Editor’s Note: This blog entry was originally published on August 2, 2017, and updated on November 3, 2020.
Credit cards are ubiquitous, and it’s hard to think of modern life without them. How did people pay for anything without carrying a convenient piece of plastic everywhere they go?
The idea of credit spans millennia, as the earliest known extension of credit occurred in Babylon around 1800 B.C. But the modern credit card as we know it didn’t come into existence until the turn of the last century.
The Precursor to Plastic: Coins and Charge Plates
Credit in the U.S. traces back to the mid-1800s. Credit coins provided local farmers the flexibility they needed to hold off paying their debts until they harvested their crops or sold their livestock.
In the early 1900s, oil companies and department stores saw the need to adapt from credit coins. For customers who didn’t want to carry large amounts of cash, they began recording big-ticket items in a ledger book and would request payment later. However, as populations increased and stores expanded, it became difficult to remember every customer and keep track of their balances.
By issuing early versions of today’s in-store credit cards, companies could provide a means of identification (such as a specific number) to confirm a customer’s identity. These initial credit cards were not made of plastic yet and proved to be limiting as customers could only use them at the respective business that issued the card.
Charg-It Leads the Charge
Charge plates came on the scene in the late 1920s. Referred to as “Charga-plates,” they were metal, dog-tag style plates imprinted with the customer’s name and their city. It allowed merchants to make an imprint of the information for record-keeping purposes.
In 1946, John C. Biggins, a banker at Flatbush National Bank in Brooklyn, created a bank card named “Charg-It.” This idea was revolutionary at the time, as multiple businesses within a two square block radius from the bank accepted the card. The bank would reimburse the merchant, then invoice the customer. It was a hit with locals and businesses, as they all had the payment flexibility and convenience they craved.
When Did Credit Cards Come Out?
When Alfred McNamara went out to dinner with two business associates in 1949, it was time to settle the bill when he noticed he forgot to bring his wallet. Embarrassed, he believed there had to be a way to solve the issue of not having enough cash on hand to pay for a good or service.
In 1950, the Diners Club card debuted, bringing McNamara’s idea of lending to life. To clarify, it wasn’t exactly the first credit card since there were earlier credit cards before that failed. Technically, it was also a charge card; it required cardholders to pay the balance in full each month, and there was no interest rate, either. However, it was the most successful out of all the previous brands and therefore recognized as the first major credit card in the U.S.
The card stood out because it was a small cardboard wallet slip that could be used at any participating restaurant in the U.S., proving that the concept of credit didn’t have to be exclusive to one business or one area of town.
The Diners Club brand experienced high growth in its first year, gaining more than 20,000 cardholders within its first year.
The 1950s Credit Card Competition Heats Up
With the Diners Club card growing in popularity throughout the decade, the idea of credit began to transition away from a negative connotation. Rather than being associated with having trouble paying a bill, it instead promoted a glamorous accessory that supports the lifestyle you want now - while paying for it all later.
In 1958, American Express launched its first credit card. The company that initially started as a freight forwarder and seller of financial products and travel services found its calling in the credit card industry. Soon after, Amex introduces the first plastic card, solidifying the transition from cardboard and metal plates.
In the same year, Bank of America in California debuted their credit card, “Bank Americard,” with a twist. For promotion purposes, they mass-mailed active cards to consumers in certain parts of California. While this rollout didn’t go as planned (fraud became a significant issue), the company managed to overcome it.
Bank Americard was the first card that offered revolving credit - the ability to carry over a balance from one month to the next. After spinning off into an interbank association and expanding internationally, they eventually became known as Visa in 1976.
When Did Credit Cards Become Popular?
The credit card industry experienced explosive growth during the 1960s. At the end of 1960, almost a million Bank Americards were in circulation. By the mid-1960s, thousands of merchants across 42 states accepted the Bank Americard.
In 1966, a group of California banks formed the Interbank Card Association, which eventually became MasterCard. Amex also established its corporate credit card program, making it more common for business people to use company credit cards for expenses.
By the end of the 1960s, more than 100 million credit cards were mass-produced and sent to potential customers that banks believed to be creditworthy.
Credit Cards of the Future
Subsequent decades saw the inclusion of magnetic stripes to store data, implementation of loyalty programs, technological innovations that reduce fraud, and instant processing times. Seventy years after the Diners Club’s success, credit cards continue to evolve.
The 2010s ushered in the era of digital payments, with the rise of mobile and contactless options. Furthermore, personalization in the payments landscape provides the opportunity to engage with businesses in new ways, emphasizing the convenience of touchless transactions.
The 2020s forecast a significant increase in adoption rates for these newer payment technologies based on current trends. Those who are bullish on mobile payments may even be inclined to argue that the plastic credit card as we know it may soon disappear.
Crystal ball predictions aside, Global Payments Integrated continues to be a partner for ISVs looking to embed traditional and cutting-edge mobile payments technology to enhance their software offerings. Contact sales today to get started.