This article first appeared in The Edge Malaysia Weekly, on November 2 - November 8, 2015.
Diners Club, which has had a Malaysian presence since 1960, has called it a day here. The issuance of the card ceased a few weeks ago. Malaysian cardholders can no longer swipe their cards for purchases from Oct 31, 2015. This appears to be a sudden decision.
Diners Club (M) Sdn Bhd (DCM), a subsidiary of Johan Holdings Bhd, operates and issues Diners Club charge and credit cards under a franchise from Diners Club International Ltd.
In an undated statement on its website and letters sent out to its customers just three weeks ago, DCM said, “… As part of our rationalisation of our business in Malaysia, we hereby give notice that Diners Club will be suspending its card-issuing business with effect from Oct 30, 2015. You will not be able to use your Diners Club Card from Oct 31, 2015.”
It added that effective immediately, the usage of the credit/charge card was limited to RM1,000 while the ATM and cash advance facility will stop. The last day for the auto billing services and redemption of the Club Rewards Points is Nov 30, 2015.
Card members were informed that it had put in place various options for them to settle their outstanding balance, “including favourable extended payment plan up to a period of six months”. Letters sent to card members were signed off as the General Manager’s office, minus the name.
It remains unclear why Johan (fundamental: 0.35; valuation: 0.90) has decided to do this. Johan, which effectively owns 100% of DCM, did not respond to questions sent by The Edge. A public relations officer at Discover Financial Services, which owns Diners Club International Ltd, said she would try to assist, but had not responded to the queries sent at the time of writing.
Johan’s chairman and substantial shareholder Tan Sri Tan Kay Hock, in its FY2015 annual report dated May 21, 2015, said: “As I mentioned in last year’s annual report, the immediate task is to return the group to profitability. One of the measures implemented was to divest subsidiaries which continued to report losses despite all efforts taken by the management to improve their performance.” In line with this, last March, Johan sold the loss-making Diners Club (New Zealand) Ltd.
Johan has been in the red for four consecutive years. For the financial year ended Jan 31, 2015 (FY2015), Johan posted a net loss of RM27.27 million while for the first half ended July 31, 2015 (1HFY2016), it registered a net loss of RM16.24 million on the back of RM130.15 million in revenue.
It said revenue from its card services in 1HFY2016 was better due to higher commission income and higher service charge income. But the segment recorded a higher loss because of higher operating cost, doubtful debts and finance cost.
It is not known whether the termination of card services here may be a prelude to a potential sale. A call to Diners Club customer service revealed that it will not be shutting down the travel business. DCM wholly owns Diners World Travel (M) Sdn Bhd, a company which in FY2014 recorded a net profit and revenue of RM1.06 million and RM3.43 million respectively.
The charge card market in Malaysia is very small compared to the credit card market. Charge cards in circulation have dwindled from the peak of 285,600 in 2008. Data from Bank Negara Malaysia shows that as at June 2015, the number of charge cards totalled 141,200, including Diners Club, Maybank Group’s American Express charge cards, Citibank Bank’s corporate cards (Citi Travel Account and Citi Business Signature Card) and Al Rajhi Bank’s Charge Card-i. In comparison, the number of credit cards in circulation as at June was 8.35 million. It is understood that Diners Club’s credit card business is smaller than its charge card business.
Charge cards can be distinguished from credit cards as the former tends to offer a much higher credit limit. Charge card holders have to settle the bill in full when due, failing which the card can be immediately suspended. Credit cards, meanwhile, allow a minimum payment to be made and for the remaining amount due to be rolled over to the following month.
Johan, incidentally, also holds the franchise for Singapore and operates the business through Diners Club (Singapore) Pte Ltd (DCS).
Johan acquired both the Malaysian and Singaporean businesses in 1983.
The Diners Club card business (from Malaysia and Singapore) posted revenue of RM119.15 million in FY2015, up from RM113.53 million previously. While Johan has other businesses in travel and tours, manufacture of ceramic wall and floor tiles, distribution and retailing of health foods and supplements, property development and resorts and hotels, card operations made up 48.6% of total revenue of RM245.06 million. In terms of geographical segment, Singapore contributed 65.3% of total revenue.
A search on the Companies Commission of Malaysia website shows that DCM suffered net losses in FY2011, FY2012 and FY2014. In FY2014, it posted a net loss of RM2.38 million on the back of RM39.78 million in revenue. As at Jan 31, 2014, accumulated profits stood at RM7.56 million, down from as much as RM29.88 million in FY2010.
Diners Club was founded in 1950 by Frank X McNamara. It is the first multi-purpose charge card in the world. McNamara had dinner in a New York restaurant but left his cash in another suit. He resolved to never be embarrassed again — leading to the birth of Diners Club.
DCM was established in August 1960 and was then known as Diners Club (Malaya) Sdn Bhd. The company is wholly owned by Strategic Usage Sdn Bhd, which is turn is wholly owned by DCS.
Citigroup acquired Diners Club International, the franchisor that holds the rights to the Diners Club trademark, in June 1981. Subsequently, in July 2008, the business was sold to Discover Financial Services. The majority of the franchises are independently owned.
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