The Rise of Plastic: A History of Credit Cards
When the credit card was introduced in 1950, the American public was already well acquainted with buying on credit, through personal loans and store credit accounts. But the introduction of the Diners Club card, the first modern charge card, made spending even more convenient: Customers could use their club cards at a variety of restaurants, and pay the balance at the end of the month. A cashless approach to consumption began.
By the end of the ’50s, most Americans had embraced the concept of buying now and paying later. In 1958, the Bank of America in California launched the BankAmericard, the first general-purpose credit card that could be used wherever it was accepted. It also introduced a key feature of modern credit cards: Unlike with the Diners Club card, customers could carry a balance into the following month, provided they paid the amount of interest accumulated. By 1966, the practice had become commonplace as more states licensed the BankAmericard, which was rebranded as Visa in 1970. Here are five fascinating facts about the history of credit cards.
Women Couldn’t Have Their Own Credit Cards Until 1974
As late as the mid-1970s, women were put through a demeaning gauntlet when applying for a credit card. Married women were only issued cards under their husband’s name, and single women needed a male family member to act as co-signer. Even if a woman was able to make payments on her sole income, she could still be denied credit, effectively crippling her financial prospects. In a major step toward gender equality, the Supreme Court ruled in 1971 that assigning more financial power to men than women simply on the basis of sex was unconstitutional, violating the Equal Protection Clause of the 14th Amendment. The case laid the groundwork for the Equal Credit Opportunity Act passed in 1974, which stated that people could not be denied credit based on gender, religion, or race.
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The Credit Card Was Invented After a Man Forgot His Wallet
In 1949, a New York businessman named Frank McNamara forgot his wallet at dinner and needed his wife to settle their bill. Vowing never to suffer such embarrassment again, McNamara teamed up with partner Ralph Schneider to create a membership card that allowed restaurant guests to settle their bills monthly instead of carrying cash. The card was small and made of cardboard, and charged participating restaurants a 5% to 7% processing fee. Within a year, the Diners Club card accumulated around 42,000 users across the United States, proving credit cards were here to stay.
The BankAmericard Lost Millions of Dollars at First
In September 1958, the Bank of America surprised residents of Fresno, California, by mailing out 60,000 unsolicited BankAmericards. The launch was spearheaded by manager Joe Williams. With no research behind him, he determined that credit limits would arbitrarily range from $300 to $500, with “floor limits” (smaller purchases that didn’t necessitate retailers phoning the bank) ranging from $25 to $100. He also assumed that most customers would pay back their loans on time, which was incorrect: In its first year, and after mailing an additional 20 million cards across California, BankAmericard lost millions of dollars, and Williams resigned. Perhaps unsurprisingly, the easily stolen mail-outs soon led to another financial phenomenon: credit card fraud.
The First Magnetic Stripe Card Arrived in 1969
Magnetic storage, a technology that uses magnetized materials to store data, was developed in the 1930s and improved over the coming decades as a way to store programs and information in early computers. In 1960, IBM engineer Forrest Parry used the technology to melt magnetic tape onto ID cards for CIA officials, which contained agent information. Jerome Svigals, a project manager at IBM, refined the technique and applied it to credit cards. The card’s magnetic stripe could store user information, banking data, and purchase history, making it easier to detect and prevent credit card fraud. In 1970, “magstripe” cards were introduced to the public through a collaboration between American Express, American Airlines, and IBM.
American Express Was the First Rewards Card
American Express pioneered two features that are commonplace in credit cards today. The bank launched its first credit card in 1958, and the following year it became the first major company to use plastic cards instead of cardboard. Decades later in 1991, Amex became the first credit card to reward its customers, launching Membership Miles, a frequent-flyer program. Every dollar spent earned a point toward travel and accommodations at a small number of airlines and hotels. The program also incentivized users: While all American Express members were privy to the program, only Gold and Platinum card members received additional perks.
