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In The Beginning …
In the 21st century using credit cards seems to be a way of life that is generally taken for granted. Whatever needs or wants can’t be met with cash, can easily be obtained via credit. Credit cards per se, however, have quite an interesting history.
The idea of credit itself has existed in some form since around the late 1700’s. A furniture salesman wanted to offer his customers a chance to furnish their homes immediately, while taking a little longer with the payments. He introduced the idea of “have now and pay later”. Since clearly, this is an appealing idea to all parties involved, the idea was easily accepted and adapted by others.
By the twentieth century, banks were offering a form of ‘credit protection’ for themselves. Overdrafts were created to cover account balances when customers did not have enough in the account. Again, beneficial to both parties in that the bank did not lose money because they offered the client a little extra (that they were to pay back) and the client had a little room to breath while waiting to put money into the account.
Overdraft protection is something that continues to be widely used and beneficial today. While credit was being establishers, various lenders were taking new risks and offering various forms of credit.
1914 saw Western Union giving their privileged customers a metal card that allowed them to have interest free deferral payments. Known as Metal money, it gave clients some freedom to spend beyond their means. That’s an idea that certainly soared! So getting to actual credit cards; how did they actually come up with a card that allows spending now and paying later?
With the idea of a card that actually lets you pay like you have cash, it didn’t take long for other companies to get highly involved. Keep in mind, credit wasn’t offered to the masses as it is now.
Select companies were getting on board with this idea and offering preferred or specific people some spending freedom. The General Petroleum Corporation was one of the first companies to offer an actual credit card that allowed for fuel and automotive repair purchases. When first introduced, it was only available as a perk to employees. They could use their card, fill up or fix their vehicle, and make payments towards these things with portions of their paychecks.
But the cards were so popular with the employees and their families that it didn’t take long for the corporation to extend this offer to the general public. Other major companies were following suit because they recognized that people could not afford huge prices all at once.
For example, Henry Ford was very aware of the fact that people could not just purchase one of his vehicles outright. Thus, before 1930, car loans and financing were introduced and available to the public.
There was a period of time during WWII that credit use was restricted, but this only heightened people’s desire to be allowed to ‘charge it’ once the war was over. People were ready to move on with life, travel, have nice things in their homes, have nice vehicles, and they wanted it sooner rather than later. Credit made this possible on a restricted budget.
Would you believe I forgot my wallet?
Not exactly a line you’d want to hear on a date, but this simple sentence is what really pushed the credit card industry forward. In 1950, Frank McNamara was out to dinner with friends and realized when it came time to pay that he had no money, as he had forgotten his wallet.
This simple act on his part created a trend that we know and live by today, the modern credit card. With a partner, he created the “Diner’s Club Card”. In his mind, no longer would people be bound to only the cash they had in their pockets when they were out on the town.
Though at first it was primarily a business man’s card, available for dinners and retail purchases while traveling, it soon became a much larger phenomenon. The Diner’s Club Card became a national frenzy and even prompted a Hollywood movie. Business men loved the idea that they could pay for some of their travel expenditures and worry about the cost later and McNamara loved it because when people don’t have cash in hand, they tend to spend more.
By 1955 the first airline (Western) was accepting Diner’s Club to pay for flights. Within ten years, every other major airline followed suit. By securing the traveler’s market, through restaurants, airlines, and retail stores, McNamara and his partner paved the way for the current system of credit cards. It was an amazing business venture that has held it’s success. In fact, Diner’s Club is still one of the top five credit card options all over the world.
In the mean time …
As the Diner’s Club Card was exploding onto the public market, banks and retailers were catching on. IN 1951, Franklin National Bank offered approval on credit purchases which secured the retailer financially.
While 1958 saw the introduction of the American Express, a card widely known and still used today, it was the Bank of America that revolutionized the credit industry. They were the first to offer the option to pay your balance in full at the end of each month OR make a small payment towards what you owe while paying a small interest fee on the remaining balance.
Just as with today’s credit cards, this gave purchasers even more options because they no longer had to come up with the full amount each month. So, if they spent a little more than they should have, they can be comforted by knowing they only have to pay a portion. As well,
the lender was happy because they earn a little extra money on what is still owing. Though it is a system created almost fifty years ago, it is a lifestyle well known today.
Getting organized …
Credit was not only changing the every day lives of the common individual, but it was changing financial institutions as well. By 1966, it was realized that some order was needed to keep track of credit card transactions. The entire credit system was growing beyond belief and someone had to have control.
Turns out the ‘someone’ was a combination of 14 United States Banks that created a group called Interlink. They helped to govern and regulate credit card use. The credit cards that we know widely today are Mastercard, Visa, American Express and Diner’s Club.
While American Express had been around for sometime, Mastercard, or Mastercharge as it was known was not created until the 60’s. It became competition for the revolutionary BankAmericard (the one with credit options mentioned earlier). To extend their services overseas, BankAmericard became what we know today as VISA.
Shortly after changing their name to secure a place across the Atlantic, Mastercharge titled themselves Mastercard. Today, both of these cards are well known and widely used. Each card offers a variety of styles and options in fees, interest rates, bonuses, and credit limits.
One final revolutionary move that increased the use of credit transactions was the introduction of the magnetic stripe. This allowed for quicker (and safer) transactions, thus increasing people’s use of credit cards.
Since credit cards are used so frequently and made so available, it’s easy to understand why little thought is given to where they originated. Like most fabulous inventions, they came about through the simplest of intentions and some, through the simplest of mistakes.
About the Author:
Grant Donald is a successful internet entrepreneur and author whose websites provide moneysaving and credit management advice for consumers purchasing a variety of consumer financial products such as
airline rewards credit cards and
travel rewards credit cards.
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