The History of Credit Cards

The History of Credit Cards

Early 1900's Oil companies and department stories issued their own proprietary cards. Such cards were accepted only at the business that issued the card and in limited locations. While modern credit cards are mainly used for convenience, these predecessor cards were developed as a means of creating customer loyalty and improving customer service.Consumers and merchants have exchanged goods through the concept of credit since the late 1800's. It wasn't until about half a century ago that plastic payments as we know them today became a way of life. Charge coins are believed to have been first issued around 1865. At first they were made of celluloid, which is an early form of plastic. Later ones were made of copper, aluminum, steel or white metal, which is when they became known as charge coins. They came in various shapes, in sizes from a quarter to half-dollar. Not all were round; some were triangular and others had unique shapes. These credit pieceswere mainly issued by department stores, and usually displayed the customer's identification number and an image connected with the merchant.

​Charge plates, often called Charga-Plates, are the predecessors to credit cards. Used until the early '60s, charge plates are made of aluminum or white metal plates. They are about the size of a dog tag and are embossed with the customer's name and address. The back side has a paperboard insert with the issuer's name and the cardholder's signature. Charga-plates were issued mostly by department stores, but also by a few oil companies and store associations. They were sometimes kept in the stores and retrieved by the clerk when an authorized user made a purchase. A charge plate is more valuable with its case. Between 300 and 500 different ones are estimated to exist.

Early 1900's - Oil companies and department stories issued their own proprietary cards. Such cards were accepted only at the business that issued the card and in limited locations. While modern credit cards are mainly used for convenience, these predecessor cards were developed as a means of creating customer loyalty and improving customer service.
1950s - The first bank card, named "Charg-It," was introduced by a single bank in Brooklyn, NY. When a customer used it for a purchase, the bill was forwarded to the bank. The bank reimbursed the merchant and obtained payment from the customer. The catches: Purchases could only be made locally, and Charg-It cardholders had to have an account at the issuing bank. In 1951, the first bank credit card appeared in New York's Franklin National Bank for loan customers. It also could be used only by the bank's account holders.
1950s - The Diners Club Card was the next step in credit cards. The story began when a man named Frank McNamara had a business dinner in New York's Major's Cabin Grill. When the bill arrived, Frank realized he'd forgotten his wallet. He managed to find his way out of the pickle, but he decided there should be an alternative to cash. McNamara and his partner, Ralph Schneider, returned to Major's Cabin Grill in February of 1950 and paid the bill with a small, cardboard card. Coined the Diners Club Card and used mainly for travel and entertainment purposes, was a "closed-loop card (had to be paid off every month) and claimed the title of the first credit card in widespread use with over 20,000 in use by 1951. 
1958 - American Express formed in 1850. It specialized in deliveries as a competitor to the U.S. Postal Service, money orders (1882) and traveler's checks, which the company invented in 1891. The company discussed creating a travel charge card as early as 1946, but it was the launch of the rival Diners Club card that put things in motion. In 1958 the company emerged into the credit card industry with its own product, a purple charge card for travel and entertainment expenses. American Express soon introduced local currency credit cards in other countries. About 1 million cards were being used at about 85,000 establishments within the first five years, both in and out of the U.S. 
1958 - Bank of America launched its BankAmericard credit card program in Fresno, California, with an initial mailing of 60,000 unsolicited credit cards to California consumers only. One year later the program was almost bankrupt due to high delinquencies and fraud.
1965 - Band of America began to sign licensing agreements with a group of banks outside of California. BofA itself (like all other U.S.banks at the time) could not expand directly into other states due to federal restrictions not repealed until 1994. Over the following 11 years, various banks licensed the card system from Bank of America, thus forming a network of banks backing the BankAmericard system across the United States. The "drops" of unsolicited credit cards continued unabated, thanks to BofA and its licensees and competitors, until they were outlawed in 1970 due to the serious financial chaos they caused, but not before over 100 million credit cards had been distributed into the American population. During the late 1960s, BofA licensed the BankAmericard program to banks in several other countries.
1966 - A group of California banks (United California Bank, Wells Fargo, Crocker National Bank of California) formed the Interbank Card Association (ICA). With the help of New York's Marine Midland Bank, now HSBC Bank USA, these banks joined with the ICA to create "Master Charge: The Interbank Card".
1970 to 1974 - In 1970, the Bank of America gave up control of the BankAmericard program. The various BankAmericard issuer banks took control of the program, creating National BankAmericard Inc. (NBI), an independent non-stock corporation which would be in charge of managing, promoting and developing the BankAmericard system within the United States, although Bank of America continued to issue and support the international licenses themselves. By 1972, licenses had been granted in 15 countries. In 1974, IBANCO, a multinational member corporation, was founded in order to manage the international BankAmericard program.
1975 - The directors of IBANCO determined that bringing the various international networks together into a single network with a single name internationally would be in the best interests of the corporation; however in many countries, there was still reluctance to issue a card associated with Bank of America, even though the association was entirely nominal in nature. For this reason, in 1975 BankAmericard, Chargex, Barclaycard, Carte Bleue, and all other licensees united under the new name, "Visa", which retained the distinctive blue, white and gold flag. NBI became Visa USA and IBANCO became Visa International.
1979 - "Master Charge: The Interbank Card" was renamed "MasterCard"
1981 - Sears was the largest retailer in the United States. In an attempt to leverage their purchase of Dean Witter Reynolds and Coldwell, Banker and Company, they entered the financial services industry. Together with their company owned bank, Greenwood Trust Company, they launched the Discover Card. In 1993, Sears sold their finanical business and spun off Dean Witter Financial Services, which merged with Morgan Stanley in 1997. Greenwood Trust changed its name to Discover Bank.
2007 - Morgan Stanley spins off Discover as a standalone company.


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