After several recent attempts to build up its Diners Club card business, Citigroup Inc.'s latest move to strike a deal with MasterCard International may put its high-end card in more direct competition with American Express Co.
The planned alliance between the New York banking company and its preferred payment card network was confirmed Tuesday. According to Citi, the deal would put MasterCard holograms on the face of all Diners cards issued in North America by around the end of the year. They would then be accepted at all MasterCard merchant locations, roughly triple the number in Diner's proprietary network.
MasterCard has approximately 24 million merchants worldwide, compared to Diners' eight million.
Citi owns Diners Club North America and most of the other Diners Club franchises in the world. Under the MasterCard plan, international Diners cards would carry the hologram on the back and be accepted in North American locations.
On Tuesday, Diners Club also named a new president of Diners Club North America. M.V. Rajamannar is taking over from Brenda J. Gaines, who had the job since 1999.
Theoretically, the alliance could also open the door for more merchant or financial institution partnerships, if Citi licenses the Diners brand to other card issuers - as it has considered doing with Diners' well-regarded rewards program. But bugs would have to be worked out, industry insiders say.
A spokeswoman for MasterCard, of Purchase, N.Y., referred questions to Diners Club. A Diners Club spokeswoman did not immediately return calls asking for comment.
Recent attempts by Citi to breathe new life into the old brand include the introduction in 2001 of the revolving Montage Diners Club card, which Citi said it would launch with an expanded marketing campaign. But last year, according to one estimate, Diners Club spent only $293,000 on advertising, the least of any card brand.
Diners Club has made a point of promoting its customized rewards program, which includes special events like winemaking parties and exotic travel. Recently Citi obtained regulatory approval to market its Diners Club loyalty program to other businesses.
But one potential issue is interchange. Like American Express, Diners Club typically charges a higher fee to merchants in ostensible return for the connection with its affluent customers. But what if the transactions run through MasterCard and still demands Diners rates? It "just can't have all those merchants enabled at Diners Club rates," said Paul Grill, a principal at First Annapolis, a Linthicum, Md., consulting firm. "Diners Club will need to strike financial relationships with merchants."
If Citi can balance the need for healthy fees with the benefits of a wider acceptance network, the Diners Club brand will likely get a big boost, Mr. Grill said.
Some said slapping on a MasterCard logo may also signal a change in Citigroup's attitude toward building its own acceptance network - an old aspiration of Citi's.
In court testimony in 2000, Discover's top executive testified that the former head of Citigroup, John Reed, had approached him about the possibility of joining forces to take over MasterCard.
Diners is the second-smallest payment network, next to Discover, which has approximately 4 million mostly domestic merchants. Sources say Diners' size has hampered its ability to grow; Diners' transaction volume, around $29 billion in 2002, has dropped several percentage points in the past four years, Citi said.
"Citi may be looking at using the Diners Club more broadly," said Aaron McPherson, a research manager at IDC Cos.' Financial Insights. Wider acceptance will help achieve that goal, he said; it would make the rewards program appealing to more merchants and maybe other bank participants.
Mr. Grill said Citi could have the same opportunity as Amex to license a brand to other card issuers. "It would be another brand, but also a triple-branded card," he said. "I'm not sure that would have the same appeal."
Mr. McPherson said Citi could present its long-established Diners Club rewards program as an alternative to Amex's prized Membership Rewards, in which Amex is not letting banks participate.
