Credit cards are now an everyday part of life for so many of us, but where did it all begin?
It’s easy to take credit cards for granted. They’re a fast, secure and popular payment option and, much like the toothbrush or the doorknob, who ever really wonders about how these everyday things came about? But the history of credit cards is filled with fascinating details and facts, which we explore in detail with this throwback to the birth and evolution of the credit card.
The credit card timeline
To start, we go back to the early 20th century, round about the same time synthetic plastics (which helped give credit cards their nickname) were invented.
Early forms of credit (1900s to 1930s)
- 1900s. Carried over from the late 19th century, charge coins were the earliest recorded forms of credit. Large merchants such as hotels, department stores and petrol companies would issue their regular customers with charge coins to use with their store charge accounts. These coins took all shapes and forms, and were made out of metal or celluloid, bearing the customer’s charge account number and merchant’s name and logo for easy imprinting on sales slips. Since there were no other identification marks on the charge coins, they could be easily stolen and used for fraud.
- 1930s. Charga-plates came next, taking the form of a rectangular metal plate that closely resembled a military dogtag. The Charga-plate bore the customer’s name, address, account number and sometimes their signature, which was more helpful for preventing fraud. However, this form of credit was still only issued by large merchants, and could only be used in the issuing store.
Charge cards and credit cards (1940s to 1960s)
- 1940s. In 1946, banker John Biggins developed the Charg-it card, which marked the first banking attempt to issue a card which customers could use at more than one merchant store. Issued by the Flatbush National Bank of Brooklyn in New York, customers could use this card at a range of merchants within the state and the bank would settle payments with merchants on their behalf.
- 1950s. About four years after that, Frank McNamara and Ralph Schneider issued the first Diners Club card in 1950. These cards were made of cardboard and could be used in participating restaurants. Cardholders paid an annual fee of USD$3 while restaurants paid 7% on transaction values. This was still a charge card and not a credit card per se, in the sense of offering revolving credit.
- In 1958, American Express launched its travel and entertainment card in competition with the Diners Club card, while Bank of America launched its first BankAmericard (later renamed Visa in 1976) in Fresno California. Whereas Diners Club and American Express issued charge cards, Bank of America issued credit cards that allowed its customers to pay for their purchases in monthly instalments with accruing interest (or “carrying charges”).
- 1960s. Around 1965, Bank of America started licensing their Californian credit card system to banks across America. This move also led to the formation of a national bank card association for enabling nationwide use of the BankAmericard (often seen as the beginnings of Visa). In 1966, MasterCharge (renamed MasterCard in 1979) jumped on the scene as a cooperative of Northeastern banks wishing to honour cards issued by one another. These two card schemes have gone head-to-head ever since.
Credit cards come to Australia (1970s)
- 1970s. Before 1974, only store-issued cards (which could be used exclusively in the issuing store) were used in Australia, with a small number of Diners Club and American Express credit cards accessible to the wealthy. In 1974, the Bankcard was launched through joint efforts by Australian banks. Working together, they had developed their own card network and implemented the technology needed for a nationwide shared facility. Each bank issued its own bank-branded Bankcard and enforced its own card regulations and customer relations.
The Bankcard was a hit here. By 1976, there were 1,054,000 Bankcard holders and almost 49,000 participating merchants. The first ATMs began popping up in Australia in 1977, and by 1978 Bankcards could be used across the nation.
The global credit card market (1980s to 1990s)
- 1980s. In 1980, Bankcard signed a co-branding agreement with Visa and MasterCard to enable international usability. But this was a false start, with that agreement quickly dissolving in the same year. In 1983, the EFTPOS system was launched in Australia, and Bankcard was successfully introduced in New Zealand. This led to card circulations of more than 5 million by 1984. At the same time, both Visa and MasterCard were launched internationally, which spelled the rise of international credit cards in Australia, and the beginning of Bankcard’s decline among a nation of increasingly sophisticated globetrotters.
- 1990s. By 1994, Bankcards had shrunk in circulation to 3.9 million, a trend which would lead to its subsequent end in 2007. However, credit cards kept growing in popularity, helped by the invention of telephone and Internet banking in the mid-1990s and specifically BPAY in 1997.
The rise of rewards cards and complimentary extras (2000s to present)
- 2000s. This millennium marked the rise of the rewards credit card, where frequent flyer points and complimentary extras have significantly come to prominence among credit card users. The demand for frequent flyer credit cards has really soared in the 21st century, with savvy travellers monetising their daily expenditure to finance more travel. Complimentary extras like free travel insurance, airport lounge access and airport chauffeuring services have also become necessary amenities today.
Fraud concerns (2000s to present)
- 2000s. Credit cards have both thrived and suffered alongside rapid technological advancements over the last two decades. Chip-and-PIN card technology, contactless payments, mobile banking and Internet shopping have also borne higher incidences of credit card fraud and scamming. Phishing, skimming and hacking all became significant threats that took the focus off old-school physical theft. But to their credit, card companies, banks and governments have diligently tried to address these issues with their own set of inventions. This led to the rise of policies, services and tools including zero liability protection, fraud monitoring services, government support services and federal investigations into criminal card activity.
Phasing out credit cards
- 2010s. The advent of mobile technology has allowed cardless cash withdrawals and cardless payments with mobile devices, allowing users to slim their wallets. The next move is towards cardless payments altogether, where we will be doing away with cards and using our smartphones and other devices to pay instead via “wallet” apps.
Current credit card trends
As of June 2016, more than 70% of Australian adults own credit cards, with more than 16 million credit cards in circulation and a national debt of over $32 billion accruing interest (you can read more stats here). Current card trends include:
- Introductory offers. This is a very popular and effective way of enticing new cardholders, where card companies offer attractive deals such as “bonus sign-up points” or “0% interest” introductory periods if you sign up by a certain date.
- Dual credit cards. These accounts are popular among rewards seekers, offering two cards linked to the same account. This typically means an American Express credit card to accompany a Visa or Mastercard option, and is designed to maximise your rewards points. You pay only one annual fee for this type of account, although it’s usually on the high side.
- Contactless payments. While once the realm of speculation and science fiction, contactless payment methods like Visa PayWave and Mastercard PayPass have had us tapping instead of swiping for a few years now.
- $0 foreign transaction fee cards. This is a feature that gained popularity together with frequent flyer cards and travel credit cards, where jetsetters these days rely on plastic while travelling and seek out cards that don’t charge foreign transaction fees or currency conversion fees for swiping abroad.
- Annual fees. There has been a widening division in sentiment towards annual fees, with many premium cards charging higher annual fees for their perks, matched by a growing consumer interest in cards promising no annual fee for life.
- Security. Common credit card security features now include two-step protocols like the chip-and-PIN verification technology which lowers card theft incidence, or online verification systems that use a one-time password sent to your mobile phone that must be keyed in before an online transaction can take place. Card companies have whole teams monitoring your transactions for suspicious, irregular activity, while card schemes have protective zero liability policies that cover you in the event of fraud.
- Online payment services. With Internet banking and mobile banking prevalent among consumers, online payment services have also evolved. Payment gateways like PayPal, SecurePay and eWay now offer even more secure ways to pay using your credit card.
- Credit card debt. Unfortunately, credit card debt has also risen with usage. According to the ASIC credit card debt clock, the average debt per credit cardholder currently stands at around $4,300, which will cost $2,139 in interest over 5 years at 18% p.a. Considering that the average credit cardholder has 2.19 credit cards, this is a cause for concern.
Credit cards have come a long way since the early days of charge coins. While they offer so many modern conveniences and amenities, it’s important that we remember to use them as tools that will benefit us in the long run.