The history of credit cards

When was the credit card invented? Although it seems that credit cards have been around forever, they didn’t exist a century ago. The first credit card payment method appeared in 1950 when Ralph Schneider and Frank McNamara founded the Diners Club. and issued their first cards. But this wasn’t really a credit card. Instead, it was a credit card that required the cardholder to pay off the balance in full each month.

Over the years, credit cards have evolved. True credit cards with revolving lines of credit were invented. Magnetic strips and later EMV chips were added. Below is more about credit card history.

Origin of the credit card

According to historian Jonathan Kenoyer, the concept of using a worthless instrument to represent banking transactions dates back 5,000 years, when ancient Mesopotamians used clay tablets to transact with the Harappan civilization. Although still a cumbersome method, using clay tablets bearing the seals of both civilizations was easier than melting down tons of copper to produce the coins of that era.

There was a breakthrough in America, around the 19th century. During the westward expansion, merchants used credit coins and cargo plates to grant credit to local farmers and ranchersallowing them to forgo paying their bills until they harvested their crops or sold their livestock.

Twentieth century

In the early 20th century, some American warehouse and oil companies took credit a step further by issuing their own proprietary cards, the precursor to today’s store cards.. These cards were accepted only at the issuing merchant and were designed to promote customer loyalty and improve service, not so much for convenience.

Bank-issued credit cards originated in 1946 when a Brooklyn banker named John Biggins launched the Charg-It card. Charg-It purchases were forwarded to Biggins’ bank. This was the middleman who reimbursed the merchant and obtained payment from the customer in what became known as the “closed-loop” system. Purchases could only be made locally, and bank customers were the only ones who could get a Charg-It card. Five years later, the Franklin National Bank of New York followed suit, issuing its first credit card to its loan customers.

With post-war America on the march, two dining and entertainment credit cards quickly followed, marking a very important moment in the history of credit cards.

Diners Club

first Diners credit card

The card Diners Club hit the market in 1950 and claims its title as the first widely used credit card. Although his purchases were made on credit, Diners Club was technically a charge card. This meant that the account had to be paid in full at the end of each month. In 1951, the Diners Club had 20,000 cardholders.

American Express

The card American Express was launched in 1958. However, its history dates back to the year 1850 when it was created to compete with the United States Postal Service. American Express had introduced money orders in 1882. In 1891 it had invented traveler’s checks and was contemplating a travel charge card in 1946, before the Diners Club got ahead of it..

American Express would soon achieve milestones of its own such as introduce the first plastic card in 1959, replacing cardboard and celluloid. In five years, one million American Express cards were used in 85,000 stores, both domestic and foreign.

The history of credit cards: revolving credit

The big banks soon launched their own consumer cards, but with an added benefit. Instead of users having to pay their bill in full each month, bank cards actually became credit cards, offering revolving credit. This would allow cardholders to carry over their monthly balance for an additional fee.

In 1958, Bank of America was the first to mail BankAmericard credit cards. unsolicited to certain California markets. By 1966, BankAmericard went national and became the nation’s first licensed general-purpose credit card. It would change its name to Visa a decade later to recognize its growing international presence.

Also in 1966, a group of California banks formed the Interbank Card Association (ITC), which soon issued the nation’s second largest bank card, MasterCard.. Now known as Mastercard Worldwide, the nation’s first card association competes directly with a similar organization, Visa.

Unlike its non-banking competitors, bank card associations operate in an “open loop” system that requires interbank cooperation, as well as fund transfers. Initially, banks had to choose between the Visa partnership and the MasterCard partnership. But changes to the association’s statutes have since allowed banks to join both associations and issue both types of cards to their customers.

The history of credit cards: Regulation and litigation

As the popularity of bank and non-bank credit cards skyrocketed in the 1970s, so did legislation designed to deal with consumer complaints against this industry. Among the most important legal modifications, the following can be mentioned:

  • The Fair Credit Reporting Act of 1970 restricted the collection and use of credit report data.
  • In 1970, the Unsolicited Credit Card Act prohibited issuers from sending active cards to customers who had not applied for them.
  • The Fair Credit Billing Act of 1974 amended the Truth in Lending Act. The purpose was to curb abusive billing practices and allow consumers to dispute billing errors.
  • Also in 1974, the Equal Credit Opportunity Act was passed. It prohibits lenders from discriminating against any applicant on the basis of gender, race, marital status, nationality, or religion.
  • The Fair Debt Collection Practices Act of 1977 amended the Consumer Credit Protection Act. In this way, abusive debt collection practices were prohibited and the debtor’s bill of rights was modified.

In 2009, the Credit Card Accountability and Disclosure Act of 2009, also known as the CARD Act, was passed. It provided greater transparency for consumers and eliminated or reduced a number of card issuer violations. Being some of them: interest rate hikes, late fees and charges for excess limit in the midst of the Great Recession.

The discover case

The debut of the Sears Corporation Discover card in the 1986 Super Bowl led to significant litigation when Discover filed an antitrust lawsuit against MasterCard and Visa for illegally preventing banks in their association from issuing Discover cards. The litigation ended in 2004, when the US Supreme Court refused to hear the defendants’ appeal, effectively allowing banks and other card issuers to issue multiple card brands.

The history of credit cards: Innovation and technological transformation

Since 1960, when IBM introduced magnetic stripe (or “mag-stripe”) verification on credit cards, technological innovations have occasionally been the center of attention in the “cashless payment” sector.

The classic card shape changed significantly in 2002 when the main issuers created true wonders such as the MasterCard SideCard (keychain cards to hang on gym bags) or the Discover2Go (plastic pieces similar to a keyring that incorporate the card and a knife). Card personalization also allowed users to add their favorite photo to the front of the card.

Both MasterCard and Visa launched interactive cards which had built-in small LCD screens. accompanied by a button or a keyboard through which an access code is obtained to carry out the transactions. For his part, the Commerzbank of Germany and the Japanese card giant JCB launched aromatic cards which were very fashionable. As a curious fact we can mention that some jewelers made very artistic card designs.

RFID (Radio Frequency Identification)

The arrival of radio frequency identification (RFID) enabled contactless identification verification. To do this, the cards were embedded with an RFID chip/antenna assembly to communicate with a merchant’s RFID card reader. This fueled a fashion trend that included contactless bracelets, bangles, and watches. Card manufacturers have also explored more exotic biometric solutions for cardholder verification, including facial, iris, hand and finger scanners, voiceprints and even RFID chip implants.

The quest to improve card security shifted from magnetic stripe and RFID to the EMV computer chip. Its pioneers were Europay, Mastercard and Visa. The advantage of EMV: it is a more secure payment and identity verification solution. The downside: Still reliant on a physical card.

Keep reading: 7 ways to consolidate credit card debt

The future of credit cards

What will credit cards be like in 25, 50 or 100 years? Judging by the changes we see all around us today, from rapidly evolving online and mobile payment technologies, to home appliances digitally controlling and reordering their own content, card payments are likely to become increasingly integrated into our lives in creative ways.

As a precursor to future payment alternatives, Apple introduced Apple Pay in 2014, the first widely used mobile payment technology. It’s not uncommon for today’s teens to prefer the convenience of a payment app on their smartphone over a physical card.

50 years from now, it is equally likely that a unique, 100% theft-proof physical identifier such as hand vein pattern or even DNA, replace magnetic stripe and chip as credit card payment verification.

Even more impressive, in a century we can become our own credit card. Our physiology will be identifiable through video and artificial intelligence in stores, banks, restaurants, etc.

With this journey that we have made through the credit card historywe can clearly imagine where we are going.

Keep reading: