A History of Credit
Merchants have offered credit to consumers for thousands of years. In fact,
some of the oldest written documents in existence—from the Babylonian
and Assyrian cultures at the dawn of the Bronze Age—are records of credit
accounts.
But credit in older times was a decidedly undemocratic and unscientific process.
Merchants offered credit to people they knew personally…or who came
recommended by people the merchants knew and trusted. This limited the number
of people who could by any one merchant’s goods.
It also left merchants—and whole economies—reliant on a relatively
few people and even fewer sources of income. If one family moved or one crop
failed, a whole economy could be wiped out. Smart bankers and traders could
diversify an economy somewhat; but most realized that everyone would benefit
from an organized system of issuing credit.
The use of credit cards originated in the United States during the 1920s,
when individual companies—such as hotel chains and oil companies—began
issuing them to customers for purchases at company stores in different cities.
For the growing number of Americans who travelled around the country, the
convenience of a card that was accepted in Oregon as well as Mississippi was
a real value.
This use increased significantly after World War II, when veterans returned
and looked for the chance to travel for business and pleasure.
The first general-purpose credit card—one that could be used at a variety
of stores and businesses—was introduced by Diners Club, Inc., in 1950.
In this system, the credit-card company charged cardholders an annual fee
and billed them for their charges on a monthly or yearly basis. Another major
card was established in 1958 by the American Express company.
Later came the bank credit-card system. Under this plan, the bank credits
the account of the merchant as sales slips are received (this means merchants
are paid quickly—something they like) and assembles charges to be billed
to the cardholder at the end of the billing period. The cardholder, in turn,
pays the bank either the entire balance or in monthly installments with interest
(sometimes called carrying charges).
The first national bank card plan was BankAmericard, which was started in
1959 by the Bank of America in California. The system was licensed in other
states starting in 1966 and was renamed Visa in 1976.
Other major bank cards followed, including MasterCard, formerly Master Charge.
In order to offer expanded services, such as meals and lodging, many smaller
banks that earlier offered credit cards on a local or regional basis formed
relationships with large national or international banks.
Early credit cards were made of cardboard and required merchants to write
down the cardholder’s name and account information. In the 1950s,
the cards were made from plastic and included raised names and numbers that
could be imprinted onto carbon sales slips.
In the 1970s, card companies started using magnetic strips on the back of
the cards, which contained all the relevant information and allowed computer
systems to track a cardholder’s use. By the 1990s, card companies were
experimenting with computer chips embedded in the plastic of the cards.
But the magnetic strip still oils most of the wheels of modern merchant commerce.
Next: Three Kinds
of Credit Cards |
