History of the Credit Card Industry

     The following is a brief history of the credit card industry from birth to present.  Various references were used in compiling this information.

     Charge cards can be dated back to the early 1900s.  In 1914, what seems purely as a customer service goodwill gesture, Western Union gave some of their prominent (preferred) customers a metal card to be used in deferring payments—interest free—on services used.  One source said this card became known as “Metal Money.”

     As time progressed so did the charge card.  Up till the start of WW II, department stores, communication companies, travel and delivery companies, and oil companies had extended this service to their preferred customers.  These company based charge cards were limited by their use exclusively through the issuing company.  These companies issued the cards, processed the transactions, and collected the debts from the customer.

     In WW II, the use of credit and charge cards was prohibited.

     After WW II, credit cards became more accessible to the general public After seeing trends indicating increased travel and spending among those who held charge cards, banks became interested in credit cards—after all they were in the business of lending money, and they saw the profit potential behind attaching interest to the cards.

     When banks first got into the credit card business, they were only issuing cards to local consumers.  In 1951, the Franklin National Bank in New York, issued the “Charge It” card.  Which allowed consumers to make charges at local retail establishments.  This charge card system worked much like credit card systems work today.  The consumer made a purchase using the card; the retailer obtained authorization from the  bank, and closed the sale.  The bank would reimburse the retailer and collect the debt from the consumer at a later date.  Other banks across the nation were impressed with the success of this process that within several years after the “Charge It” card they offered their customers similar services for making purchases at local retail establishments.

     In the 1950s the first charge card was developed that allowed consumers to make charges for services and goods from a variety of retail outlets.  This innovation was the Diner’s Club charge card, which was established for business men to use for travel and entertainment expenses.  The Diner’s Club card gave its members up to 60-days to make payment.

     The first “revolving-credit” card was issued in the State of California by the Bank of America.  The card, BankAmericard, was marketed all across the state.  This card set another milestone in the development of the credit card industry.  The BankAmericard was the first card to give cardholders payment options.  Payment options like today’s cards, let consumers pay the debt in whole or they could make monthly minimum payments while the banks charged interest on the remaining balances.

     By the 1960s, bank card associations begun to emerge.  In 1965, Bank of America issued licensing agreements to other banks—both large and small—across the nation.  These licensing agreements allowed other banks to issue BankAmericards and to interchange transactions through issuing banks.

     By 1969, most independent bank charge cards had been converted over to either the BankAmericard or Master Charge cards. 

     Eventually, charge card issuing and processing became too large of a task for the banking industry to handle.  That is what lead to the emergence of credit card associations such as Interlink Association, Western States Bank Card Association, and National BankAmericard Inc.   Current associations include Visa and Master Card.

     The next major changes in the credit card industry involved streamlining transaction processing and reducing credit card fraud.  In the early 1970s, electronic authorizations allowed the retail establishment to get approval for credit card transactions 24 hours per day.

     By the mid 1970s, the credit card industry started exploring international waters, but had some difficulty because of the name association; “America” in BankAmericard, for instance.  This lead to the renaming of BankAmericard to Visa and Master Charge followed suit by changing its name to Master Card.

     By 1979, electronic processing was improving.  Electronic dial up terminals and magnetic strips on the back of credit cards allowed retailers to swipe the customer’s credit card through the dial up terminal, which accessed issuing bank card holder information.  This process gave authorizations and processed settlement agreements in a mater of 1-2 minutes.  An added benefit was paper reduction.

     The early 1980s, gave birth to the first Automatic Teller Machines (ATMs), which allowed consumers access to cash, and to make deposits, 24 hours a day across our nation and in other countries as well.  Credit card holders could access cash in different currencies.

     Since its existence, Visa has been a leader in credit card innovation.  Because of this they have emerged as the world’s leading credit card association with over 1-billion cards being issued, and carrying over 50% of all credit card transactions conducted world wide.

“Visa (International) is a “not for profit” organization comprised of over 40,000 member Banks and MasterCard is a for "Profit" company who issues credit cards and sets and maintain rules for credit card acceptance and processing.  They are both run by board members who are mostly high-level executives from their member banks and industry heavy hitters.”

     There are five leaders in the credit card industry: Visa International, MasterCard, American Express, Discover and Diner’s Club. There are others trying to penetrate the industry like check processing companies, Euro Card, JCB and ATM companies but credit cards still account for over 90% of all e-commerce transactions !  

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