Credit Sesame on the history of credit cards.
In an era when we carry digital credit cards on smartphones, and even then complain about having to carry our phones, imagine handling the clay tablets that Mesopotamians used 5,000 years ago to trade with the Harappan civilization.
The earthen tablets are the first recorded accounts of people using some inherently valueless instrument to represent banking transactions. It beats carrying cash, which for the Mesopotamians meant melting down copper to produce coins.
History of credit cards: a timeline
Ignoring Mesopotamian tablets, the history of modern day consumer credit cards began in the twentieth century.
The Charga-plate bookkeeping system used dog-tag style metal plates from the 1930s through the 1950s at department stores.
Each store issued its own store plates to its customers. This was great if you shopped at one store regularly, but you’d need to carry around these small metal plates for every store you planned to go to on a shopping trip.
1946: Charg-It system
John C. Biggins of Flatbush National Bank in Brooklyn, NY, created the Charg-It system. People within a two-square-block radius of the bank could charge purchases from vendors to the bank.
This moved credit from a bookkeeping system at one merchant to a way of using credit at a number of vendors, who would collect payment from your bank. With only a two-block radius of the bank, this means shoppers had a small shopping radius.
1950: Diners Club card
The Diners Club card becomes the first charge card to gain widespread popularity. It was started by businessman Frank McNamara and business partner Ralph Schneider after McNamara left his wallet at home while out dining.
Diners Club cardholders could charge their meal to the card and the restaurant would send the bill to Diners Club. Payment would be sent directly from Diners Club to the restaurant’s bank. Cardholders were required to pay their bill in full each month to Diners Club.
1958: First revolving credit card, and credit card fraud starts
American Express shifts from money orders and travelers checks as a way to avoid carrying large sums of cash, to developing its first charge card in 1958. Customers could pay their bill monthly in exchange for an annual fee.
Later that year, Bank of America issues the BankAmericard, the first revolving credit card. It mails activated cards with a pre-approval limit of $300, to 60,000 customers in the Fresno area. The first known incidents of credit card fraud are reported shortly thereafter.
1960s: Magnetic stripe
The history of credit cards took a significant turn in the 1960s. The magnetic stripe used on credit cards and identification badges is invented by IBM engineer Forrest Parry. The technology became standard in the U.S. in 1969 and worldwide two years later.
This technology allowed credit cards to be swiped at a payment terminal, and helped popularize them as a payment method.
1974: Women can get credit cards
A huge milestone for the history of credit cards, the Equal Credit Opportunity Act passed in 1974, giving women in the United States the right to obtain credit cards separate from their husbands. Before the law, women could get a credit card only if their husband cosigned for them, even if she earned more than he did.
1991: Loyalty program starts
American Express starts the first credit card loyalty program, originally called Membership Miles. It’s now known as Membership Rewards. Loyalty programs are just as popular today, offering rewards miles and points that can be redeemed for statement credits, hotel rooms and other benefits that can cost users hundreds of dollars in annual credit card fees.
1996: Better encryption
Europay, Mastercard and Visa started using EMV chips on credit cards. The chip-enabled cards use encrypted communication instead of the unencrypted magnetic stripe that’s easy to read and copy onto a fraudulent card.
2009: Protections enacted
The Credit CARD Act of 2009 is enacted, adding protections to credit card customers. They include rules around the frequency and amount a lender could increase interest rate on a loan, and the end of marking credit cards on college campuses.
2010: Contactless payment
Similar to encryption on EMV smart-chip cards, a contactless payment card allows a transaction by tapping your card against a compatible terminal. The system is launched by Barclay and Orange.
2014: Apple Pay
Apple launches Apple Pay at its iPhone 6 event so customers can pay for things digitally with their phone through Apple Wallet, a mobile app, and leave their physical credit cards at home. The magnetic stripe on the back of physical credit cards was no longer needed with this technology. Apple later added single-use credit cards numbers to verify each transaction, making it difficult for criminals to steal a card’s information.
Android Pay was started by Google in 2015, and is now called Google Pay.
Future of credit cards
Physical credit cards can be converted to digital credit cards, giving consumers the ability to leave their physical cards at home. More businesses allow payment by tapping a phone to a small terminal, and online transactions are growing.
Eventually, you may not need a physical card at all. With the 16-digit number, CVV and expiration date, you can make purchases online. A digital/virtual card can be set up on a phone in seconds.
Other digital payment methods may replace or at least supplement credit cards in the future, and some are being used now. Here are five:
- Biometric payments. Your fingerprint or pupil can be scanned to recognize you and link to your bank account.
- Voice recognition. Similar to using a body part to identify yourself, your voice is recognized and linked to your bank account. Amazon allows voice payments through its in-home assistant, Alexa.
- Wearable payment accessories. Smart watches and fitness trackers such as Fitbit can be used at pay terminals to pay without a credit card. A cheaper alternative is Purewrist, which sells a rubber armband for $25 that’s only used to make contactless payments.
- Smartphone wallets. An app such as Apple Wallet, Google Wallet, Square Cash, or PayPal connects to your bank through the digital wallet. Contactless payments are made with a phone using Near Field Communication, or NFC, to connect to the terminal at a store.
- QR Codes. This technology allows consumers to scan a code in person and automatically pay for a product if their virtual payment provider supports the technology. CVS is rolling out QR code payments at 8,200 of its stores to accept payment from PayPal and Venmo.
Protecing credit card payments
Many of the technological advances of credit cards are meant to make them more secure for customers so that their information isn’t stolen by thieves. One relatively new way to secure your credit card is by using a masked credit card.
Apple is one of the largest companies to use masked credit cards, which are virtual cards that hide a user’s information from merchants and other data brokers.
The Apple Credit Card has no number or consumer information attached to it when used. The issuing bank, Goldman Sachs, is prevented by Apple from using customer data for marketing.
This technology allows users to generate a “fake” virtual debit card. If a business is hacked or customer data gets out in some way, their data is hidden, or masked.
From clay tablets 5,000 years ago to virtual credit cards, credit cards have a long history. Technology and security advances ensure payments in cash are a thing of the past. Perhaps one day you may be able to have your fingerprint or pupil scanned to make a payment.
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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.