What is the history of credit card's?

When did credit cards start?

The first concept of credit can be said to date back to at least 4,000 years ago in ancient Mesopotamia. Inscriptions on clay tablets from that time period show a record of transactions between Mesopotamian and neighboring merchants from Harappa, and are among the earliest known examples of an agreement to buy something at the moment but pay for it later.

Fast forward thousands of years, and these ancient I.O.U.s gave way to the earliest versions of store cards, where merchants in the Old West would issue goods to farmers and ranchers who wouldn’t have the money upfront to buy the supplies. The merchants would issue metal coins or small plates as a receipt of the loan, and as the farmers harvested their crops and ranchers sold their livestock, they would repay the merchant.

Over time, these placeholders for payment-in-full evolved in the U.S. into versions that more closely resemble the cards we know today.

Old style credit cards

When was the first credit card issued?

In 1950, the Diners Club card became the first store credit card to gain widespread use after founder Frank McNamara was inspired by leaving his wallet at home while going out dining. He and a partner, Ralph Schneider, launched the first Diners Club card, widely considered to be the birth of today's modern credit card. Patrons who held the card would charge their meal to the card and the restaurant would send the bill to Diners Club. In turn, Diners Club would send payment directly to the restaurant’s bank, taking a small commission for the transaction. Cardholders would be required to pay their bill in full each month to Diners Club.

In its first year of operation, Diners Club grew to more than 10,000 members and included 28 restaurants and two hotels that would accept monthly payments from their elite clientele, This was before any bank issued a credit card, and the entire credit card industry was still calm.

The real credit card business started.

The first to start with the credit card business was American Express. Although it began as a freight transport company, American Express eventually shifted its focus to its money order and traveler's check business, which provided a safe replacement for carrying large sums of cash. Eventually, American Express developed its first charge card in 1958, allowing customers to pay their bills monthly in exchange for an annual fee. Merchants who accepted the card would pay American Express a percentage of the amount being charged, a precursor to the practice widely used today known as interchange fees.

Later that year, California-based Bank of America took it a step further, issuing a paper BankAmericard with a pre-approved limit of $300 to 60,000 customers in Fresno and rolling the card out state-wide by 1966. This first attempt ended up being a costly error in judgment, with delinquency rates over 20% and rampant fraud.

That said, the concept of a revolving credit card that you could carry a balance on from month-to-month proved to be a success as America’s growing middle class grabbed on to this newest financial product that provided both convenience and an instant personal loan. Later, in 1976, BankAmericard changed its name to "Visa," a word that sounded the same in nearly every language.

In response to the success of the BankAmericard (Visa) in 1966, a group of California banks formed a partnership known as the Interbank Card Association (ITC) and released the second most popular credit card, first called the Interbank Card and later changed to Master Charge, which eventually became MasterCard in 1979.

According to Diners Club, in 1953, their card was the first internationally accepted charge card when businesses in the United Kingdom, Cuba, Canada, and Mexico began accepting payments from Diners Club cardholders.

By 1970, BankAmericard was so successful that the International Bankcard Company (IBANCO) was formed to roll out the payment card on a worldwide scale.

The Evolution of Credit Card Technology

A major breakthrough in credit card technology in the 1960s was the catalyst for popularizing credit cards as a payment method. An IBM engineer named Forrest Parry is credited with affixing magnetic tape to the back of cards so that consumers could have their information "swiped" at a point-of-sale terminal. Magnetic tape was originally used to store audio information, and Parry was tinkering with ways to have it contain cardholder information to put on a credit card. The legend has it that Parry’s wife, who was ironing, suggested he iron the tape onto the card, and the swipe stripe was born.

With technological advances come those who try to exploit them. As credit cards gained in popularity, so did the swindlers who used their own methods to make false charges using others' credit card information. The easy access of swiping a card meant thieves could use a card they found or stole. More sophisticated fraudsters developed a process known as "skimming" where a thief could skim the information with their own reader to steal the cardholder’s information.

A safer technology was developed in France in 1984 when microprocessors were embedded into cards that could be read by specialized payment terminals. By 1994, all credit and debit cards in France employed this technology, which, combined with a PIN, or personal identification number, added extra layers of protection to the payment process.

Soon, other countries developed their own credit card chip systems, but since the card readers were not interchangeable, it meant someone traveling to another country would have to have their card swiped instead of having the chip read. The need for a standardized payment system became a global issue, and in 1994, three international payment processors—Europay, MasterCard, and Visa—began the development of a global chip specification for payment systems.

In 1996, the first specifications for EMV chips were released, with subsequent versions released afterwards. The most significant advance in the credit card chip industry came with the advent of contactless payment systems, where a credit card’s chip could be read by holding it near to an enabled payment terminal. This could be done with Near Field Communication (NFC), a type of radio frequency that was used so that a card’s chip and the point-of-sale terminal could "talk" to each other. Eventually, card information could be stored in smartphones and wearable devices and read by terminals using the same NFC technology.

Today’s Credit Cards

Credit card legislation over the past few decades has provided a number of valuable and meaningful protections, helping to curb abuses by issuers and protect cardholders from incorrect and fraudulent activity on their accounts. But consumer advocates say there’s more still to be done.

For example, some issuers still use deferred interest in combination with an introductory 0% APR offer. This means that if the cardholder doesn’t pay off the entire balance within the promotional period, they’ll also be responsible for paying interest retroactively from the time they made the purchase, making the initial purchase far more expensive.

No law is perfect, however, and it’s undeniable that the legislation currently in place has provided much-needed safeguards in a hundred billion dollar industry. As credit card technology continues to advance, so too will the need to adapt and evolve the laws governing abusive practices.

Where can I get a credit card?

There are numerous websites that provide assistance in opening credit cards. The most notable feature, however, is card rating. They have numerous ways to filter the credit cards and a variety of details about each credit card. At the same time, the majority of credit cards are listed.

Bottom Line

For hundreds, if not thousands, of years, credit cards and their predecessors have been a convenient form of payment. As commerce changed and evolved, so did the ways in which credit cards were used and governed. Consumer demand for credit products continues to rise, and credit card rewards, perks, and other features other than the basic function of making payments evolve to meet society's changing needs.