Credit card evolution:The birth and the advancement in the Credit card based payment system
Credit cards, amongst the biggest inventions in this modern retail consumer society are a great advancement in the payment technology of the banking system since the invention of money. Credit card is an essential tool to be associated with the success and existence of any form of retail store merchant`s business. Most people today carry a credit card for the convenience of not carrying cash, it is less bulky and light while others do so because of the purchasing power they have in their possession which they would not have had otherwise. Credit cards allow anyone to purchase any item that they desire (depending on their credit limit) that they would not able to afford upfront.
Credit cards are very well designed & engineered for minimum thickness which results in it being light and less bulky, it can easily fit in a wallet (bill fold), purse, pocket or any other personal card case. It can also easily fit with other similar sized documents such as medical card and driver`s license. So, going ahead this made us all to stop and to think about the evolution of your credit card! Well as of now we never had an idea about the same and the payment structure underneath for the smooth transactions. Well with in this report in the following 2-3 pages, we will cover the basic growth and evolution of the credit cards in the reverses chronological (from past to present) sequence .This will also explain the evolution of this cash on plastic that confidently let you purchase stuff without no money (cash) in pocket. In 1914 there was credit system that was used by Western Union to give to their more prominent customers in the interest of good customer service. Prominent (prestigious) customers were given a metal card that was used to defer payments (interest free) on services used by them. This credit system was called Metal Money. In 1924 General Petroleum Corporation (an oil company) saw the success and being aware of the value of goodwill this could offer to their customers, also issued their own metal money for gasoline and automotive services. This was first offered to their employees followed by selected customers then the general public after its great success. During the 1920s and 1930s this form of credit card system spread to other companies such as Railroad, hotel chains, airline, oil companies and department stores. In the late 30s American Telephone and Telegraph (AT&T) introduced their credit card called the Bell System Credit Card. The use of such credit cards greatly increased after World War II due to the rapid growth of businesses, increase in travel and the great demands for goods and services and thus, it popularity grows significantly. In 1950, the first universal credit card was introduced by Diners Club, Inc (invented by Diners' Club founder Frank McNamara). This was a new kind of credit card which set the foundation on which todays card credit is established, unlike the other cards where they could only used for specific goods and services, the Diner Club had a more general use. It was first used by members for restaurant services but quickly expanded beyond that service to cover general travel and entertainment expenses thus covering a variety of establishments. Cardholders were charged an annual fee and billed on a monthly or yearly basis. During the 1950s, because of its convenience and efficiency, its popularity increased and many merchants were very eager to accept the card because customers spend a lot more than if it was cash since they can charge it to their cards.
In 1951 the first bank to implement this credit system was the Franklin National Bank in New York. Customers would submit an application for a loan and were screened for credit. Approved customers were then given a card (Charge-It card) to make retail purchases. This credit card system was similar to todays system where consumers could make a purchase using the card at participating merchants. This merchant would copy the customer`s information from the card to a sales slip then obtain authorization from the bank thus, completing the purchase. The bank would then, in turn, reimburse this participating retailer and collect the debt from the consumer at a later date with a flat fee to cover the costs of providing this credit loan. This system was very successful and after a couple of years, other banks impressed with this credit system jumped on board and offered their customers similar services. In 1958, the American Express Company (a travelers check business) entered the credit card business with their version of the universal credit card Dont leave home without it.Their credit card was used for travel and entertainment purposes and accepted at participating airline merchants, restaurants and hotels. Their credit system policy at the time (which changed in 1987) required cardholders to pay off their balances each month. In 1959 the Bank of America in California introduced the BankAmericard. They were the first to introduce the revolving credit card. This means customers were now given the option to make regular monthly payments on the balance owed rather than having to pay off the entire balance at one time. In other words, customers could carry a balance from month to month. Many other banks then followed offering this revolving credit option. In 1965, Bank of America foresaw more income potential and control and began issuing license agreements to other banks of all sizes in the US. These licensing agreements allowed other banks to issue BankAmerica (Blue, White, and Gold BankAmericard) and also to interchange transactions through these issuing banks.
In 1966 a group of 14 US banks came together to form a new bankcard processing association that provides the ability to exchange information on credit card transactions.
1967 a group of four California banks formed a new association entity called Master Charge (renamed MasterCard in 1979) which is now known as MasterCard International. This was done to compete with the BankAmericard (later became Visa in 1977). This new bankcard processing association would expand their services and increase their income potential, thus, these small banks formed a mutual relationships with large national or international banks.
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In 1969 banks interested in issuing cards of their own, became members of either the Master Charge program (MasterCard Association) or BankAmericard program (Visa Association). This also means that most independent bank charge cards would now change over to either credit card programs. This was mutually beneficial to all banks and small financial institutions since, they shared card program costs. Both organizations issued credit cards through their member banks for their customers. Also, they both lay down standards for credit card processing.
In 1977 BankAmericard spreading its credit card business globally had difficulty achieving this due to the association of "America" in BankAmericard. Thus, its name was changed to Visa. This changing of name was followed shortly (2 years after) by Master Charge to Master Card.
In 1979 Master Charge changed its name to Master Card. Also, the electronic processing of credit cards improved through electronic dial-up terminals and magnetic stripes on the back of credit cards. This allowed consumers credit cards swiped by merchants to accessed issuing bank card holder information. This method decreased fraud, increased speed of processing authorizations and decreases the usage of paper.
In the early 1980s the first Automatic Teller Machines (ATMs) came into existence. This gave credit card holders access to cash in different currencies from different countries around the world as well as locally. ATMs give consumers the opportunity to have access to cash from their bank account or from their credit card. Also, this gives an extra benefit to card holders since they could make deposits 24 hours a day from most countries around the world.
2010 and beyond: Today, MasterCard, American Express, VISA, and Discovery, are the most popular and also have the most respected symbols when it comes to credit cards.
The credit card/payment system will continue to evolve as a new technology payment system developed through the advancement in science and technology. On credit Card- future credit cards that are in the making for the near future. Only a few are listed but there are other bigger futuristic developments out there in the making. Future Credit Cards - New Invention: Credit Card With Drivers License - a new type of credit card an all in one.
Credit Card With Digitized Finger Print - credit card containing your finger print in a digitized format to identify you.
