The Credit Card- 70 Years Of Service
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The Credit Card: 70 Years of Service
Credit cards have become an essential part of American life, with each household estimated to hold at least 10 cards, carrying an average debt of $13,000. This reliance on credit is not new; it’s a tradition deeply rooted in history.
A History of Credit in America
America's colonial settlers brought with them a willingness to embrace credit. Early Americans often used credit to buy land, start businesses, or travel in search of wealth. Some even incurred debt to reach America, as seen with the colonies' indentured servants.
By the 1800s, America was a nation where debt was commonplace. In New York City, for example, pawnbrokers issued loans against 149,000 pieces of collateral in 1828, despite the population being just 200,000. In rural areas, credit was used to buy everything from seeds to household items, with many promising to pay after harvest or using open-book credit for necessities like food and clothing.
Evolution of Credit Systems
In the early 19th century, installment plans emerged, initially for affluent customers buying luxury items. By the turn of the century, even working-class families could purchase goods this way. Department stores then introduced charge cards for loyal customers, enabling them to shop without carrying cash and to settle bills monthly. These charge cards increased sales and customer loyalty.
The automobile industry further transformed credit. Cars were expensive, making installment plans necessary and credit purchases respectable. As automobiles allowed people to travel further, oil companies introduced their own credit cards for gas and services, usable nationwide.
Birth of the Modern Credit Card
By the 1920s, the essentials of modern credit cards were already present. However, it wasn't until 1949 that the concept truly came to life. Three visionaries in a New York restaurant saw an opportunity in consumer credit. They proposed a third-party system linking buyers and sellers, promising more customers to businesses and wider spending options to affluent consumers. This idea led to the creation of Diners Club.
Initially, Diners Club cards included a list of participating establishments. Cardholders paid off their balance monthly without interest or fees beyond a $3 annual charge. By 1951, Diners Club was international, and plastic cards replaced paper ones by 1955. This vision of a universal credit card was realized by the mid-1960s as major businesses began accepting them.
Expansion and Competition
Other companies quickly followed. In 1958, American Express launched its credit card, and the Hilton Hotel chain introduced Carte Blanche. These "travel and entertainment" cards were distinct from bank cards.
Banks, seeing the success of credit cards, joined the market in the early 1950s. By 1955, over 100 U.S. banks offered credit cards, though they faced limitations due to interstate banking laws. Bank of America led this charge with its BankAmericard, initially usable only in California.
To overcome geographic limitations, Bank of America established a national interchange, allowing banks nationwide to offer BankAmericard, later evolving into Visa. This move spurred the creation of a rival network, the Interbank Card Association, which became Master Charge, and later, MasterCard. By the 1980s, credit cards had become a matured industry, with most businesses displaying Visa and MasterCard logos.
Today, credit cards are ubiquitous, a testament to 70 years of evolution and adaptation in the world of consumer finance.
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