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
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
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
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
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.
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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