#426 When were credit cards invented?
When were credit cards invented? The first use of the phrase “credit card” was in 1887.
A credit card is a system whereby a customer can pay for goods using a line of credit from the credit card provider. The credit card provider basically pays for the goods up front, and the customer reimburses the credit card company later. Most card companies charge an interest rate of between 15 and 19, and they also charge the merchants between 1.5 and 3.5% of every purchase. That means, if you buy a chocolate bar for $1, you pay the credit card company $1.20. The merchant makes 97₵, and the credit card company makes 23₵. They have discovered a pretty lucrative business.
So, when were credit cards invented? Credit has been given for as long as people have had money and other people have had stuff to sell. Since the Bronze Age, most cultures have been agricultural and farmers only usually have money once the harvest has come in. It was very common to give credit until the harvest was taken in and it would be repaid. In Mesopotamia, 5,000 years ago, clay tablets were used to write down the credit that had been given to the Harappan civilization.
The first use of the word “credit card” was in a novel by Edward Bellamy in 1887. It was called Looking Backward, and is a science fiction novel. The citizens in his novel receive money from the government and they spend it with a credit card.
The idea of having something to signify that a person could get credit appears to have come about after the American Civil War. Charge coins were given to people that were allowed credit from a business. The coins were tokens that had a shop’s logo on them and an account number. The customer would show the coin and the clerk would add the purchase to the account with the number on the coin. If someone lost the ability to pay, their coin was taken off them.
In 1928, a charge plate was invented. It was a piece of sheet metal, about the size of a modern credit card, and kept in a case. It was embossed with the customer’s information and had a paper card on the back that the customer had to sign. When a customer used the card to pay, it was put into an imprinter that stamped the information onto a charge slip. The plates were called Charga-Plate, which was a trademarked name.
In 1946, an American banker called John C. Biggins had an idea that led to the next evolution in the credit card. He gave his bank customers a card that he called a Charg-it card. His customers could use that card within a two-block radius of the bank to buy anything at any store, and the bank would send the money to the store. The customer would pay the bank back at a later date. Within four years, a lot of different banks had taken up the idea and there were hundreds of different cards like John C. Biggins’s card. However, you could only use a specific card in that area. If you travelled a lot, you would need a lot of cards and a lot of bank accounts.
In 1950, Ralph Schneider and Frank McNamara founded Diners Club. The story goes that Frank McNamara was eating lunch and realized he had left his wallet at home. His wife paid, but he thought how good it would be if he had a card he could use anywhere to pay for things. He made a cardboard card with his signature on the back, and that was the start of Diners Club. With investment, he started selling his diners club card to customers and businesses and it became the first credit card that was usable in multiple areas.
Diners Club was becoming more successful, but it required its customers to settle their entire account at the end of every month. In 1958, Bank of America launched their BankAmericard. They took advantage of their huge customer base to give out thousands of cards at the same time. They then used the fact that thousands of people had BankAmericards as a reason why stores should take it. They introduced the idea of revolving credit, where people didn’t have to pay off their entire balance every month. They started licensing the card to other banks around America, and then the world, making an international credit card. Another group of banks started Master Charge to compete with the BankAmericard. Obviously, Master Charge became MasterCard and BankaAmericard became Visa.
The first plastic card was made by American Express in 1959 and the magnetic strip was invented in 1969. Since then, credit card technology has evolved to the point we are at today, where we can touch and go, paying instantly for things. However, as we move onto smartphones, the physical credit card’s days are probably numbered, but the massive international corporations that provide the credit behind the cards are definitely here to stay. And this is what I learned today.
Sources
https://www.nytimes.com/wirecutter/blog/the-first-american-credit-card-was-a-coin/
https://en.wikipedia.org/wiki/Credit_card
https://en.wikipedia.org/wiki/Diners_Club_International
https://www.bankrate.com/finance/credit-cards/the-evolution-of-credit-cards/
https://www.nytimes.com/wirecutter/blog/the-first-american-credit-card-was-a-coin/
https://www.forbes.com/advisor/credit-cards/history-of-credit-cards/
https://www.nerdwallet.com/article/small-business/credit-card-processing-fees
https://www.moneygeek.com/credit-cards/analysis/average-credit-card-interest-rates/