Have you ever stopped to think about the evolution of your credit card? Where did it come from? How was this system of paying for your purchases developed? Would you believe that the history of credit cards actually started way back in the 18th century?
In 1730, Christopher Thompson, a furniture merchant, created the first advertisement for credit by offering furniture that could be paid off weekly. This introduced the idea that people who couldn’t afford to buy “big-ticket” items could make regular payments until the full cost of the items were paid.
That idea was picked up and used, from the 18th century until the early part of the 20th century, by tallymen. Tallymen sold clothes that the purchasers could pay for in small weekly payments. They kept a tally (thus the name tallymen) of what people had bought on a wooden stick. One side of the stick was marked with notches to represent the amount of debt and the other side was a record of payments.
During the rise of the British middle class, bankers introduced the idea of overdraft protection. This was one of the first forms of consumer credit because it was really a type of loan that kicked in automatically if an account didn’t have enough money in it to cover the checks written against it.
Industries recognized the need for credit
The system of credit took a real turn in 1914, when Western Union, in the interest of good customer service, gave some of their more prominent customers a metal card to be used in deferring payments – interest free – on services used. This system became known as “Metal Money”.
Then another company realized the value of making goodwill gestures to their customers. In 1924, General Petroleum Corporation issued the first metal money specifically for gasoline and automotive services. They offered this first to their employees, then to select customers and then, because the system seemed to work so well, to the general public.
The Ford Motor Company played a large part in creating the consumer credit business. Just like Christopher Thompson back in 1730, Ford recognized that not all Americans had enough savings to buy a Model T. Even those who did have enough might not want to put their whole life-savings into just a car. So Small Loan Companies, or Finance Companies, began making their first car loans.
In the late 1930’s, American Telephone and Telegraph (AT&T) introduced the “Bell System Credit Card.” Other industries followed suit – railroads and airlines introduced similar cards. The system of credit was fast growing in popularity.
But then World War II came along and, with it, came the prohibition of all use of credit and charge cards. However, as soon as the War was over, business starting booming. Travel became more popular. People were also beginning to acquire more costly modern conveniences for their homes, like kitchen appliances and washing machines. These demands on the budget made the concept of credit more popular because people could buy things with credit cards that they couldn’t afford to buy with cash. So the demand for credit cards increased in ratio to the improvement in lifestyles. People wanted more – and they wanted it now!
Charge cards evolved as lifestyles improved
After seeing these trends of increased travel and spending among those who held charge cards, banks became interested in credit cards and online banking.
Since they were in the business of lending money, they saw the potential of gaining income by charging interest on credit cards.
1950 marked the real beginning of the credit card most of us are familiar with today. Diner’s Club, Inc. introduced the first credit card that could be used at avariety of stores and businesses. This card was established primarily for businessmen to use for travel and entertainment expenses. The Diner’s Club gave its cardholders up to 60 days to make payment in full. Merchants were eager to accept the card because they found that credit card customers usually spent more if they were able to “charge it”.
The first bank to implement this system was the Franklin National Bank in New York. In 1951, after screening applicants, they issued the Charge-It card to those approved for credit. This card could be used by consumers at local retail establishments. It worked much like the credit card systems of today – the consumer made a purchase using the card; the retailer obtained authorization from Biggins Bank, and closed the sale. The Bank reimbursed the retailer and collected the debt from the consumer at a later date.
What a great idea for everybody involved! Other banks saw the same potential. In 1958, the “Don’t leave home without it” card was introduced by American Express. But the first revolving-credit card was issued in the State of California by the Bank of America. The BankAmericard, marketed all across the state, was the first card to offer its cardholders payment options, where they could pay the debt in full or they could make monthly payments while the banks charged interest on the remaining balances.
In 1965, Bank of America saw more potential for income and control so they issued licensing agreements to banks of all sizes across the nation. These agreements allowed the other banks to issue BankAmericards and to interchange transactions through issuing banks. Now everybody was getting in on the act!
All these credit card systems – they needed some regulation
The credit card industry was booming! But some kind of regulation became necessary. Charge card issuing and processing became too large of a task for the banking industry to handle. In 1966, fourteen US banks had formedInterlink, an association with the ability to exchange information on credit card transactions. In 1967, four California banks had formed the Western States Bancard Association and introduced the MasterCharge program to compete with the BankAmericard Program. By 1969, most independent bank charge cards had been converted over to either BankAmericard or Master Charge cards.
As the bankcard industry grew, banks interested in issuing cards became members of either BankAmericard or MasterCharge. Their members shared card program costs, making the bankcard program available to even small financial institutions.
By the mid 1970s, the credit card industry started exploring international waters. But the name “America” caused some problems. So, in 1977, BankAmericard became VISA. Then in 1979, MasterCharge followed suit and changed its name to MasterCard.
In 1979, with the improvement of electronic processing, electronic dial-up terminals and magnetic stripes on the back of credit cards allowed retailers to swipe the customer’s credit card through the dial-up terminal, which accessed issuing bank cardholder information. The advantage of this system, besides saving paper, was the increased speed of processing authorizations – one to two minutes. It also decreased credit card fraud.
Credit cards today – an abounding industry
There are five leaders in the credit card industry today:
- Visa International
- American Express
- Diner’s Club
There are other check processing companies trying to penetrate the market, like Euro Card, JCB and ATM companies, but credit cards still account for over 90% of all e-commerce transactions.
Visa has been a leader in credit card innovation. This has brought them the recognition as the world’s leading credit card association, with over one billioncards being issued, and carrying over 50% of all credit card transactions conducted worldwide.
So there you have your history of credit cards. An interesting journey – one that gives you knowledge. And knowledge used brings wisdom.