Diners Club beefs up and gets a foot in China

Seymour Flug -- as he would be the first to admit -- might now and then run into some difficulty trying to use his Diners Club credit card at a hotel, restaurant, or business firm.

But if the outspoken, affable Mr. Flug has his way in the next few years, that will be increasingly unlikely.

As chairman, president, and chief executive officer of Diners Club Inc., Mr. Flug presides over a "T&E" (travel and entertainment) card credit firm whose card is honored by more than 450,000 establishments in over 150 countries.

Thanks to some savvy negotiating foot- work, Diners Club recently announced that its credit card is now honored in China. The well- advertised business coup has undoubtedly bothered executives of American Express and Carte Blanche, the two competitors to Diners club in the T&E-card business.

By Mr. Flug's reckoning, there are only about five major countries worldwide where Diners Club cards are not honored.

The diners Club "comeback" during the past year or so -- which roughly parallels Mr. Flug's direction as chief official of the company -- is one of the more visible evidences of a growing reliance by Americans and Europeans on credit cards.

The Diners club, card as Mr. Flug quickly points out, is the "granddaddy" of them all -- the very first of the mass-distributed T&E cards. First issued in 1950, the card is now carried by 3.5 million individuals, the majority of them (around 2.3 million) outside the United States.

By contrast, American Express numbers some 10 million cardholders. A spokesman for Carte Blanche says he "cannot comment" on the total number of cards outstanding for that firm, but industry observers put the figure at around 800,000.

The three T&E cards, for their part, represent only a small segment of the overall credit card market in the US, estimated at over 600 million cards. The great bulk of all credit cards are the two principal "bank cards" (MasterCharge and Visa), along with gasoline and retail firm cards, such as those issued by Sears, J. C. Penney, and Montgomery Ward.

Still, the three travel and entertainment cards have tapped the lucrative middle- and upper-income markets in the US, with the American Express card alone believed carried by something like half of all American families with incomes above $25,000.

It is this market -- professional, mobile, travel-oriented -- that Mr. Flug is closely monitoring as he seeks to broaden the marketing base of Diners Club.

Diners Club International, a subsidiary of the New York-based Continental Corporation, did not show a profit during 1979. In 1978 the firm lost some $2 million. But Mr. Flug expects the company to go into the black in the early 1980s.

Some recent indicators do look promising for the firm. Spending by Diner's cardholders in 1979 is tentatively estimated at 26 percent above 1978, much of that from foreign cardholders using the card within the US. The total number of cards within the US is 20 percent ahead of 1978.In fact, all of Diners' cardholder spending in the first eight months of 1979 alone equaled all of 1978 -- plus 70 percent.

Can that type of growth be coninued? Mr. Flug talks hopefully of an eventual worldwide Diners Club membership of 15 million.

Gerald Lewinshon, an analyst with Merrill Lynch, Pierce, Fenner & Smith, in New York, points out that even though the parent Continental Corporation has managed to get Diners Club "under control" financially, there is still a long-range question about exactly when the subsidiary can "turn a profit." Currently, he notes, Diners is deliberately reinvesting earnings into a heavy advertising promotion campaign, in an effort to expand its card- member base.

But profits will be hampered in the long run by the fact that overseas Diners Club operations are franchised, which means a dilution of profits from the area where its member base is already strongest. Further, the entire T&E industry, including front-runner American Express, is finding itself under tremendous competition from bank credit cards, particularly Visa.

Diner Club card users pay a $30 annual fee (unlike the bank cards, which base their income in interest charges) for a wide range of services, some of which are not offered by other T&E cards.

* Members can have two cards if they wish, one for business and one for personal expenses, or for another family member.

* Members can also qualify for an extra line of bank credit, ranging from $2, 000 to $15,0000, from the Chase Manhattan Bank.

* Unlike other credit card firms, Diners Club does not impose a surcharge for converting currency on purchases charged abroad.