When Was The Credit Card Invented?

Credit cards have become ingrained into almost every society in the world. Considering that many nations are also pushing for cashless societies, it is likely that credit cards will continue to grow in relevancy. 

However, have you ever stopped to wonder where these useful little sheets of plastic came from? Considering how adverse to change we can sometimes be, it is hard to imagine how people first began to accept the idea of the credit card over using cash.

If you’ve ever wondered how the modern-day credit card began, here’s a brief history.

The beginning

The concept of buying on credit is nothing new. Merchants have allowed customers to buy something and pay for it later for centuries. Credit cards simply formalised the process and implemented a system around it. 

If we are looking for the earliest iteration of a credit card, you could argue that it was launched in the early 1900s by department stores and oil companies. However, these cards were more akin to the store cards of today, since they only allowed purchases at specific stores.

Birth of contemporary credit cards

The 1950s is when the first modern credit card was introduced. Store cards had become quite popular by this time but were generally a tool for the wealthy. During this time, a man by the name of Frank McNamara embarrassed himself during a dinner with clients when he realised that he left his wallet in another suit. This inspired him to devise a way to pay for bills without the need for cash.

Together with his business partner, Ralph Schneider, they founded the Diner’s Club. The company then launched its first charge card, which resulted in considerable success. Patrons using a Diner’s Club card could have their meals charged to the card and the restaurant would send the bill to Diners Club. Diner’s Club would send payment directly to the restaurant’s bank, taking a small commission for the transaction. 

By the end of its first year of operation, Diner’s Club grew from having 10,000 members of New York businesses, 28 restaurants, and two hotels, to more than 40,000 members across major US cities.

The banks join in

In 1958, more companies and establishments began adopting similar charge cards as well. American Express developed its first charge card, allowing customers to pay their bills monthly in exchange for an annual fee. Merchants who accepted the card would pay American Express a small fee. The California-based Bank of America also issued their BankAmericard with a preapproved limit of US$300 to 65,000 customers in Fresno and rolled out the card nationwide by 1966. However, this first attempt proved costly and fraud and delinquency soared during this time.

The revolving credit card concept, where you could carry your balance from month to month, proved highly successful. The idea of being able to get an instant personal loan resonated with the growing American middle class. By 1976, BankAmericard changed its name to Visa, a name that everyone is familiar with today.

Interbank and beyond

In response to the success of the BankAmericard, several Californian banks formed a partnership in 1966 and became known as the Interbank Card Association (ICA). They would go on to release what would become the second most popular credit card. This was first called the Interbank card, but would later become Master Charge. If that name is curiously familiar, it is because Master Charge eventually became Mastercard in 1979. 

The 1970s was also the period that saw credit cards really take off globally. By 1970, BankAmericard was so successful that the International Bankcard Company (IBANCO) was founded to roll out payment cards worldwide.

The evolution

Between the 1960s and 1970s, a major breakthrough was made which helped to raise the credit card’s popularity to the next level. 

Addition of the magnetic stripe

IBM engineer Forrest Parry is credited with affixing magnetic tape to the back of cards, allowing consumers to “swipe” their card at a point–of-sale terminal. This made using credit cards a lot more convenient.

However, this convenience came at a price. As credit cards gained more popularity, more scammers and fraudsters also began to appear. The easy access of swiping a card meant thieves could use a card they found or stole.

Creating the card chip system

Fortunately, a new type of credit card was developed in France in the late 1970s. It came with microprocessors as well as a magnetic stripe. This would go on to be the basis for smart payment cards, which had improved security over simple magnetic stripe cards.

Other countries would soon begin developing their own chip system for cards, but they would not be interchangeable with each other. This obviously caused problems for frequent travellers. The need for a standardised payment system became a global issue. In 1994, three international payment processors, Europay, Mastercard, and Visa, came together to develop specifications for a standardised payment system.

EMV, contactless and virtual credit cards

The first of these EMV chips would be released around 1996, with many iterations and revisions coming later. Arguably one of the biggest advancements in credit card technology that came after this is the implementation of contactless payment systems. This allows the credit card’s chip could be read by holding it near a payment terminal. 

This could be done with Near Field Communication (NFC). It is a type of radio frequency that allowed the chip within the card to “talk” to a point-of-sale terminal. Eventually, with the advent of the smartphone, card information could be stored in these devices, resulting in fully virtual credit cards. With many countries in the world today pushing for a cashless society, it makes sense that credit cards would want to take part in the digital revolution as well.

Rewards and loyalty programmes

Rewards and loyalty programmes have existed for a long time, so it only made sense for credit card issuers to begin implementing them eventually. The first to integrate an airline affinity program was American Airlines in 1981. More would soon follow suit, as credit cards began issuing their own multipurpose rewards programs. The most popular ones include cash-back rewards (1986) and membership rewards (1991). 

Today, rewards have become ubiquitous with credit cards. Every credit card out there has some form of rewards programme tied to it.

In addition, there is now a whole range of financial services and products leveraging on the use and popularity of credit cards. Business credit cards, co-branded credit cards, student credit cards and secured credit cards are some of the popular card options available. There are also credit cards that can help you manage your monthly finances. The most useful options are balance transfer and instalment payment plan credit cards. They offer low or even zero interest rates for a certain time period so you can save on interest payments.

What does the future hold?

Credit cards began as a simple way to make payments without having to carry your wallet around. Now, they have become a nigh indispensable part of life due to its usefulness and convenience. 

Credit card innovation is constantly growing as technology continues to advance. In the near future we could potentially see biotechnology playing a part in our payment systems. We can at the very least be sure that credit cards will continue to evolve along with us.