• Mukund Hari Nathany

The Evolution of the Credit Card

Updated: Feb 22

Mukund Hari Nathany looks back at the journey of one of the most popular payment methods


With the advent of civilisation in our world, came trade. Over centuries, barter evolved into payments using precious metals, coins and eventually pieces of paper or plastic. But in all of this, one thing remained common – the concept of credit.


Borrowing and lending has been a feature of human society, be it in the form of moneylenders, loans from high-street banks, or pieces of plastic (or metal) issued by those banks. But how did the way we transact evolve from a simple P2P exchange to one which might have 3 or more intermediaries today? For that, we have to look at the evolution of one of the world’s most popular and ubiquitous payment methods – the credit card.


MasterCard was called Master Charge, the only known Visa was the one which goes with our passports, American Express was a freight forwarding company, and the Diners Club was literally that – a club issuing cards to diners who did not want to carry cash at expensive restaurants. As surprising as this might sound, each of these were true at some point in the past century.


Today’s credit cards as we know them, were very different from their closest predecessors. For instance, instead of being offered at scale by a bank, the first variants of a card-based credit system were actually in the form of coins and plates issued by individual stores and merchants. This arrangement was something on the lines of revolving credit and involved a direct relationship between the sellers and buyers.


The idea of using the same card with multiple merchants was first popularised with the Air Travel Card. Initially introduced by American Airlines along with the Air Transport Association, it was accepted by 17 airlines in the 1940s. Then in 1946, the world saw the advent of the charge card in the launch of the Charg-it card by John Biggins, a Brooklyn-based banker. According to bankrate.com, “the Charg-It card used Biggins’s bank as a go-between for transactions so that the bank initially paid merchants for items purchased by the consumer and was then paid back by the owner of the Charg-It card later.” This was one of the first instances of a bank entering the credit card space.


1949 is when Frank McNamara famously forgot his wallet while dining out at a New York City restaurant. Diners Club’s website says that although his wife rescued him and paid the tab then, McNamara returned to the restaurant in 1950 with his friend Ralph Schneider, and this time he paid with a small cardboard card, which we recognise as a Diners Club card today. Many believe this was the birth of the modern-day credit card.


One of the oldest Diners’ Club Cards


In 1958, Bank of America launched the BankAmericard, and mailed 60,000 credit cards to some of its customers in California. Fast-forward to 1976, this was renamed to the Visa we recognise today.


American Express launched the first plastic card in 1959, and within five years, 1 million American Express cards were in use at 85,000 merchants, foreign and domestic (as per creditcard.com). Meanwhile, another group of California banks came together to form the Interbank Card Association (ICA), later known as Master Charge and now MasterCard.


An old Master Charge card | Image Credit


Instead of issuing their own cards, banks were now cooperating and working together, consolidating their existing networks. This is why even today, Visa and MasterCard work as card networks, while banks take on the role of customer-facing card issuers.


Instead of issuing their own cards, banks were now cooperating and working together, consolidating their existing networks. This is why even today, Visa and MasterCard work as card networks, while banks take on the role of customer-facing card issuers.


Instead of issuing their own cards, banks were now cooperating and working together, consolidating their existing networks. This is why even today, Visa and MasterCard work as card networks, while banks take on the role of customer-facing card issuers.


Fun fact: Bank of America still issues a credit card called the BankAmericard, which according to their website, works on the Visa-rival MasterCard network!

The namesake BankAmericard issued today on the MasterCard network, a rival of Visa which was born of the original BankAmericard! | Image credit


If you are a millennial or younger, you are unlikely to have seen one of the oldest methods of using the credit card which involved taking a physical imprint at checkout. In the 1960s, IBM introduced the magnetic stripe, which led to the famous swipe-based payment system we are all familiar with. Although this method of using cards is very uncommon now, ‘swiping’ your credit card is still one of the most commonly used phrases.


Over the years, the credit card industry has seen significant growth and innovation. Swiping was replaced by the EMV chips which we used to insert into the PoS machines, and the contactless tap and pay mechanism you now see at most stores and even the London Underground. Credit cards issuers today have much more complex and sophisticated credit card offerings, with rewards points, loyalty programme partnerships, complimentary insurance, annual fees and interest costs. Credit cards had previously transitioned from metal plates to plastic, but today many cards are going back to metal, with few of the world’s most premium cards being made of metal.


The American Express Centurion Black Card, considered one of the most prestigious cards in the world | Image credit


The rise of FinTech too has brought with it P2P lending, with people going back to the concept of direct moneylending which has existed since centuries, albeit in a much more sophisticated setting this time around. Digital wallets, payment services like Apple Pay, Google Pay and Samsung Pay, and online banks have all entered and disrupted the world’s payments landscape. Whether our wallets and their contents (both cash and cards) will become obsolete in favour of our mobile phones and watches is yet to be seen, but the payments and credit industries are here to stay and grow.


Further reading:

https://razorpay.com/blog/history-credit-debit-cards-visa-mastercard/

https://www.creditcards.com/credit-card-news/history-of-credit-cards/

https://www.experian.com/blogs/ask-experian/the-history-of-credit-cards/

https://www.creditcardprocessingspace.com/history-of-the-credit-card/

https://www.dinersclubus.com/home/about/dinersclub/story

https://brand.mastercard.com/brandcenter/more-about-our-brands/brand-history.html

https://www.visa.co.in/about-visa/our_business/history-of-visa.html

https://about.americanexpress.com/our-history/


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