A Brief History of Credit Cards
By: Sam Donaldson | Posted: 13th May 2007
Albeit that merchant credit may be as old as civilization itself, the credit card industry in the originated in the 19th century. Around the early 1800s, merchants and financial institutions provided credit for many types of goods and services. It was around the early 1900s that some department stores began to issue paper identification cards to customers they were interested in extending credit to. When customers presented said cards it was an easy way to determine the credit worthiness of the cardholder. This was an excellent concept for building brand loyalty by extending credit to a firms best creditworthy customer base. In most cases these cards were limited to a particular geographic area. In many cases, business would also accept their competitors cards as it was still an indication of creditworthiness.
Diner's Club introduced the first true chage card in 1949. A universal card that could be used by just a customer at a particular business establishment, but by many merchants who have joined the network of acceptance. The Diners Club card was intended to target a new class of social elite to offer customers the ability to charge expenses generally related to travel, dining, and entertainment. Diners Club earned their profits by having the merchant pay them 7% of the charged amount from the cardholder's bill. It was discovered by many merchants who accepted this card that they in turn actually received more business from persons due to the fact that they were extending credit for use of their service. It was not long after the success of Diners Club that many imitators began to join the marketplace as well..
California of the late 1950s saw Bank of America issue the first true credit card. Because of banking laws and restrictions of the time, most banking institutions were not allowed to function outside the confines of their home state. This for several years stunned the growth of the credit card industry. In order for a national card to be established that could compete with the likes of Diners Card, a new system of organization had to be established. At first Bank of America maintained this complex paper trail that had to follow all the various member banks and was overly complicated and labor intensive. Through trial and error, Bank of America eventually allowed it's credit card business to spin off on it's own and more efficient means of handling authorizations and approving charges was established. This network eventually evolved into the network we know as VISA today.
IN 1966 the network that would later evolve into what is now known as MasterCard came into being. In the decade prior to this, In 1958, American Express launched it's own network. Over the years many other types of cards came into being including the Discover credit card that was started by Sears, Roebuck and Co. back in 1986. As the restrictive nature of interstate banking began to change. more credit card networks were established that were to remain with us until the present day.
The various card networks were faced with a challenge to bring together these various merchant members and cardholders together. At first many merchants were reluctant to promote or accept these credit cards as they were competing with their own store issued credit cards from their perspective. Still many smaller venders felt that by accepting these new general purpose credit cards that they could themselves compete with the larger retailers. Neither large or small businesses were fans of the fees that were charged with the acceptance of these cards but it became obvious that in spite of the fees that business that accepted credit cards gained more revenues.
In today's age the credit card industry is established globally with over 7 well know networks. Credit cards are widely held these days. In fact by 2001 it was said that 75% of American households had at least one credit card. In this day and age it is confirmed that in American households making over $30,000.00 that at least 90% hold cards with available credit and the average household has a total of nearly six credit cards. Almost all retail and service establishments these days accept credit cards; as they have surely become a crucial part of any successful business.
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Sam Donaldson is the staff writer for the Rewards Credit Cards site and has over 20 years experinece dealing with subjects such as low interest credit cards.
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Tags: customer base, confines, cardholder, credit worthiness, financial institutions, banking institutions, bank of america, business establishment, 1950s, creditworthiness, early 1900s, true credit, early 1800s, imitators