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It's 1949,
and a struggling young executive named Frank McNamara
is about to experience an uncomfortable moment.
One that was all too common at the time.
Look, I want your business
and I want you to feel taken care of.
Thank you.
Dinner's on me. Please, I insist.
Thank you.
At the time, there are three ways of paying.
One is cash, second is by personal check.
The third one is to have an in-house credit account
with that specific restaurant or store.
He realizes that he does not have enough cash
to pay the bill.
He has no idea what to do.
The banks closed at like 2:00 PM back then, too,
so he's in danger of having
to wash dishes to pay off the meal.
Everything okay there?
Yeah, everything's fine.
Good.
McNamara doesn't know it yet,
but this embarrassing moment
kick-starts what will become
the $6 trillion global credit card industry.
The commerce of the America we know
is driven by credit card purchases.
Pioneered by a pair of mavericks.
It's called a charge card.
The idea that you could pay for a meal
with a Diners Club card,
was very revolutionary.
But it's a really odd sales pitch,
pay us a fee so strangers can buy goods from you?
Their groundbreaking concept
ignites a wave of competition.
We can do better.
Visa became the go-to for international transactions.
American Express was really honing in
on the people who were spending a lot of money.
We charge a dollar more.
As the battle to be number one heats up,
That's my best and final offer.
They wanted to buy the competition.
It leads to big mistakes.
We didn't do this.
They start extending lines of credit to strangers.
Pets got cards, children got cards.
It was outrageous.
And even bigger breakthroughs.
This plastic card, it didn't get ripped and torn.
That magnetic strip makes it much more secure.
How secure is this?
It's good enough for the CIA.
Forever changing how people around the world,
They shifted us from a cash-based economy
to a plastic one.
Pay for almost everything.
It's one quick swipe and you're done.
Today there are over a billion
in circulation in the US alone.
Globally, they're used to purchase
$6 trillion of goods and services a year.
But in 1949,
credit cards don't exist.
This was in the days where you either
had to have cash or a check.
That's it.
Something all too familiar to Frank McNamara.
Frank McNamara ran a company called Hamilton Credit,
that made small commercial loans.
But he is $35,000 in debt.
Bill drops, go to reach for my wallet,
what do you know?
So what did you do?
Ralph Schneider is McNamara's lawyer and friend.
McNamara uses him whenever he needs to sue people
for not paying back their small commercial loans.
What do you think I did?
I called my wife, told her to get down there
and bring her purse.
Why don't you tell them
you'd come back tomorrow and settle up?
Schneider is a working class guy, a mid-level lawyer,
but he was growing profoundly
disenchanted with the world of law
and he wanted to build something of his own.
I did.
They just didn't want to hear it.
Schneider thought, shouldn't there be an easier way
to take out your family or take out your clients,
and be able to pay for it?
What if, what if we had something,
some sort of proof to show that we were good for it?
Like a card.
A card?
What, you mean like a greeting card?
No, no. Like an official identification card.
A light bulb goes off in his head.
What if there was some way to pay for your meal,
without having to carry a checkbook
or go to the bank for cash?
A way to charge your dinner.
Convinced they might be onto something big,
Schneider and McNamara take out a $30,000 loan
and go all in on their radical idea.
At the time, cash was king,
but McNamara was determined to change that.
New business here in Midtown Manhattan.
Yes, my name is Ralph Schneider.
Ralph Schneider believes
that with enough vision and proper management,
he's going to have a hit.
So they're gonna work together to make this a success.
Yes, it is called a charge card.
The idea of a credit card is so new and strange,
they're not even sure where to begin.
They just launch dead ahead,
trying to convince restaurants to get on board.
Is this the Sea Breeze?
City Kitchen?
They went to a variety of high-end restaurants,
right in Midtown.
They're not looking for your mom and pop diner.
That's easy to pay for with cash.
They want a place that's going to have
the bill at the end of the meal be sizable.
Can I explain it again?
Customers would present
this exclusive card at the end of the meal
and the meal would go on Schneider and McNamara's tab.
The customer would then be responsible
for paying Schneider and McNamara back.
We hold ourselves responsible
to pay at the end of every month.
As long as customers pay their bills on time,
Schneider and McNamara don't charge them
any kind of interest rate,
but they make money on the other end.
Seven percent.
They've charged the restaurant 7% of each bill.
You'll more than make your money back, promise you.
And they'd say, if more of you take on this credit card,
you'll find that the clients
are coming to spend more money at your restaurant.
Unfortunately,
- Hello? - Hello.
No one's willing to take a chance
on their unconventional concept.
It's a really odd sales pitch,
if you think about it.
Pay us a fee, so strangers you have never met
can buy goods from you?
Yes, good evening.
Frank McNamara.
My name is Ralph Schneider with,
My name is Ralph Schneider.
Frank McNamara, I'm calling.
Yes, good evening. This is,
Yeah, Frank McNamara calling,
Yeah, I just wanted to talk to you.
Are you still there?
Maybe you wanna think about it?
Yes, that's correct.
Okay.
Okay, great. I look forward to it, too.
Thank you.
Finally, after a week of NOs,
We got a yes.
Little by little, they get 11 restaurants signed up,
growing outwards from Midtown Manhattan.
Then, they turned their attention
to recruiting customers.
So who do they target? Salesmen.
These were people who would be
taking clients out for business dinners
and really needed an easier way to pay for it.
But to take advantage of the card,
you had to pay the full balance at the end of the month.
If you didn't, you would just be shut off
and you wouldn't be able to continue using it.
So if you're a consumer,
obviously you're unsure about this.
Yet in two weeks,
they managed to get 100 salesmen on board.
Now, all they need is the actual card.
Possibly inspired by
this incredibly embarrassing experience that McNamara has,
they figured that the card should be
small enough to fit into your wallet,
so that you have it in just such an emergency.
The embarrassing dining experience
also inspires the card's name, the Diners Club.
When we say the word credit card,
today, we always are talking about a piece of plastic.
This was not the case back then.
The first Diners Club card was flimsy paper
and it had your name printed on it.
When you're used to paying cash for everything
and now someone gives you a piece of paper
and says you don't need cash, that is unique.
On February 8th, 1950,
the world's first charge card officially launches.
So like with anything new,
Diners Club was slow to catch on.
But as members see
how convenient the card is,
word spreads quickly.
This card is a status symbol.
To be able to whip this out
at the end of a business meal,
and charge it.
It's very, very cool.
And the customers with Diner Clubs
were, in fact, more apt to spend more money in a restaurant.
Let's that extra prime rib roast, for everyone.
It's on me, I've got a Diners Club card.
As more restaurants across Manhattan
accept the card, membership grows.
By the end of 1950,
they had 20,000 members all over New York.
A year later, that number more than doubles
to 42,000 throughout New York City.
More and more people signed up for Diners Club,
but Schneider and McNamara looked at each other.
Where's the money?
Two years, 42,000 members,
and yet somehow we ended up
losing more money than we started with.
Their only stream of revenue
was making a small percentage off each transaction,
but they still had to pay for overhead,
accounting fees and customers who don't pay their bill,
so they were losing money.
By early 1952,
they're over $58,000 in debt,
or roughly $700,000 in today's money.
Staring at it's not gonna change it.
The debt really put a strain on their relationship
and they started to have different outlooks
on the future of the company.
I've been thinking.
What if we charge a small membership fee, just $5 a year?
Schneider thought the key to making money
was to charge an annual fee,
but McNamara was not too excited about this idea.
I can't keep doing this anymore.
Frank?
No.
McNamara really didn't see the potential of Diners Club
in the way that Ralph Schneider did.
I'm sorry, I'm out.
Just two years after co-founding Diners Club,
McNamara sells his share of the company
back to Schneider for $200,000.
Well, it's hard to know
whether it was just too much stress
or he was just restless,
but McNamara cashed out,
left the finance business entirely
and became an executive at a lumber company.
Now, Ralph Schneider is at a crossroads.
This is definitely a make-or-break moment
for Diners Club.
Do you soldier on and try to make a profit,
or do you cut your losses
and move on to the next idea?
In 1952, just two years
after co-founding Diners Club,
Frank McNamara has thrown in the towel,
but Ralph Schneider isn't ready to give up.
Even with mounting debts,
Ralph Schneider knows he's already got a customer base
and he believes he can grow Diners Club
far beyond the island of Manhattan.
In a last ditch effort,
he gambles on an unconventional idea,
pioneering what will become
a staple for the credit card industry.
Yes, correct. They will pay $5 a year.
The annual fee.
Ralph Schneider started charging
a membership fee of $5 a year for Diners Club.
This was a brand new concept.
It wasn't very common then.
It wasn't like it was today,
so, it was certainly a risk.
But surprisingly, he saw use of the credit card increase
'cause the customers want to get their money's worth.
So, they used it more often.
By the end of 1953,
Diners Club finally starts turning a profit,
raking in as much as $6 million a year,
allowing Schneider to expand to restaurants
well beyond New York
and rebrand as Diners Club International.
In its first five years,
Diners Club extended to having offices
in London, in Frankfurt and Paris.
And so, this really made the card applicable globally.
The first charge card
accepted around the world,
Diners Club is in a class by itself.
But their meteoric success
unwittingly inspires a banker 3000 miles away,
desperate to climb the corporate ladder.
JP Williams is originally from Philadelphia,
moved out west to California after World War II
and then got a job at one of
the largest regional banks, Bank of America.
Williams has recently been put in charge
of finding ways to increase
the bank's meager profit margins.
Prior to World War II,
a lot of energy in banking
was spent approving smaller personal loans.
They'd take the same amount of time as a really large loan
and Williams felt it wasn't really worth their time.
Now, Williams thinks
he can improve on the Diners Club model
with a totally new kind of card.
The BankAmericard.
Not limited to restaurants,
accepted everywhere in the state of California.
It's genius, because Diners Club
had carved its niche in restaurants
and the Bank of America really wanted
it to be accepted everywhere.
To incentivize more businesses to accept their card,
JP Williams boldly says
that he's only gonna charge merchants 6% of the total price,
1% less than Diners Club.
But Bank of America was based in California
and there were a lot of regulations in place
where they could only do banking
in the state that they were based.
So, JP Williams convinced his bosses
that it was a great opportunity to test the concept,
to see if it was something they wanted to take nationally.
And Williams thinks
he's found the perfect place.
Bank of America decided to limit their exposure
by testing it in one marketplace.
So, they sent out credit cards
to their clients in Fresno,
even if they haven't asked for these credit cards,
and it's known as the Fresno Drop.
At the time, you have to think how crazy this was,
how revolutionary this was.
You open your mail and you get a credit card.
On September 18th, 1958,
60,000 Bank of America clients
suddenly get lines of credit,
each equivalent to more than $3,000 today.
Now you have 60,000 people
excited about this piece of paper,
which allows you to buy goods and services
that normally you may not have cash in hand to buy.
So, the economy is jump started.
You'd be at your local department store
and the sales clerk would be handwriting the information
that was on your credit card.
It was quite a lengthy process,
but people would be gathered behind you,
taking a look at how it really works.
While it's revolutionary
to offer a credit card to anyone,
it's also a much bigger risk.
They just flooded the market
with no fraud protection, no credit checks.
Anyone and everyone with a pulse
could use one of these BankAmericards.
But if people weren't paying them on time,
or if a customer defaults on that debt,
this wouldn't work out that great.
It could spell complete and total
disaster and failure for the company.
Meanwhile,
less than two weeks later in New York City,
a senior executive at a financial company
is also looking to cash in on credit cards.
Any plans for the weekend?
I was thinking of taking the wife
over to check out that new restaurant
that opened on Seventh.
Yeah, that'd be great.
Howard Clark went to several Ivy League schools,
including Harvard and Columbia.
So this is a guy who's extremely driven
and wants to be a key player in the credit card space.
You have one of these?
I've heard of them.
$6 million idea,
but you could only use it in restaurants.
And not this one.
Over the last couple of years,
Howard Clark sees the success of Diners Club
and he wants to launch a credit card too,
but his dilemma is, how do I make mine stand out?
All right, what's your pitch?
We issue our own card,
open it up to all kinds of businesses.
How's that any different
from what Bank of America's doing?
BankAmericard is only good in California.
We're not a bank,
which means we can operate in any state we want to.
The company Clark works for
is a former package delivery service
called American Express.
In the mid 1850s,
American Express was born
and they were essentially a package delivery service
trying to rival the United States Postal Service.
They then expand their business in the late 1800s,
and they start doing travelers checks and money orders,
which become their primary business
for the next seven or eight decades.
Now, Clark is convinced
that the company's future is in credit cards,
but he wants his to feel unique.
Diners Club charges a $5 annual fee?
Let's undercut them at four.
No, we charge a dollar more.
The idea with American Express
was exclusivity, cache,
setting themselves up as the higher breed of credit card.
Now, we're the premium card.
Clark's ambitious plan
will ignite a credit card frenzy,
as three rival companies across the country
race to make their card the only one in peoples' wallets.
The Diners Club International
would like to purchase the American Express credit card.
All rights, products, services, and trademarks.
They wanted to buy the competition,
because they wanted to expand into the travel business
that American Express already had.
That's my best and final offer.
Howard Clark was recently made president
of all of American Express,
so he wants to focus on what the company does best
which is travelers checks, money orders,
and their newest operation,
which is corporate loans.
So selling off the credit card division
would be the simple answer to all of his problems.
I appreciate the offer,
but it's not for sale.
But Ralph Schneider's offer backfires on him.
When Howard Clark realizes, hey,
my company must have enough value
that the industry leader
is trying to take me off the board.
Good luck.
So, he decides he's gonna stay in the game
and rejects the offer from Diners Club.
Now Clark needs to make sure
he didn't just make the biggest mistake of his career.
Across the country in 1961,
Bank of America hires a new senior director
to clean up JP Williams' costly mistake.
Rudy Peterson had experience loaning people money
during the depression for things like refrigerators,
but a lot of people couldn't pay their bills.
And so, his experience in telling
whether someone was a good or a bad credit risk
became very vital.
Peterson convinces the top brass
that he can make BankAmericard
the number one card in the world,
and his first idea is to copy American Express.
Even though Amex was struggling financially,
Peterson could see that this plastic card
was the future of the industry.
But Peterson knows
a plastic version of their card
will not be enough to become number one.
He establishes some guardrails around these credit cards
for both the company and for consumers.
He created one of the first anti-fraud units,
closing accounts when people are using them improperly,
late charges start under him,
and instead of small businesses paying 6% transaction fees,
now they're down to 3%,
which makes them more eager to allow
people to use credit cards in those businesses
all over the California market.
Less than a year into Peterson's new role,
BankAmericard sees its first profit,
clearing $179,000 by the end of 1961.
He cleans up the mess left by Williams
and he helps establish credit cards
as a more legitimate business for the bank.
But instead of celebrating,
Peterson takes a different approach.
Don't publish that.
I mean, normally you want to advertise your success
to increase usage and revenue,
but Peterson sees that as counterproductive.
He actually wants people to believe
that his business is failing,
to discourage competitors
from entering into the business, into the industry,
before he's had a chance to figure out
how to go national first.
It's a risky move.
While the BankAmericard
begins to rise from the ashes,
Let me call you back.
We've got a problem.
American Express is in danger
of going into freefall.
In the 1960s, Amex had begun giving
massive corporate loans to various businesses.
One of the largest recipients
was the Allied Corporation, who made soybean oil.
On the surface, Allied was
this really successful, thriving company,
but it was all smoke and mirrors.
Allied was filling their soybean tanks with 90% water.
They were defrauding investors,
defrauding the government and defrauding Amex.
And now American Express is left holding the bag
on these millions of dollars worth of loans.
After news of the scandal breaks,
Allied files for bankruptcy on November 19th, 1963.
So American Express is now on the hook
for tens of millions of dollars that they loaned out,
based on this faulty tankers full of oil.
American Express is this trusted financial authority,
who trusted a bunch of crooks.
And however they choose to react to this
is going to determine their future.
We're not required to cover the debt.
And now the decision to turn down the Diners Club offer
seems like it was a massive error.
In 1963, American Express is
at the center of a massive scandal,
leaving them on the hook for millions of dollars
in bad commercial loans.
Legally, we're not liable.
Our counsel is saying because it was fraud,
we're not required to cover the debt.
So facing a massive,
if not career ending, blow to American Express's reputation,
Clark chooses to do something
that no one could have predicted.
What if we did?
What if we did cover the debt?
He starts paying back the loans.
American Express ends up shelling out
about $60 million to cover these debts,
and that is a big risk,
but it also sends a signal to small businesses
that if a customer who's using
an American Express credit card defaults on that debt,
that that small business is not gonna be
on the hook for that money,
and that builds confidence in American Express.
Thanks to Clark's bold decision, by 1964,
American Express hits more than 1 million card holders,
double the number from just three years ago,
and is accepted in roughly
85,000 establishments around the world.
Credit cards before this point weren't really trusted,
but the simple decision to pay
their creditors back $60 million,
gives people confidence and reinvigorates
the entire credit card industry as a whole.
But not everyone reaps the rewards
of this credit card boom.
In 1964, Diners Club president Ralph Schneider
unexpectedly dies at the age of 55.
Today it's hard to imagine a world without credit cards,
but what's amazing is that Diners Club,
the brand that started this whole industry,
is now virtually forgotten by everybody.
Eventually, the company will be bought out
by the Discover Card, then by Capital One.
But if it wasn't for
the groundbreaking work of Diners Club,
we'd literally be bringing chunks of cash with us
all over the world.
By the mid 1960s,
Diners Club falls from first place.
But it's no longer only American Express
and BankAmericard vying for the top spot.
Credit cards were becoming the dominant form over cash,
and so we saw increasing competition.
In 1966, a group of banks created the Master Charge card
which became, ultimately, the MasterCard.
Between 1966 and 1968,
440 new credit cards are launched across the country,
a 4000% increase from earlier that decade.
And it's something Bank of America's
newly appointed CEO, Rudy Peterson,
is desperately trying to stay ahead of.
Every local bank from Miami to Spokane
is making their own credit card.
Imagine if they were all BankAmericards.
I don't follow.
Bank of America can only issue credit cards
within the state of California,
but it can franchise out to
banks all over the United States
to issue their own credit cards.
We turn our competitors into our partners
and that's how we go national.
And it is the idea that they were looking for
to go head to head with Amex.
So BankAmericard was licensed
to hundreds of different banks who could issue their cards.
They essentially created a system we have today
where your bank issues you a card that works at that bank
and also as a major credit card at stores everywhere.
This was revolutionary.
But in his haste to expand across the nation,
Peterson forgets one critical step,
customer background checks.
Sorry I was running a little late.
There've been reports of convicted felons
receiving pre-approved BankAmericards.
Banks all over the United States
were sending out these credit cards to everyone.
It was outrageous.
There were no regulations provided
on how credit card companies could solicit new clients.
Children receiving cards in their own name.
And it seemed like the wild west of credit at that point.
Household pets?
This is a bunch of overzealous regional bankers!
But thanks to you, the only name that people see is ours.
The BankAmericard was convenient, it was easy,
but it was also allowing people to get in over their head.
They were spending more than they had in the bank.
This meeting's over.
Amidst the chaos,
Rudy Peterson steps down in 1969,
leaving BankAmericard in freefall
and the industry in crisis.
BankAmericard was getting a bad reputation
as basically a slick loan shark in a fancy suit.
And this was not good for the industry as a whole.
And a lot of people pursued
fraudulent activities on purpose.
One of the biggest problems
with credit cards at the time,
was there was no verification check.
But American Express
is about to solve this problem,
by spearheading the biggest innovation
since the birth of the credit card.
In the early 1970s,
credit card use is surging and so is fraud.
One of the ways that people
committed credit card fraud back then
was by dumpster diving for carbon copies of receipts.
There was also fraud from the merchant side,
where merchants could issue receipts
that they said were transactions,
when they actually weren't.
But American Express
has recently partnered with engineers at IBM
to help combat this growing issue.
IBM's calling it magnetic stripe technology.
How secure is this?
It's good enough for the CIA.
The government asked IBM to create a government ID
with a new type of security
system for their CIA operatives.
IBM engineer Forrest Parry figured out the way
to attach little bars of information
on a thin magnetic strip that could carry
all the information about this card holder.
Who else has this?
No one, yet.
It would not only speed up transactions,
but it would also provide information on the card holder
and so there would be verification
whether this card was legitimate.
In 1971, American Express
shells out millions of dollars
to replace their cards with the new technology
for more than 1 million customers.
The magnetic strip
provided an unprecedented level
of security, freedom and convenience
to consumers and merchants alike.
It made it faster than using cash.
It's one quick swipe and you're done.
What's interesting is that IBM does not own
the rights to the magnetic strip.
It was work for the government,
so it was able to be distributed to other people.
With Amex leading the way,
the unpatented technology is quickly adopted
by all credit card companies.
And by the mid 1970s,
there are roughly 500 million credit cards
in use in America,
for everything from gas stations to department stores.
And Howard Clark is faced
with the dilemma once again
of how do we stand out from the crowd?
I created the Muppets.
Big deal!
Everybody knows them, but not me.
American Express had a series of ads
that featured people with famous names,
but their faces weren't familiar.
By associating themselves with these celebrities,
it makes it even more aspirational to Americans
to have the same credit card
as these people that you looked up to.
Don't leave home without it!
Soon after the ad blitz,
the American Express card becomes
the company's most profitable business,
tripling the number of cardholders around the world
to eight million.
Now American Express is a status symbol in itself.
Meanwhile, in 1976,
after a significant period of upheaval,
BankAmericard desperately needs to turn things around.
Gentlemen, let's see what you came up with.
No idea is too small.
In the 1970s, the BankAmericard needed to rebrand.
The reputation wasn't great
and they wanted to expand overseas,
so it could be used literally anywhere in the world.
The money card.
Credit Max?
Credit Max.
I don't like the max part.
But people overseas were resistant
to carrying a credit card with the name America in it.
Lender's International.
They want a name that's easy to spell and it's short.
What is something that people have
that's actually international?
They have luggage.
Passport card.
Passport charge?
Passport charge pass. How about that?
Charge Pass, Charge Pass.
Visa. Okay.
Maybe money pass? No.
Just things that are international.
And it was a really perfect name for a credit card.
Short, sweet, and to the point.
It could get you around like a visa.
So the BankAmericard
became known as the Visa card.
In 1976, the rebranded cards are licensed
by thousands of banks around the world.
They tried to recreate the Fresno Drop,
but globally, with more checks and balances in place
to prevent fraud and theft.
They also continued to keep fees lower than the competition
and they introduced reward points,
hoping people would catch on
and start utilizing this financial tool.
And Visa became the go-to
for international transactions.
Accepted almost anywhere in the world,
it was a whole new world of credit cards.
By 1980, Visa becomes
the number one credit card in the world,
a position they still hold today.
And with over 4 billion active cards in circulation,
they're responsible for over one third
of all credit card purchases on the planet.
The legacy of Visa, now, is simply incredible.
This is the invention of a couple guys
in California at a local bank
and it really, really changed the world.
Meanwhile, with over 130 million
active users around the world,
American Express has a market cap of over $110 billion.
The commerce that is the lifeblood of the America we know
is driven by credit card purchases.
Today, there are places that don't even accept cash.
With nearly 2 billion transactions a day,
the global credit card industry
has a value of over 14 trillion dollars.
Everybody remembers when
they got their first credit card.
You walked around like you were really an adult.
And when in doubt, charge it.