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Formed in 1950, Diners’ Club initiated the first universal restaurant charge card that prominent New York restaurants would accept. Cardholders charged for a meal, and the restaurant collected from the Club less a 5%–10% discount (which restaurants were willing to accept since cardholders typically spent more than those paying with cash on hand). Diners’ Club paid the restaurant and had to collect from cardholders. In the 1950s, credit cards took off in the United States. There were cards for specific companies as well as universal travel and entertainment charge cards.244 American Express debated the merits of creating a card. But by the 1950s, the company’s executives realized that people were using the cards for travel-related services, posing a risk for the travelers cheque. Furthermore, the money order business was becoming less important, with the rise of personal checking accounts stealing business away from money orders. The company finally decided it would be better for American Express to protect itself by making its own card rather than lose all that business.245 American Express debated entering the business by acquiring Diners’ Club. After that deal fell through, American Express decided to go forward by launching its own American Express Credit Card in 1958. The American Express Credit Card was, in reality, a charge card, not a credit card. The latter had a revolving line of credit whose balance could be carried over from month to month. While technically still an extension of credit, the charge card required all outstanding balances to be paid in full each month.246,247 Before launching, American Express reached a deal with the American Hotel Association, providing Amex with 150,000 cardholders and 4,500 participating hotels. American Express then bought 40,000 members from the Gourmet card.248 And when rumors spread that American Express was thinking of starting a card, people wanted in. In contrast to the banks, who literally had to mass-mail cards to people when they rolled out their offerings (a practice made illegal in 1970), people flocked to American Express.249 The brand, whose image had evolved from a guard dog to ‘the guardian of Rome,’ the centurion, had now become a status symbol.
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Brett Gardner (Buffett's Early Investments: A new investigation into the decades when Warren Buffett earned his best returns)