Chances are, you have a credit card in your wallet – or tokenized to your mobile phone – right now. That’s because as of 2022, there were more than 827 million credit cards in circulation in the United States alone, making it (with debit cards) one of the most popular payment methods in the country. These little plastic cards – or metal, if you’re fancy – make the economic world go round.
But how did they get to become so ubiquitous? Where did credit cards come from? The history of credit cards is complicated, but fascinating. Let’s dive into how the modern credit card came to be, starting from the very beginning.
What is a Credit Card?
First of all, what exactly is a credit card?
A credit card is a type of payment system tool that allows its owner to access money or credit in a designated account and, often, to make electronic transactions.
Typically issued by a financial institution, such as a bank, to a cardholder, credit cards allow users to purchase goods and services. As you might have guessed, credit cards function on credit: that is, using the card accrues a continuous balance of debt that the cardholder must repay, typically with interest after a certain amount of time.
Credit card “issuers” are the companies that supply cardholders with credit cards, manage individuals’ credit accounts, and report their payment histories to credit bureaus. They are not the same as credit card networks, which are responsible for authorizing and processing the billions of credit card transactions that occur every day. Some companies, such as American Express and Discover, do both: they issue the credit cards and process the transactions those cards make.
In 2023, US-issued credit cards initiated $5.82 trillion in purchase volume. The following credit card issuers were responsible for the largest shares of this figure:
Chase, with $602.1 billion in purchase volume
American Express, with $547.6 billion in purchase volume
Citi, with $287.2 billion in purchase volume
Capital One, with $272.6 billion in purchase volume
Bank of America, with $244.2 billion in purchase volume
Discover, with $105.8 billion in purchase volume
U.S. Bank, with $98.8 billion in purchase volume
Wells Fargo, with $90.6 billion in purchase volume
A Brief History of Credit Cards
Pre-19th Century
Credit exchanges – when one party gives money or resources to another party and does not expect immediate reimbursement – have gone on throughout human history. Some of the earliest evidence of credit exchanges include clay tablets from central Turkey circa 2000 B.C. For thousands of years, humans have been partaking in credit exchanges, usually using written records as security.
The Advent of Charge Cards
These records got an upgrade in the late 19th century in the US with the “charge card.” Initially, charge cards were small, metal, coin-shaped tokens that were kept on a key ring. Engraved on the metal was a charge account number, which was then imprinted onto the sales slip in order to keep track of the customer’s expenses. Charge cards took many forms, and were commonly used until around the 1950’s. Some of the most famous forms of charge cards were:
Western Union’s “Metal Money.” Released in 1914, this was a charge card that used a thin metal plate instead of a coin to imprint sales slips.
The “Charga-Plate,” which was used in department stores throughout large American cities. In 1928, the first Charga-Plate – a thin metal plate used to track credit accounts - was issued. The Charga-Plate looked a lot like a military dog tag.
The “Charg-It Card,” which was born in 1946 Brooklyn. It was revolutionary because it was one of the first early credit cards to take the shape of an actual card, and it was one of the first early credit cards to directly involve banks in its payment scheme. The Charg-It Card allowed customers to borrow money directly from a bank to use at a few participating Brooklyn businesses.
Early Credit Cards
Charge cards eventually evolved into more complex payment tools. In 1934, American Airlines and the Air Transport Association invented the Air Travel Card. which introduced a numbering scheme that tracked the card owner and issuer. This card allowed customers to buy airplane tickets on credit with a discount at participating airlines. It was a huge success, pioneering the idea of credit cards that expanded to many different participating businesses, generated large amounts of revenue for those businesses, and allowed them to attract customers with installment plans and other card-based benefits.
Similarly, in 1949, the “Diner’s Club” card was born when a businessman named Frank McNamara went out to dinner in Manhattan and forgot his wallet. He avoided washing dishes for the rest of the night by agreeing to return to pay his bill the next day. This gave him an idea, and he created The Diner’s Club, which issued cardboard cards that friends could use at 27 participating restaurants. Within a year, the Diner’s Club had grown to include 42,000 members. Along with the Air Travel Card, the Diner’s Club card was one of the first early credit cards to include a large number of participating businesses. This attracted many cardholders.
The Big “Drop”
The Bank of America saw the potential of credit cards, so in 1958 they created the BankAmericard. The Bank of America recruited the stores of Fresno, CA to accept their pilot cards, and then mailed the cards to all 60,000 Fresno residents in an event known as a “drop.” These credit cards were different from their charge card precursors in that they offered revolving lines of credit, where cardholders could “buy now, pay later” with interest added, instead of paying each month for the debt they had accrued that month. These cards also were issued by a third-party bank, with merchant cooperation, instead of being issued by merchants.
Soon, other banks copied the Bank of America and began mailing cards, unsolicited, to customers, many of whom were directly targeted because they were “credit risks:” the unemployed or debtors. The banks anticipated that these cardholders wouldn’t be able to pay their credit card balance and therefore would end up owing more to the bank. This strategy dropped around 100 million credit cards into the US economy.
Technological Advancements
In 1959, American Express made the first plastic credit card, and in 1966, Barclaycard in the United Kingdom launched the first credit card outside the United States. Credit cards continued to gain widespread use until the next major technological update: in 1969, an IBM engineer named Forrest Parry invented the magnetic stripe.
Before the magnetic stripe, stores had to use an unwieldy machine called a Zip-Zap Machine or a Knuckle Buster to copy card information onto carbon paper copies that served as authentication, receipts, and records. Perry’s idea was to encode the card information onto a magnet that could easily transmit and store the card information for the merchant. Perry was trying to glue a magnetic stripe to a standard plastic card until his wife had a better idea: she used a clothes iron to iron the magnet on. The magnetic stripe made it easier and simpler to use and accept credit cards.
Credit card use continued to grow due to these advancements. However, this growth came with a dark side: banks had to argue with other banks about who was paying for which customer’s credit card purchase and when. companies like Visa were formed to broker credit card interchanges. In 1973, Visa computerized the card authorization process. Before, buying something with a card was a logistical headache for banks and merchants. After computerizing the system, credit card transactions only took a minute.
Modern Credit Cards
In the early 2000s, credit card technology made another great leap forward when the EMV chip was introduced and adopted by much of the global economy. These cards use an electronic “chip” and four-digit Personal Identification Number (PIN), rather than signed receipts, to authorize transactions. Card chip technology was created in Europe the ‘90s, but stalled for years due to a great variety of mutually incompatible chips. In 1999, EMVCo. was formed to standardize the technology. EMV stands for EuroPay, MasterCard, and Visa, the organization’s three founding companies. EMVCo’s regulations gave EMV technology its name and led to its widespread adoption in Europe and, eventually, throughout much of the world.
EMV became the new standard in credit card technology by the mid-2010s. This also ushered in the “EMV Liability Shift,” a rule change by the major card networks to shift fraud (and thus reimbursement) liability to the merchants who processed transactions without an EMV-compatible payment terminal (or neglected to use them). This was to incentivize merchants to adopt the new EMV ecosystem.
Around this same time, developments in Near Field Communication (NFC) technology began popularizing contactless credit cards. Today’s credit cards are powered by increasingly secure and powerful microprocessors, and often embedded with additional technology such as biometric sensors, keypads, microphones, and more. These “smart cards” push the limits of what credit cards can do. Additionally, fully-digital credit cards stored in e-wallets on mobile devices are gaining popularity.
The Future of Credit Cards
The credit card in your pocket is a result of more than 100 years of evolving technology, always to address the current needs of the people using them. With the arrival of cryptocurrency, the boom in e-commerce, and the unfortunate increase in fraud; credit cards are continuing to evolve and faster than ever before.
The newest evolution? EVC (Ellipse Verification Code) technology, a much needed fraud-prevention innovation for the digital age. EVC technology is a new type of EMV credit card chip that displays a dynamic security code on a digital screen, replacing the less-secure printed security code on the back of most credit cards.
EVC is another exciting step forward in the relatively short history of credit card technology. To learn more about EVC, click here.
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