 595 00:33:37,711 --> 00:33:41,019 Between 1966 and 1968, 596 00:33:41,019 --> 00:33:45,632 440 new credit cards are launched across the country, 597 00:33:45,632 --> 00:33:49,201 a 4000% increase from earlier that decade. 598 00:33:50,898 --> 00:33:52,726 And it's something Bank of America's 599 00:33:52,726 --> 00:33:55,642 newly appointed CEO, Rudy Peterson, 600 00:33:55,642 --> 00:33:57,557 is desperately trying to stay ahead of. 601 00:33:58,949 --> 00:34:02,170 Every local bank from Miami to Spokane 602 00:34:02,170 --> 00:34:04,868 is making their own credit card. 603 00:34:06,348 --> 00:34:10,744 Imagine if they were all BankAmericards. 604 00:34:12,615 --> 00:34:13,964 I don't follow. 605 00:34:13,964 --> 00:34:16,228 Bank of America can only issue credit cards 606 00:34:16,228 --> 00:34:18,491 within the state of California, 607 00:34:18,491 --> 00:34:20,362 but it can franchise out to 608 00:34:20,362 --> 00:34:22,712 banks all over the United States 609 00:34:22,712 --> 00:34:24,975 to issue their own credit cards. 610 00:34:24,975 --> 00:34:27,935 We turn our competitors into our partners 611 00:34:29,371 --> 00:34:31,460 and that's how we go national. 612 00:34:31,460 --> 00:34:33,854 And it is the idea that they were looking for 613 00:34:33,854 --> 00:34:37,205 to go head to head with Amex. 614 00:34:37,205 --> 00:34:39,773 So BankAmericard was licensed 615 00:34:39,773 --> 00:34:42,689 to hundreds of different banks who could issue their cards. 616 00:34:42,689 --> 00:34:44,821 They essentially created a system we have today 617 00:34:44,821 --> 00:34:47,824 where your bank issues you a card that works at that bank 618 00:34:47,824 --> 00:34:51,828 and also as a major credit card at stores everywhere. 619 00:34:51,828 --> 00:34:54,135 This was revolutionary. 620 00:34:54,135 --> 00:34:57,225 But in his haste to expand across the nation, 621 00:34:57,225 --> 00:34:59,271 Peterson forgets one critical step, 622 00:35:00,359 --> 00:35:02,100 customer background checks. 623 00:35:06,626 --> 00:35:08,628 Sorry I was running a little late. 624 00:35:09,672 --> 00:35:13,067 There've been reports of convicted felons 625 00:35:13,067 --> 00:35:15,765 receiving pre-approved BankAmericards. 626 00:35:15,765 --> 00:35:17,376 Banks all over the United States 627 00:35:17,376 --> 00:35:21,206 were sending out these credit cards to everyone. 628 00:35:21,206 --> 00:35:23,295 It was outrageous. 629 00:35:23,295 --> 00:35:25,253 There were no regulations provided 630 00:35:25,253 --> 00:35:29,083 on how credit card companies could solicit new clients. 631 00:35:29,083 --> 00:35:31,390 Children receiving cards in their own name. 632 00:35:31,390 --> 00:35:34,697 And it seemed like the wild west of credit at that point. 633 00:35:34,697 --> 00:35:36,438 Household pets? 634 00:35:36,438 --> 00:35:39,876 This is a bunch of overzealous regional bankers! 635 00:35:39,876 --> 00:35:44,446 But thanks to you, the only name that people see is ours. 636 00:35:45,882 --> 00:35:48,320 The BankAmericard was convenient, it was easy, 637 00:35:48,320 --> 00:35:50,844 but it was also allowing people to get in over their head. 638 00:35:50,844 --> 00:35:53,803 They were spending more than they had in the bank. 639 00:35:53,803 --> 00:35:54,804 This meeting's over. 640 00:35:56,850 --> 00:35:59,026 Amidst the chaos, 641 00:35:59,026 --> 00:36:01,507 Rudy Peterson steps down in 1969, 642 00:36:01,507 --> 00:36:04,292 leaving BankAmericard in freefall 643 00:36:04,292 --> 00:36:07,034 and the industry in crisis. 644 00:36:07,034 --> 00:36:08,949 BankAmericard was getting a bad reputation 645 00:36:08,949 --> 00:36:12,518 as basically a slick loan shark in a fancy suit. 646 00:36:12,518 --> 00:36:14,824 And this was not good for the industry as a whole. 647 00:36:14,824 --> 00:36:16,348 And a lot of people pursued 648 00:36:16,348 --> 00:36:18,350 fraudulent activities on purpose. 649 00:36:18,350 --> 00:36:19,612 One of the biggest problems 650 00:36:19,612 --> 00:36:21,309 with credit cards at the time, 651 00:36:21,309 --> 00:36:23,572 was there was no verification check. 652 00:36:23,572 --> 00:36:25,008 But American Express 653 00:36:25,008 --> 00:36:27,272 is about to solve this problem, 654 00:36:27,272 --> 00:36:30,144 by spearheading the biggest innovation 655 00:36:30,144 --> 00:36:32,190 since the birth of the credit card. 656 00:36:36,542 --> 00:36:38,848 In the early 1970s, 657 00:36:38,848 --> 00:36:42,896 credit card use is surging and so is fraud. 658 00:36:42,896 --> 00:36:44,202 One of the ways that people 659 00:36:44,202 --> 00:36:45,768 committed credit card fraud back then 660 00:36:45,768 --> 00:36:49,076 was by dumpster diving for carbon copies of receipts. 661 00:36:49,076 --> 00:36:51,513 There was also fraud from the merchant side, 662 00:36:51,513 --> 00:36:53,167 where merchants could issue receipts 663 00:36:53,167 --> 00:36:55,169 that they said were transactions, 664 00:36:55,169 --> 00:36:56,344 when they actually weren't. 665 00:36:57,432 --> 00:36:58,955 But American Express 666 00:36:58,955 --> 00:37:01,523 has recently partnered with engineers at IBM 667 00:37:01,523 --> 00:37:03,743 to help combat this growing issue. 668 00:37:10,358 --> 00:37:13,753 IBM's calling it magnetic stripe technology. 669 00:37:13,753 --> 00:37:15,537 How secure is this? 670 00:37:15,537 --> 00:37:16,930 It's good enough for the CIA. 671 00:37:18,584 --> 00:37:21,717 The government asked IBM to create a government ID 672 00:37:21,717 --> 00:37:24,024 with a new type of security 673 00:37:24,024 --> 00:37:26,592 system for their CIA operatives. 674 00:37:28,158 --> 00:37:30,596 IBM engineer Forrest Parry figured out the way 675 00:37:30,596 --> 00:37:33,381 to attach little bars of information 676 00:37:33,381 --> 00:37:35,949 on a thin magnetic strip that could carry 677 00:37:35,949 --> 00:37:38,212 all the information about this card holder. 678 00:37:38,212 --> 00:37:40,040 Who else has this? 679 00:37:40,040 --> 00:37:42,956 No one, yet. 680 00:37:42,956 --> 00:37:45,045 It would not only speed up transactions, 681 00:37:45,045 --> 00:37:48,614 but it would also provide information on the card holder 682 00:37:48,614 --> 00:37:50,833 and so there would be verification 683 00:37:50,833 --> 00:37:53,053 whether this card was legitimate. 684 00:37:53,053 --> 00:37:55,751 In 1971, American Express 685 00:37:55,751 --> 00:37:57,623 shells out millions of dollars 686 00:37:57,623 --> 00:38:00,452 to replace their cards with the new technology 687 00:38:00,452 --> 00:38:02,280 for more than 1 million customers. 688 00:38:03,672 --> 00:38:05,108 The magnetic strip 689 00:38:05,108 --> 00:38:07,328 provided an unprecedented level 690 00:38:07,328 --> 00:38:10,244 of security, freedom and convenience 691 00:38:10,244 --> 00:38:12,638 to consumers and merchants alike. 692 00:38:12,638 --> 00:38:14,814 It made it faster than using cash. 693 00:38:14,814 --> 00:38:17,033 It's one quick swipe and you're done. 694 00:38:17,033 --> 00:38:19,253 What's interesting is that IBM does not own 695 00:38:19,253 --> 00:38:21,342 the rights to the magnetic strip. 696 00:38:21,342 --> 00:38:23,039 It was work for the government, 697 00:38:23,039 --> 00:38:26,129 so it was able to be distributed to other people. 698 00:38:26,129 --> 00:38:27,870 With Amex leading the way, 699 00:38:27,870 --> 00:38:30,830 the unpatented technology is quickly adopted 700 00:38:30,830 --> 00:38:32,788 by all credit card companies. 701 00:38:33,920 --> 00:38:35,748 And by the mid 1970s, 702 00:38:35,748 --> 00:38:38,228 there are roughly 500 million credit cards 703 00:38:38,228 --> 00:38:40,318 in use in America, 704 00:38:40,318 --> 00:38:42,450 for everything from gas stations to department stores. 705 00:38:42,450 --> 00:38:43,451 And Howard Clark is faced 706 00:38:43,451 --> 00:38:45,497 with the dilemma once again 707 00:38:45,497 --> 00:38:49,239 of how do we stand out from the crowd? 708 00:38:49,239 --> 00:38:50,458 I created the Muppets. 709 00:38:50,458 --> 00:38:51,329 Big deal! 710 00:38:52,634 --> 00:38:54,593 Everybody knows them, but not me. 711 00:38:54,593 --> 00:38:56,551 American Express had a series of ads 712 00:38:56,551 --> 00:38:58,814 that featured people with famous names, 713 00:38:58,814 --> 00:39:00,642 but their faces weren't familiar. 714 00:39:00,642 --> 00:39:03,253 By associating themselves with these celebrities, 715 00:39:03,253 --> 00:39:06,822 it makes it even more aspirational to Americans 716 00:39:06,822 --> 00:39:08,084 to have the same credit card 717 00:39:08,084 --> 00:39:11,131 as these people that you looked up to. 718 00:39:11,131 --> 00:39:13,873 Don't leave home without it! 719 00:39:13,873 --> 00:39:15,309 Soon after the ad blitz, 720 00:39:15,309 --> 00:39:16,963 the American Express card becomes 721 00:39:16,963 --> 00:39:19,574 the company's most profitable business, 722 00:39:19,574 --> 00:39:22,751 tripling the number of cardholders around the world 723 00:39:22,751 --> 00:39:23,752 to eight million. 724 00:39:25,363 --> 00:39:28,366 Now American Express is a status symbol in itself. 725 00:39:29,715 --> 00:39:31,891 Meanwhile, in 1976, 726 00:39:33,327 --> 00:39:35,634 after a significant period of upheaval, 727 00:39:35,634 --> 00:39:39,115 BankAmericard desperately needs to turn things around. 728 00:39:39,115 --> 00:39:40,552 Gentlemen, let's see what you came up with. 729 00:39:40,552 --> 00:39:42,902 No idea is too small. 730 00:39:42,902 --> 00:39:45,339 In the 1970s, the BankAmericard needed to rebrand. 731 00:39:45,339 --> 00:39:46,862 The reputation wasn't great 732 00:39:46,862 --> 00:39:48,908 and they wanted to expand overseas, 733 00:39:48,908 --> 00:39:51,954 so it could be used literally anywhere in the world. 734 00:39:51,954 --> 00:39:54,522 The money card. 735 00:39:54,522 --> 00:39:56,132 Credit Max? 736 00:39:56,132 --> 00:39:57,482 Credit Max. 737 00:39:57,482 --> 00:39:58,744 I don't like the max part. 738 00:39:58,744 --> 00:40:00,963 But people overseas were resistant 739 00:40:00,963 --> 00:40:04,402 to carrying a credit card with the name America in it. 740 00:40:04,402 --> 00:40:06,752 Lender's International. 741 00:40:06,752 --> 00:40:08,754 They want a name that's easy to spell and it's short. 742 00:40:08,754 --> 00:40:09,755 What is something that people have 743 00:40:09,755 --> 00:40:10,973 that's actually international? 744 00:40:10,973 --> 00:40:12,671 They have luggage. 745 00:40:12,671 --> 00:40:13,846 Passport card. 746 00:40:13,846 --> 00:40:15,238 Passport charge? 747 00:40:15,238 --> 00:40:16,979 Passport charge pass. How about that? 748 00:40:16,979 --> 00:40:18,633 Charge Pass, Charge Pass. 749 00:40:18,633 --> 00:40:19,939 Visa. Okay. 750 00:40:19,939 --> 00:40:22,332 Maybe money pass? No. 751 00:40:22,332 --> 00:40:24,073 Just things that are international. 752 00:40:32,342 --> 00:40:35,128 And it was a really perfect name for a credit card. 753 00:40:35,128 --> 00:40:36,434 Short, sweet, and to the point. 754 00:40:36,434 --> 00:40:38,697 It could get you around like a visa. 755 00:40:38,697 --> 00:40:40,568 So the BankAmericard 756 00:40:40,568 --> 00:40:43,353 became known as the Visa card. 757 00:40:43,353 --> 00:40:47,445 In 1976, the rebranded cards are licensed 758 00:40:47,445 --> 00:40:50,012 by thousands of banks around the world. 759 00:40:50,012 --> 00:40:52,624 They tried to recreate the Fresno Drop, 760 00:40:52,624 --> 00:40:55,409 but globally, with more checks and balances in place 761 00:40:55,409 --> 00:40:57,672 to prevent fraud and theft. 762 00:40:57,672 --> 00:41:00,327 They also continued to keep fees lower than the competition 763 00:41:00,327 --> 00:41:02,242 and they introduced reward points, 764 00:41:02,242 --> 00:41:03,765 hoping people would catch on 765 00:41:03,765 --> 00:41:06,115 and start utilizing this financial tool. 766 00:41:06,115 --> 00:41:08,944 And Visa became the go-to 767 00:41:08,944 --> 00:41:12,078 for international transactions. 768 00:41:12,078 --> 00:41:14,254 Accepted almost anywhere in the world, 769 00:41:14,254 --> 00:41:17,300 it was a whole new world of credit cards. 770 00:41:17,300 --> 00:41:19,607 By 1980, Visa becomes 771 00:41:19,607 --> 00:41:22,131 the number one credit card in the world, 772 00:41:22,131 --> 00:41:25,047 a position they still hold today. 773 00:41:25,047 --> 00:41:28,529 And with over 4 billion active cards in circulation, 774 00:41:28,529 --> 00:41:30,966 they're responsible for over one third 775 00:41:30,966 --> 00:41:34,666 of all credit card purchases on the planet. 776 00:41:34,666 --> 00:41:38,191 The legacy of Visa, now, is simply incredible. 777 00:41:38,191 --> 00:41:40,323 This is the invention of a couple guys 778 00:41:40,323 --> 00:41:41,977 in California at a local bank 779 00:41:41,977 --> 00:41:44,371 and it really, really changed the world. 780 00:41:45,851 --> 00:41:48,157 Meanwhile, with over 130 million 781 00:41:48,157 --> 00:41:50,290 active users around the world, 782 00:41:50,290 --> 00:41:54,990 American Express has a market cap of over $110 billion. 783 00:41:56,818 --> 00:42:00,169 The commerce that is the lifeblood of the America we know 784 00:42:00,169 --> 00:42:02,868 is driven by credit card purchases. 785 00:42:02,868 --> 00:42:05,392 Today, there are places that don't even accept cash. 786 00:42:06,959 --> 00:42:10,658 With nearly 2 billion transactions a day, 787 00:42:10,658 --> 00:42:12,355 the global credit card industry 788 00:42:12,355 --> 00:42:16,185 has a value of over 14 trillion dollars. 789 00:42:18,448 --> 00:42:19,667 Everybody remembers when 790 00:42:19,667 --> 00:42:21,277 they got their first credit card. 791 00:42:21,277 --> 00:42:24,237 You walked around like you were really an adult. 792 00:42:24,237 --> 00:42:26,369 And when in doubt, charge it.