The History of Credit Cards
The credit card as we know it today was born in the 1950s but the process of putting charges on
credit dates back to the 1800s. The earliest credit cards took the shape of metal plates, coins,
celluloid and even cardboard. These were for use between a single merchant and its customers. It
wasn’t until the 1940s when merchants began to accept the credit cards of other companies.
The first bank issued credit card was invented by banker John Biggins in 1946. He developed a
program where merchants could extend credit to their customers. The merchants would bring the
sales receipts to Biggins’ bank which would then bill the customers for the amount they owed.
In 1949, the Diners Club Card emerged on the credit card scene. Originally made of cardboard,
this credit card was developed after business man Frank McNamara was presented with a
restaurant bill only to discover that he had forgotten his wallet! The Diners Club Card quickly
gained popularity and by the early 1960s, it became a plastic card. Although often referred to as
a credit card, the Diners Club Card was a charge card and therefore, the cardholder had to pay
the entire balance when the bill arrived.
In 1958, American Express introduced its version of the charge card. Originally, this card was
created to be used for travel and entertainment purchases. In the 1990s, the American Express
card evolved into the multi-purpose credit card as we know it today.
Both the Diners Club Card and the American Express card were part of a ‘closed-loop’ system.
This meant that each credit card company dealt directly with the cardholder and merchant.
The 1960s marked an important shift in the credit card industry with the emergence of bank
associations. In this so-called ‘open-loop’ system, banks joined together to form larger groups
known as associations that issued credit cards. Now consumers were given a line of credit and
were no longer obligated to pay their balance off at the end of each billing cycle. Two of the
earliest associations were BankAmericard and InterBankCard Association, now known as VISA
and MasterCard. The benefits of associations were that they allowed for the development of
standards and cost sharing among member banks. As credit card use spread so did the demand
for payment processing, leading to the creation of companies specializing in such services.
Discover Card was introduced another twenty years later in 1986. Although relatively younger in
age than the other credit cards, Discover Card has managed to become a major player in the
industry.
MasterCard and VISA both enjoyed a monopoly in the bank arena until 2004. At this time the
U.S. Government and Department of Justice handed down an antitrust ruling against these two
associations. From this date forward, banks and issuers could offer options such as Discover or
American Express to its cardholders.
The credit card industry has come a long way. As technology continues to develop rapidly, it is
certain that there are many changes to come!