The history and evolution of credit cards: Here’s what you didn’t know
Credit cards have become a part of our daily lives. After all, they allow us to buy what we wish to and pay later. Do you know that the concept behind credit cards isn’t a modern one? The history of credit system is significantly older than the plastic cards we see today. Surprised much? Well, these cards work on the credit system that has been around for 5000 years! In the early stages, credits were handed out in the form of verbal agreements, clay tablets and even metal ‘Charge-It’ plates! Let us dive into the journey of the credit system through ages and the inception of the modern credit cards.
Clay tablets
In the Bronze Age (3300 to 1200 BC), our ancestors would often accumulate debt, which they would settle after harvesting the crop. Once the crops were harvested, they could pay their debtors. This is one of the earliest forms of credit system known. However, the first documented record of credit system dates back more than 5,000 years ago, during the Mesopotamian civilization. Back then, people used clay tablets to conduct trade with the nearby Harappan civilization. This created the groundwork for our present-day credit card system.
The Metal Money and ‘Charge-it card’
Fast forward to the 18th century, and further credit card-like systems were developed. Back then, merchants in the USA used credit coins and ‘Charge-It plates' to give credit to consumers. In 1918, Western Union, a financial services company based in USA, began issuing metal plates, dubbed as ‘Metal Money’, to a small number of clients. A few years later, in the 1920s, hotels and oil corporations both produced their brand of metal plates that customers could use in their respective facilities only. Their use was limited to a few special customers and particular purchases.
Fast-forward to 1946, when a new form of payment known as the ‘Charge-It card’ made these metal plates outdated. How? The Charge-It card, designed by the Brooklyn-based banker John Biggins, used Biggins’s Bank as a mediator for transactions. But how did this work? The bank would pay for the goods purchased by the customer. And the Charge-It card holder could pay the bank later. This is similar to the credit cards that we use today.
The inception of the modern credit card
In 1949, American businessman Frank McNamara and his partner Ralph Schneider founded the ‘Diner’s Club’ as the first example of a credit card. The Diner’s Club started with cardboard cards that could be used at 27 participating eateries. The first 200 members of the Diner’s Club were mostly Schneider and McNamara’s friends and acquaintances. However, in the next two years, the 200 initial members had grown to an impressive 42,000 all across the United States. This made it the first credit card that anyone could use in the United Kingdom, Cuba, Canada and Mexico!
Credit cards that we use today!
You know that today, banks issue a range of credit cards. But when exactly did the banks start issuing such cards? Well, they joined in right after the Diner’s Club card entered the market. Using these cards, they let their customers carry credit card balances from month to month! In 1959, American Express introduced the first plastic credit card. Other freshly established credit card companies, including Bank of America, Carte Blanche and Diner's Club, swiftly followed.
Now, development needed protection as theft and fraud were becoming common. So, Forrest Parry, an International Business Machines (IBM) engineer, created the standard magnetic strip. It was eventually improved with the EMV (EuroPay, Mastercard and Visa), a type of credit card that employs a chip and pin in place of a magnetic strip to complete transactions! Now you could have convenience and security, all in one place!
Credit scores
Another concept that pops when one hears about credit is credit scores. But do you wonder when they came into existence? Understanding a credit score to represent our financial borrowing and lending habits took some time to surface! It was in 1956 that Bill Fair (an engineer) and Earl Isaac (a mathematician) based at Stanford University developed the first credit rating system through the Fair Isaac Company! Today, credit scores have an integral role in the loan approval process. People with good credit scores are preferred over people with lower credit scores. Today, with the ongoing shift towards digital-only solutions, virtual credit cards are becoming more common.