Who Invented the Credit Card?

I was listening to some Trevor Moore songs (RIP) and the one about his rage against the guy who invented the credit card reader chip led me to realize that I don’t even know where the credit card comes from. So, it’s time to dig into some consumerism history.

Who Created the Credit Card?

Where I come from, what we call a credit card is basically a payment card. You open a bank account, there’s a card that comes with it to pay and get money from the ATM, it’s mostly debit. If you want a credit, you need to talk to your bank counselor. If I understand well, it’s not the same in the U.S.—but it’s not the subject of this article. Indeed, were are here to explore the origin of those plastic cards.

In fact, it was not plastic at first, but metal. Or even just an idea. In his 1887 utopian novel “Looking Backward,” Edward Bellamy wrote about credit cards multiple times. Being a bestseller of its time, there’s a possibility that this book was later an influence on those who developed the real cards.

As we are not here to speak about fiction, let’s go back to the late 19th century. At that time, there was not a credit card system in place, but something a bit similar existed. People used charge coins. It was a type of coin that customers used in department stores and other commercial establishments to pay. There was a number on the coin that corresponded to a charge account. At some point, the client had to pay the bill, obviously.

Charga-Plate Ads (source)

Those coins were in use during the first decades of the 20th century. In the 1930s, they started to be replaced by the “Charga-Plate.” The concept was similar, but it was a rectangle of sheet metal—labeled in the style of military dog tags—with the customer’s information (name, city, and state). On its back, there was a small paper card for a signature. The “Charga-Plate” was put under a paper “charge slip” in an imprinter. This way limited bookkeeping errors as each payment was clearly marked with the information of the buyers.

Soon, American Airlines developed a similar scheme, but simpler, with the use of numbers connected to accounts. Its use was encouraged with an interesting discount for frequent users.

From Diners to the Banks

During the 1950s, the multiplication of cards led Ralph Schneider and Frank McNamara to the idea of the Diners Club, a company offering a charge card that consolidated multiple cards. The idea came from an embarrassing restaurant experience when McNamara realized he had left his wallet in another suit and couldn’t pay. With one card only, it was easier to avoid this kind of incident. This isn’t a detailed version of the story because it’s not clear exactly how it went, but the result was the creation of a successful venture. One year after the launch, there were more than 40,000 users. At that time, the Club was charging participating establishments 7 percent and billed cardholders $5 a year.

The first plastic Diners Club card was introduced in 1961 and, a few years later, there were more than a million users.

The Diners’ Club (1956 ads)

It took a few years, but the Diners Club inspired others to launch their cards. In 1958, American Express issued its first charge card, which required payment at the end of every month. The same year, Bank of America launched the BankAmericard in Fresno (California) where 45% of its residents used the bank. To force the clients to use their cards, they send 60,000 cards at once. With all these people equipped, it was easy to convince the merchant to accept the BankAmericard. It was the hardest part, because if the clients couldn’t use their cards everywhere, why would they bother with one? Bank of America eventually licensed to other banks around the United States—the card would later become the Visa.

Mastercard entered the game in 1966 to compete with BankAmericard. Citibank launched its card in 1967 and in 1969, it merged with Mastercard. Also, in the United Kingdom in 1966, Barclaycard launched the first credit card outside the United States.

It soon got out of hand as mass mailings of cards created financial chaos as many people who shouldn’t have one received them (like compulsive debtors, addicts, unemployable people…). The U.S. government had to outlaw this type of practice. By the time the law was passed, 100 million credit cards were in circulation.

That said, the credit card systems in America were not easy to use at first, as the merchant had to call their bank in order to know if the customer was solvable. This was fixed in 1973 when the system was computerized by Visa.

From swiping to the chips

Outside of the U.S., the strict regulations and a different culture slowed mass adoption, but the introduction of chip-based credit cards sold as an anti-fraud tool changed that.

Before the chip-based credit cards, there were magnetic stripe credit cards. Invented by IBM engineer Forrest Parry, they had magnetic tape on the back containing the consumer’s information that could be “swiped” at a point-of-sale terminal. These cards became standard in the U.S. in 1969. The card chip technology was developed in France by Roland Moréno and launched in 1984. There, it quickly became the norm, but it was not the same in every country. Europay, MasterCard, and Visa finally worked in 1994 to provide the uniformization of the system around the world.

Interested in some money history, take a look at my article about Who Invented Cryptocurrency?

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