A Brief History of Credit Cards

The concept of credit has been around for centuries. Used primarily as a means to avoid transporting large amounts of materials that served as currency, such as silver, traders would keep written accounts of goods bought and sold. Eventually the idea of extending credit to buyers surfaced, and the idea of true “credit” in the merchant-buyer relationship took shape. Today’s plastic credit cards have long replaced stone tablets, and have become the most  popular way for people to buy goods and services. Here’s a brief history of how credit cards came to be ubiquitous in our lives.

According to American archaeologist and historian Jonathan Keynoyer, texts from ancient Mesopotamia have recorded accounts of earthen tablets being used to conduct trade with other peoples--very similar to what we think of today as credit cards.

And while their materials have evolved over the centuries, their basic premise has not: they allow consumers to purchase goods and services without the need for cash, and typically by providing them with an extended time period to procure the funds needed to make a purchase.

In the United States, the earliest predecessors to credit cards were introduced as early as 1865--in the form of “charge coins”  offered primarily by department stores. By 1899, perhaps the first reported case of credit card fraud occurred, when a livestock commission man threw his credit card in the trash, thinking it worthless, and later found out someone had fished it out of the bin and charged $25 to it.

The early credit cards continued to evolve, moving to “charge plates” (also known as “Charga-Plates”) typically offered by department stores for the purchase of household furniture. In 1946, John C. Biggins’ bank, Flatbush National Bank of Brooklyn, NY, created a system called “Charg-It,” a bank-issued card that let people in a two square block radius charge purchases to the bank. The Diners’ Club card was created in 1950, when Frank McNamara, one its founders, forgot his wallet at a business lunch. The first independent card company, which could be honored at any participating store, was soon joined by Alfred Bloomingdale. 

The first “charge cards” required users to pay in full monthly, rather than allowing them to carry the revolving balance that is now typical of a “credit card.” Franklin National Bank in New York is credited with introducing the first true credit card in which customers could buy goods and services now and pay later, with interest.

American Express, which was formed in 1950 by Henry Wells, William G. Fargo and John Butterfield, whose goal was to create an express delivery company that would rival the U.S. Postal Service, went on to create the money order, the traveler’s check, and its own credit card. In 1959, it introduced the first plastic credit card in the country.

In 1958, Bank of America mass-mailed 60,000 credit cards to unknowing residents of Fresno, California, and while the experiment went well enough to encourage other banks to follow suit, fraud also spiked, likely when people tossed cards in the trash.

1966 brought two major events. Bank of America started licensing its BankAmeriCard (becoming Visa in 1976) credit cards to banks across the country, 61,000+ merchants all over the U.S. accepted the BankAmericard by June.

Also that year, the second major bank card in the U.S.,MasterCard, was created by a group of banks in California, which had formed the Interbank Card Association (ITC). Today called Mastercard Worldwide, the nation’s first card association competes directly with Visa. 

Visa and Mastercard operate as “open-loop” systems that require interbank cooperation, as well as the transfer of funds. American Express and Discover Card (created by the Sears Corporation in 1986) operate as “closed-loop” systems as they are both the card issuer as well as integrated with merchants.

A Brief History of Debit Cards

Debit cards, which are linked to cardholders’ bank accounts and are used primarily as a convenience and substitute for cash and paper checks, were introduced on a very limited basis as early as 1966, but became more widespread in the 1970s. 

 In 1978, The First National Bank of Seattle offered debit cards to its customers with a long history with the bank and who were in good standing, because at the time, like a check, the funds were not immediately removed from the account. 

Landmark implemented the first nationwide debiting system in 1984 built on the credit card infrastructure and ATM networks already in place.Today debit cards far outpace the use of checks.