The advent of travel and entertainment (T&E) credit cards in the 1950s was instrumental in sparking a renaissance in luxury restaurants that hadn’t been seen since pre-Prohibition days.
Nowhere was the effect felt more strongly than in NYC, birthplace of the Diners’ Club.
On February 8, 1950, Frank McNamara paid for his lunch at a steak house called Major’s Cabin Grill in NYC with a Diners’ Club card numbered 1,000 (i.e., #1). With his little paper card he made the very first charge on a nationwide credit card.
The timing of the Diners’ Club launch was perfect. During World War II expense accounts had proliferated as a way companies could use income for entertaining clients rather than hand it to the government as a tax on “excess” profits (profits greater than those before the war). Now, in 1950, the excess profits tax lifted at the end of WWII was only a few months away from reinstatement for the Korean War.
The growth of T&E credit cards went hand in hand with the growth of expense accounts. As one publication put it, credit cards were spinoffs of expense accounts. And, each time the IRS tightened up its requirements for itemizing deductions, more credit card applications came in.
Unlike the nationwide bank cards that would eventually swamp T&E cards, the latter required high financial standing, an annual membership fee, and full payment of balances within 30 days. Having one of these cards brought cachet.
Following quickly on the heels of the Diners’ Club launch came many others: Dine ’n Sign, National Credit Card, Your Host, Inc, Duncan Hines’ Signet Club, the American Hotel Association’s Universal Travelcard, Hilton’s Carte Blanche, the Esquire Club, and the Gourmet Guest Club (the last two linked to Esquire and Gourmet magazines). A smaller Diners’ Club continues today, but the only other survivor is American Express, which inaugurated its credit card in 1958, then quickly rose to the top of the T&E field.
Traveling salesmen and men (rarely women) in industries such as public relations, advertising, publishing, manufacturing, and wholesaling were fans of the convenience of charging business meals. And, of course, in the early days of T&E club cards it was a status factor to simply dash off a signature on a slip, particularly if the lunch took place in a top restaurant.
Expense accounts and credit cards were a boon to restaurants. There were estimates that in the mid-1950s 50% to 80% of meals in high-priced restaurants were “on the company.” Vincent Sardi admitted that a big chunk of his NYC business was made up of men on expense accounts. Peter Canlis, of Seattle’s first-class Canlis Restaurant, said in 1953 that he decided to establish a restaurant there because “a lot of good expense account money wasn’t being spent because there was no place fancy enough to gobble it up – and I was happy to fill the gap.”
But not all restaurateurs were enamored of the cards at first. For one thing, Diners’ charged a 7% fee on transactions. Restaurant owners felt that they spent too long waiting for their payments and that they had to raise prices to make up for the fees, thus punishing cash customers. Some restaurants refused Diners’ Club cards or added surcharges for meals paid with them. The Diners’ Club lowered its transaction fees in 1966.
By 1965 the three biggest T&E cards, Diners’ Club, American Express, and Carte Blanche claimed a total of about 3.15M cardholders, a small fraction of the number of cards starting to be doled out then, often unsolicited, by nationwide bankcards.
© Jan Whitaker, 2013
5 responses to “Charge it!”
American Airlines invented the first universally accepted charge card in 1936, The Air Travel Card, now UATP, was accepted as a valid form of payment on all US based airlines. The corporate customer was billed monthly for all travel with full itinerary detail. Only UATP cards start with the number 1 because they were first.
Thanks! Did many restaurants accept it?
Fascinating and very informative. Thanks Jan!
A well timed post…didn’t the NY Times run a piece yesterday about how hotels are doing away with room service, another part of the expense account world. Thanks for another great post, I love your blog (and your books).
You are right, but pure coincidence!