Introduction
The widespread use of credit cards today appears commonplace. You gather your essentials before leaving the house, including your wallet, cell phone, and keys. Along with your ID and other necessary cards, your wallet may also contain some cash. For 79% of American adults, a credit card completes the essentials.
It’s difficult to picture a time before the convenience of the contemporary credit card, but throughout a large portion of human history, systems of credit—in which one party loans money or resources to another party without expecting quick repayment—were managed orally or recorded in some type of ledger.
The first “credit card” didn’t appear until the early 1800s, and even then, it was more of a bulky metal plate than the sleek modern-day plastic (or entirely digital) appearance that we now take for granted.
Background of Credit Card
Credit-based economies predate the invention of money itself. Most economic transactions throughout the Bronze Age were conducted using what would be considered a line of credit today. Because the time between planting a crop and harvesting it was stretched out over months, this system of credit was possible. Our ancient ancestors frequently accrued debt while their crops were growing, which they would then repay when harvest time arrived, according to American economist Michael Hudson.
More than 5,000 years ago, the Mesopotamian civilization utilized clay tablets to trade with the nearby Harappan civilization in the first recorded transaction that served as the basis for our contemporary credit card system.
Additional examples of systems similar to credit cards can be found in the United States in the early 1800s, a few thousand years later. Merchants in the nascent Wild West exploited the creation of payment mechanisms like credit coins and charge plates to extend credit to farmers up until the season’s final harvest.
Charge-It card to Metal Plates
When Western Union started issuing metal plates to a small number of its customers at the start of the 20th century, the idea of a contemporary credit card system made significant strides.
These metal plates gave the customer the option to postpone paying for costs they had accumulated. Though conceptually similar to modern credit cards, Western Union’s metal plates had many limitations compared to their modern equivalents and could only be used for certain types of transactions by a restricted number of clients.
When John Briggins, a Brooklyn banker, invented the “Charg-It card” as a new form of payment in 1946, metal plates were rendered obsolete. The Charge-It card utilized Biggins’s bank as a middleman for transactions such that the bank made the initial payments to merchants for the goods that consumers purchased and was later reimbursed by the Charg-It card user. The first closed-loop credit card was Briggins’ Charg-It card.
Contemporary Credit Cards' Emergence
The “Diner’s Club,” founded in 1949 by Frank McNamara and his business partner Ralph Schneider, is sometimes cited as the earliest instance of the credit card as we know it today.
According to the legend, Frank McNamara was eating at Major’s Cabin Grill in New York City when he discovered he had left his wallet at home and needed to pay the bill. It is alleged that McNamara signed that he would return the next day to settle his account in order to avoid having to wash dishes in the restaurant’s back room.
Following this experience, McNamara came up with the concept for the first credit card, which he then presented to his friend Ralph Schneider, with whom he would later form the Diner’s Club.
Select males could utilize cardboard cards from The Diner’s Club at 27 participating eateries at first. There were 200 members of the Diner’s Club when it first started, most of whom were Schneider and McNamara’s friends and acquaintances.
The Diner’s Club would later become the first credit card to be used outside of a certain geographic region, and in just two years, its initial 200 members had increased to an astounding 42,000 across the entire country of United States.
Plastic Credit Card as it is currently known
In 1959, American Express issued the first plastic credit card. Bank of America, Carte Blanche, Diner’s Club, and other recently founded credit card firms swiftly followed.
When Bank of America introduced the BankAmericard, the first credit card with a revolving credit feature, in 1966, the credit card market underwent another revolution. The BankAmericard is still in use today under the name BankAmericard® credit card. It was the first credit card that was recognized in every state on the country’s west coast.
Visa was founded by combining BankAmericard with a number of other local businesses, and it went on to become the most commonly used payment processor in history.
When an IBM engineer by the name of Forrest Parry couldn’t figure out how to attach a magnetic strip to a plastic card, he came up with the contemporary magnetic strip three years later, in 1969. Although the engineer tried to glue the magnetic strip to the card, he discovered that it frequently came off.
When Parry brought the card home and complained to his wife about the issue, she offered the suggestion that he try ironing it onto the card. The concept was quickly embraced by credit card firms as a tool for both convenience and security because it turned out that the iron was hot enough to burn the magnetic strip into the card.
Contactless Credit Cards and EMV
The credit card industry kept innovating and enhancing security mechanisms over time. The chip-and-pin card design known as EMV, which stands for Europay, Mastercard, and Visa, was created in 1990 and made its public debut in 1993.
By creating a different encrypted code each time you use your credit card in a transaction, chips integrated into credit cards improve the security of the card.
Similar to how contactless credit cards have dramatically increased in popularity over the past few years in the US. Compared to conventional swipe cards, contactless credit cards are speedier and more secure.
With Mastercard reporting in 2019 that 79% of respondents said they used at least one form of contactless payment, it is evident how popular contactless payments are all over the world.
Legislation in the credit card sector
From 1951 until the late 1960s, the relatively young credit card industry grew steadily, but the system was far from ideal. Early credit card firms frequently discriminated against African Americans and refused to offer them credit. In addition, it took until 1974 for women to be able to obtain a credit card without a male co-signer.
The credit card industry’s drawbacks affected people of all races and genders. In the United States, there was little to no regulatory legislation protecting cardholders before to 1970. This implied the absence of terms and conditions, a uniform APR calculation, and protection against dishonest debt collection practices.
Beginning in 1970, a number of laws intended to safeguard credit card owners were proposed and passed, bringing about a radical change in everything. The Equal Credit Opportunity Act of 1974 made it unlawful for credit card firms to discriminate on the basis of gender and race, while the Fair Credit Reporting Act of 1970 required credit card businesses to fairly and truthfully report information to credit reporting agencies.
Laws aimed at defending cardholders against disproportionate fines and penalties shocked the credit card business once more in 2009. President Barack Obama signed the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 into law with support from both parties.
This law, often known as the CARD Act, safeguards consumers by prohibiting credit card firms from changing interest rates on active accounts and significantly lowering “over-limit” penalties.
Conclusion
Credit cards have a lengthy history and have gone through many ups and downs. Systems of credit evolved over time, and finally the credit card itself. The predecessors of the contemporary credit card ranged from verbal contracts to clay tablets to metal charge plates, and they were all cumbersome.
A modern, much more useful credit card was created in the 20th century, ushering in a new era of credit systems, but it also brought with it predatory debt collection tactics and discriminatory business practices.
The credit card industry is continuously expanding and changing, but it is now much more regulated and equitable than it was in the past. Physical credit cards are evolving, and it appears that a younger generation of customers prefers just digital banking options.
The future of credit cards is still up for debate as time goes on. But if past events are any guide, it will continue to exist.
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