Credit Card Chronicles – A Look Back

By Kishore Sabareeshan | September 21, 2018

As with anything else, Credit Cards also have a story that’s worth reading about. Discover how the concept of credit evolved as humans themselves evolved!

Credit Card Chronicles – A Look Back

Ah, Credit Cards, what would we do without them! It’s hard to imagine a world without Credit Cards today, but obviously, a time existed before the advent of this magical piece of plastic. So, how did Credit Cards originate and how have they evolved over the years – it’s time to find out.

Yes, you guessed it! We’re in a storytelling mood, so gather ‘round, folks. It’s time to take a historical journey into the world of Credit Cards.

According to historians…

To track the origins of the Credit Card, we must first dig up historical records of ‘valueless instruments’, so let’s turn the clock back by about 5,000 years.

It all began in the Indus Valley. The Mesopotamians wished to trade with the Harappa civilisation, so they used clay tablets that carried seals of both civilisations. This clay tablet was one of the first valueless instruments used for banking transactions. Fast forward to around the 1800s – merchants in America used credit coins to extend credit to farmers and ranchers in order to give them time to pay their bills after they earned from their harvest.

Further down the line, in the 1900s, departmental stores and oil companies started issuing proprietary cards, which were accepted only by the issuing merchant. The intention here was to build loyalty among customers and provide better service. It was only in the late 40s that bankers adopted the concept of charge cards. A banker named John Biggins launched what was called the ‘Charg-it-card’.

Additional Reading: Become Financially Independent With A Credit Card

Ok, how did charge cards work?

Basically, all purchases made through the card were forwarded to Biggins’ bank, who would then pay the merchant and recover the amount from the customer. This came to be called the closed-loop system. Of course, you can imagine how limited the scope of the charge card was back then.

It could only be used locally, and only customers of the bank could obtain the card. Nevertheless, Biggins can certainly be credited with being one of the pioneers of charge cards, because soon enough, his idea inspired New York’s Franklin National Bank to issue its version of the charge card as a loan instrument to its customers.

Soon enough, the concept of cards evolved, and out came two dining and entertainment cards; one of them being the famous Diners Club Card.

Additional Reading: Top Of The Chart Credit Cards For 2018

Here’s an interesting back-story behind the Diners Club Card

Apparently, a customer named Frank McNamara had forgotten to carry his wallet to an official dinner at Major’s Cabin Grill in New York. Frank and his partner returned to the restaurant later with a cardboard card and a proposal – this became the Diners Club Card. Regarded as the first widespread Credit Card, the Diners Club Card was made primarily for travel and entertainment. Its functioning was much like a charge card, wherein the bill had to be paid in full by the month end.

Enter American Express

In the late 50s, American Express introduced the first plastic card – thereby replacing celluloid and cardboard. As a strong competitor to Diner’s Club, American Express took Credit Cards to the next level and soon enough, there were 1 million cards in use – a total of 85,000 merchants overall – locally and internationally.

Additional Reading: 5 Popular Travel Credit Cards Of 2018

Revolving Credit

The idea of Credit Cards spread like wildfire, and soon enough, most banks launched their own consumer cards, but with a value-add. They identified a problem – charge cards up until now had to be settled in full every month end. Banks, with an intention to ease customers’ repayment woes, allowed them to carry a monthly balance forward in exchange for a nominal fee – thus, revolving credit was born!

The introduction of bank card associations

The 60s saw a group of banks from California come together to form MasterCard, America’s first card association. This bank card association was based on an open loop system which required interbank cooperation and transfer of funds. Initially, banks would have to choose to either partner with MasterCard or its ace competitor – Visa. The laws changed later, however, and gave banks the freedom to partner with both associations and issue both cards to their customers.

Additional Reading: Best Credit Cards For Cashback

The legal framework around Credit Cards over the years

As Credit Cards invaded the banking world, there was a need for the law to address customer complaints that were a by-product of this change.

In 1970, the Fair Credit Reporting Act of 1970 restricted the use and collection of credit reports, while the Unsolicited Credit Card Act of 1970 restricted issuers from issuing active Credit Cards to customers who hadn’t even requested for one. Later on, the Fair Credit Billing Act of 1974 introduced an amendment to the Truth in Lending Act. The amendment enabled customers to dispute discrepancies in their bills and protect themselves from abusive billing.

1974 also saw the passing of the Equal Credit Opportunity Act, which effectively disallowed lenders to discriminate against applications based on sex, race, origin, religion or marital status. (Phew, thank god for that!)

The Consumer Credit Protection Act was amended in 1977 with the Fair Debt Collection Practices Act, which prohibited predating debt collection practices and reworked the debtor’s bill of rights.

The technological evolution of Credit Cards

As with most technological devices, IBM was at the forefront of Credit Card technology as well. The company introduced magnetic stripe verification on Credit Cards. Later on, Visa and MasterCard launched interactive cards which were configured with LCD screens that would generate one-time passcodes at the push of a button, which also was a new feature on the card. Soon, Credit Cards started becoming a fashion statement (yep, not just a bank statement) – jewellers started turning Credit Cards into accessories!

A few years later, RFID or radiofrequency identification entered the scene and enabled touchless ID verification. Each card was embedded with an RFID chip and a merchant’s RFID card reader. As the years passed, the EMV computer chip card emerged and left the mag-stripe and RFID behind, because it was way more secure for ID verification as well as payment…

…and that’s where we are today!

Additional Reading: 7 Ways To Protect Yourself From Credit Card Theft While Travelling

What lies ahead for Credit Cards?

With every aspect of life going digital now, Credit Cards too have donned a virtual avatar with innovations like Samsung Pay, a platform that’s enabled with the technology to emulate the swipe of a magnetic strip. Another noteworthy mention is Axis Bank’s eSHop card, which acts as a completely digital substitute for your actual Credit Card – how cool is that!

In terms of supply, today there’s a Credit Card for each type of lifestyle; whether it’s travel, movies or shopping. Each card comes with its own benefit, so find out which one works best for you!

Looking for a Credit Card? Check your eligibility!

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