Following years of dwindling volume, declining marketshare and what sources described as internal strife, the Citigroup-owned North American franchise of Diners Club—the forefather of the modern charge card—is forging an acceptance alliance with competitor MasterCard.
Diners Club North America and MasterCard International last week confirmed they are "pursuing an alliance in order to provide enhanced global acceptance to Diners Club North America cardmembers," according to a joint statement given to Business Travel News.
Although there are no changes to the Diners Club offering yet, and cardholders can continue to use the card, Diners will issue cards in North America that "carry the MasterCard brand" and can be accepted wherever MasterCard is accepted, the statement said. "In addition, Diners Club cards issued by Diners Club International franchises around the world would carry the MasterCard identifier on the back of the card, indicating acceptance at merchants in the U.S. and Canada that accept MasterCard credit cards."
MasterCards, however, will not be accepted by merchants that accept Diners Club. MasterCard and Diners Club would not comment further on the deal, which sources said is expected to close and take hold by year-end. Financial arrangements between MasterCard and Diners Club, as well as which card supplier will provide reporting to clients, are not yet clear.
One source said the setup would be "a tiered kind of thing, where if Diners was accepted it would go through their authorization and payment process. If it was not accepted, then it would automatically default to MasterCard."
According to figures provided by MasterCard and Diners Club
(BTN, May 26, 2003), the deal would drive the number of worldwide merchants that accept Diners Club from 8.3 million to 30 million—the highest acceptance level in the business—surpassing American Express and Visa.
Corporate travel managers for companies using the Diners Club corporate card said they were notified this month of the imminent change. Buyers who spoke to BTN said they are viewing the change with optimism.
"Diners is getting more in where we need to use the card in the Office Depot stuff and the Radio Shacks of the world," one said. "However, Diners has fallen a little short on the Web. If you go online, of course they accept Visa and MasterCard, but very rarely do I see Diners." The travel buyer said the deal eventually would fill such gaps.
"What they're doing with MasterCard, which is quite innovative, is something that they should have done 15 years ago, especially if they want to have a T&E and a purchasing card program," said David Hillman, president of New York-based Hillman and Associates .
Diners Club's woes in the past decade have gone beyond problems with mere acceptance—or as one source put it more bluntly: "The Diners Club brand has taken a horrible nose-dive in North America."
Indeed, Diners Club in recent years has lost significant marketshare, commercial card volume and clients. In 1993, Diners claimed a commercial card volume of $22.4 billion—second only to American Express, which at the time boasted $34 billion. Within 10 years, Amex's estimated commercial T&E volume had grown almost threefold, while Diners' was cut by more than half. In the meantime, Visa and MasterCard began carving out their own niche in the corporate market, boosting commercial card issuers, volume and marketshare.
A former Diners Club executive said the card vendor in 1989 had more than 2 million cards in force, yet estimated that number now has declined to fewer than 100,000. Diners would not comment on whether those numbers were accurate.
Meanwhile, several large-market companies, such as Accenture and Oracle, since 2000 have dropped the card as a preferred vendor, while in that same time period not one of the top 100 travel-buying companies in the United States have noted adding Diners Club to its roster of travel suppliers. Yet, several such high-spending companies as AIG, BP, Deloitte and KPMG, among others, continue to use the card.
Several sources attributed the issuer's commercial decline to internal problems.
"Corporate attrition has been dismal since late 2000, when many of the sales and service people who retained corporate customers through personal relationships were let go and replaced by poor performers," one source—a former Diners Club employee—said on the condition of anonymity. "The couple of good performers left were, and still are, hampered by incredibly inept leadership in the sales area." The same sentiment was echoed by several other sources, including a client, a consultant and another former Diners employee.
Diners Club leadership has been reshuffled as part of a reorganization within Citigroup, sources said. Diners Club president Brenda Gaines this month resigned from the helm, and neither Diners Club nor Citigroup has yet to name a successor. Gaines was named president of Diners Club North America in 1999, sealing Diners Club's three-year gap without a president. A Diners Club spokesperson said Gaines left the company for personal reasons not associated with the MasterCard deal, yet other sources claimed her resignation was connected to the deal, as well as a larger overhaul at the company. Still, a Diners Club spokesperson responded, "Citigroup is the parent company of Diners Club, and there is nothing changing."
Several sources noted the competition issues that arise from Citigroup owning both Diners Club's U.S. franchise and Citibank, an issuer of Visa and MasterCard. Last year, Citigroup upped its ownership of Diners when it acquired a majority stake in Diners Club Europe, adding Diners franchises in Belgium, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Switzerland and the United Kingdom.
"Citigroup is really competing against themselves in the market, with Diners on one end and MasterCard and Visa on the other end," one travel buyer said. "So they're building up two platforms. Citigroup's got to decide which platform it will support. Should it dump its money to the right or the left, because they're building two towers."
Diners Club said last year's corporate T&E volumes rose, and this year the company expects them to rise again, but it would not disclose any numbers for BTN's May 24 Business Travel Survey.