 By ASAP Credit Card - Copyright © 2008
Purchasing
on credit isn't a new concept - it's been going on for centuries. But the use
of modern day credit cards is still relatively new, with the first
widely issued cards being released about 50 years ago. Although the earliest
credit cards can be traced to Europe in the 1890s, it wasn't until decades later
(in the US) that the concept started gaining widespread acceptance.
The First: Diners Club Card
The first widely
issued credit card, the Diners' Club card, began gaining popularity in the 1950s.
Although it was technically a charge card (not a credit card) since customers had to pay the entire
amount in full when billed by Diners' Club each month, it provided the first opportunity
for a wide scale audience of consumers to access and use credit. A customer could apply for
a Diners' Club membership and eat without cash at any restaurant that would accept
Diners' Club cards, then pay later.
Developed
in the late 1940s by NY businessman Frank McNamara, the concept started when McNamara, realizing he forgot his
wallet at a restaurant, decided there was a need for another
form of payment when cash wasn't available. Shortly after, he met with
his lawyer, Frank Schneider, to discuss a simple idea: form for a club for diners
who could sign for a meal and settle the bill later.
In
February 1950, McNamara and Schneider became the first diners to say "charge it"
at Major's in NY. Over the next year, McNamara enrolled 27 establishments into
his plan and offered $3 memberships to 200 of his friends and acquaintances. The
Diners' Club (becoming Citicorp in 1981) was an instant success and grew to 20,000
members by the end of 1950. By 1952, franchises were set up in Canada, France
and Cuba, and in 1955, Western Airlines became the first air carrier to accept
payment with the Diners Club card.
Soon to Follow:
American Express
In 1958, American Express (a
company already well known for it's travelers checks) followed suit and issued
a card for paying travel and entertainment expenses. It was accepted at participating
restaurant, hotel and airline merchants. The original model focused on the travel
and entertainment charges made by business people, which involved significant
revenue from merchants and customer membership fees. However, it wasn't until
1987 that American Express issued a credit card that allowed customers to pay
over time.
More Players: Bank of America (Visa) -
MasterCharge (MasterCard)
In 1959, Bank of America introduced the first 'revolving charge card' called the BankAmericard. Introduced
in California, it offered widespread merchant acceptance - allowing charges to
be made at more locations and to be paid off over a longer period of time. It
wasn't until 1966 that Bank of America started forming licensing agreements with
other banks that allowed cardholders in different states to charge purchases.
This enabled them to issue credit cards on a widespread basis and settle transactions
among different participating banks.
One
year later, in 1967, four California banks formed the Western States Bankcard
Association and established the MasterCharge program to compete with Bank of America's
BankAmericard. It wasn't until 1979 that the program was renamed MasterCard. The
BankAmericard was also renamed around the same time (in 1977) and called VISA.
The Credit Card Industry Grows
As
the credit card industry grew, banks interested in issuing credit cards became
members of either the Visa Association or MasterCard Association. Their members
shared program costs, making bankcard programs available to even small financial
institutions. Later, changes to the Association bylaws allowed banks to belong
to both Associations and issue both types of cards.
Over
time, the processing of credit accounts became more complicated and the responsibility
was outsourced to processing companies. This new way of business effectively reduced
the cost for banks to issue credit cards and expanded the industry even further.
Visa and MasterCard developed rules and standardized procedures for handling the
paper flow in order to reduce fraud and misuse of cards. The two associations
also created international processing systems to handle the exchange of money
and information and established an arbitration procedure to settle disputes between
members.
Eventually, in 1981, Diners Club
was purchased by Citicorp. And in 1985, a new player entered the arena: Discover
Card. Originally part of the Sears Corporation, Discover Card Services sought
to create a new brand with its own merchant network. Since then, the company has
successfully created the largest independent credit card network in the US - issuing
the first "no annual fee" and "cash back" credit card programs
to consumers.
A 2004 antitrust court ruling
against Visa and MasterCard initiated by American Express, Discover and retailing
giant Walmart have changed the exclusive relationship that Visa and MasterCard
have enjoyed with banks. Up until now, they've owned a virtual monopoly over the
credit card industry. But since the new ruling, banks and issuers are able to
provide customers with American Express or Discover cards, in addition to a Visa
or MasterCard.
The credit card industry
has evolved - and continues to evolve today. Over the past decade there's been
an explosion of special features developed to attract new customers in this increasingly
competitive industry. Standards that used to be commonplace, such as annual fees,
are almost completely obsolete. And new benefits, such as 0%
APR credit cards and reward programs are
becoming the rule - not the exception. Where are we going from here? Only time
will tell. But one thing is certain, more changes are sure to come...
*
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