The History of Credit Cards [Insider Facts]

By: Yara Pollard

We all know what credit cards are, the convenience they bring and their function. However, not all of us know the history of credit cards. Even when just 5% of individuals remain to have no debit or credit cards, a lot of people are still unfamiliar with plastic money’s back story.

You might be intrigued with how the backstory of the credit card is such a fascinating story. Because of being too familiar with the credit card, often times, we forget to appreciate its convenience.

Upon knowing the history of credit cards, you might discover a new found appreciation. It can be a difficult task just trying to imagine the world without smartphones, how about a world without credit cards?

The evolution of currency is whimsical. It used to be inconvenient and at times, even dangerous. Cattles and sheep at some point were used for trading goods. Until people learned to use smaller items such as cowrie shells, gold nuggets, silver nuggets and more.

Here’s the story of how credit cards came to be.

Earliest Forms of the Credit Card

The concept of the credit card was used way back 5,000 years ago in Mesopotamia. This is according to Jonathan Kenoyer, an American archaeologist. Today, we have plastic cards. Back then, people had clay tablets.  According to Jonathan,

“The trade volume between Mesopotamia and Harappa was huge, and would have required tonnes of copper and mint coins. But they used a system of earthen tablets that contained seals of both civilizations and were a token of credit.”

Out of the need for convenience, much like we had, they created a credit system for trading. It was discovered from ancient Mesopotamian texts that they used clay tablets to conduct trade with the Harappan civilization. 

As mentioned by Jonathan, their method of doing this was placing seals of both civilizations on the tablets. For a civilization that existed 5,000 years ago, this is impressive.

Their method of doing this was placing seals of both civilizations on the tablets. For a civilization that existed 5,000 years ago, this is impressive. 

How Our Credit Cards Came To Be

Around 70 years ago, the nature and even the name of the credit card was different. Credit card back then was called a “charge card”. Charge cards before was just for the rich. Can you imagine the amount of money people had to bring back then when they wanted to go to an expensive restaurant?

If you wanted to order expensive steak, caviar and fine wine, you’ll have to pay a lot of money. Rich people back then found it a hassle to carry around a lot of money just to eat. This was how the charge card came to be. 

The first charge card was made by the Diners Club Inc. Cardholders could then eat at different restaurants without having the need to bring money. However, they needed to pay their credit by the end of the month. 

Otherwise, their Diners Club membership will get revoked. If this story is beginning to sound familiar, it’s because this principle was then copied by the American Express. However, back then, there was no borrowing and credit cards were just for the rich people in New York.

The Beginning of the Mass Market Credit Card

The concept of mass market credit card began in 1958 when Bank America gave everyone a BankAmericard. By everyone, we mean everyone – men, women and children. This began in Fresno, California.

The way the banks did this was to send everyone a letter containing the card. All merchants took part in accepting credit cards. Can you imagine what happened next?

The good thing was that everyone used their credit cards. The bad thing was the huge losses because everyone had credit but not everyone had the money to pay for it. Remember, back then, there were no electric or digital means of supporting the credit card system. Everything had to be done in a manual fashion.

The Visa we now know used to be BankAmericard. As time went on, the range of credit card services kept expanding. Until the card was no longer limited by location. Other major banks include:

  • MasterCard 
  • Discover
  • Barclaycard
  • JCB

The System We Have Today

Now, the credit card system has become complex and sophisticated. Each time you use your credit cards, 5 parties are involved.

  1. Consumer (cardholder)
  2. Issuing Bank (card issuer) – takes all the risk if the cardholder gets bankrupt.
  3. Network – the system how the issuers issue their cards.
  4. Acquiring Bank – acquires merchants
  5. Merchants

To give you an example, whenever you use your Target Red Card at Target or their partner establishments, all parties come into play. Their credit cards are issued by the T.D. Bank U.S.A., N.A..

Mastercard would then bridge the issuing bank and the acquiring bank. Since the acquiring bank has Target, you are then allowed to make your purchase through your credit card. 

To give you a simpler explanation, when you buy something at Target and you swipe your Target Red Card, Target sends your details to banks involved, if they detect no fraudulent use, they then approve your purchase. 

The evolution of payment has come a long way. Credit cards are just one of the myriad of proof that humans are excellent with adapting. Were you able to learn something new about the history of credit cards? 

We hope that with your next use of your credit cards, you have a better appreciation for them. We also hope we made you better understand how credit cards are such powerful financial tools through sharing its history. 

Share the history of credit cards with your friends so they may also know the fascinating past of the incredible credit card.

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