Then to now: the history of card payments

Published: 18/02/2020

Paying by card has changed the way we purchase services and goods and today, most customers pay for at least half of their purchases on plastic. But where did it all begin? 

Credit and debit cards are so commonplace now it’s hard to imagine a world without them, but these little pieces of plastic didn’t always rule the market - let’s take a look back at the evolution of the humble card.

Charge plates & courtesy cards

Department stores and oil companies began offering metal charge plates and ‘courtesy cards’ way back in the 1920s. Customers could use them to charge purchases to, but they were only accepted by the merchants that issued them (similar to a modern-day store card).

The Charg-it card

In 1946 a Brooklyn banker called John Higgins developed the first bank-issued charge card. Purchases that were made on the card were forwarded to his bank who went on to reimburse the merchant and collect payment from the customer. It was known as a ‘closed-loop’ system. 

With a Charg-it card, purchases were only permitted locally and only customers of the bank could get their hands on a card. 

The Dining Club card

Widely accredited as the first credit card, although technically a charge card, the dining club card was the brain-child of Frank McNamara and Frank Schneider in 1950. A year earlier, McNamara was attending a business dinner when he realised he’d left his wallet at home and the blunder inspired his light-bulb moment. 

Diners club’s cardboard cards were born, their balance had to be paid in full at the end of each month, and merchants were charged a 7% fee on each transaction. Fast forward to 1951 and there were 20,000 Diners club cardholders, rocketing to 42,000 by its first anniversary.

The American Express card

In 1958 American Express issued its first charge card to widespread anticipation and before it was even launched, 250,000 cards were issued. 

The first cards were made of paper, on which the cardholders’ name and account number were printed, and a year later, in 1959, they were the first to switch to embossed plastic. American Express charged an annual fee of $6, marketed themselves as a premium product, and were $1 more expensive than the Diners club card.

BankAmericard credit cards

When it came to offering revolving credit, like we see today, Bank of America was first out of the gate. In 1958 they went national and became the nation’s first licensed general-purpose credit card issuer. 

Their card was the most innovative - all charge cards before it had only been accepted in restaurants, travel and entertainment outlets, whereas the BankAmericard was accepted by different merchants (although limited to California to begin with).

Five years later in 1966 BankAmericard started scaling by licensing its cards to banks in other states.

The Interbank Card Association

In the same year as BankAmericard started to scale its operation, the Interbank card association (ICA) was formed by a group of Californian banks who worked together to manage merchant-issuer transactions.

Bank Americard and the ICA evolved into nationwide networks acting as middlemen between issuers and merchants - making sure any transaction was legitimate before it got through. 

BankAmericard eventually became Visa, and the ICA changed its name to Master Charge which eventually became MasterCard.

Enter regulations

While the popularity of credit cards exploded from thousands to millions of users, the fundamentals of how they actually worked remained unclear and fraud and inequality were rife until regulations were eventually introduced.

Fair Credit Reporting Act 1970

Put restrictions on the gathering and usage of data.

Unsolicited Credit Card Act 1970

Banned issuers from sending customers active credit cards without their permission.

The Fair Credit Billing Act 1974

Set out to rein in abusive billing practices and allowed customers to dispute billing errors.

The Equal Credit Opportunity Act 1974

Stopped lenders from discriminating against applicants based on race, religion, gender, marital status, or national origin.

Fair Debt Collection Practices Act 1977

Prohibited predatory debt collection practices.

The Discover Card

In 1986 Sears introduced their Discover card which offered customers a small rebate on all transactions, making it one of the first cash-back cards in America. As a result, competition skyrocketed and issuers began offering sign-up bonuses, frequent flier miles and a range of other enticements. 

Following their debut, Discover filed an anti-trust lawsuit against Visa and Mastercard, accusing them of unlawfully preventing their banks from issuing discover cards. The lawsuit concluded in 2004 and following the dispute, a new act was passed.

The Credit Card Accountability, Responsibility and Disclosure Act 2009

Provided better customer transparency, reducing or eliminating card issuer transgression.

The technology behind credit cards

It’s not just cards themselves that have come on in leaps and bounds, but the technology behind them too. 

The manual imprinter

One of the first credit card processing technologies used by merchants, the imprinter manually captured the information on a card and provided a copy for the bank, the merchant and the customer. 

Telephone authorisation

Introduced alongside the manual imprinter, it was intended as a method to determine a customer’s credit line and help with the transaction. Merchants would phone the number listed on the back of a card to verify fund availability. 

Magnetic stripe technology

Although developed in 1969, point of sale (POS) technology didn’t take the place of manual imprinting until 1979. POS terminals allowed for the electronic capture and sending of credit card information, speeding up transaction times and contributing to the growth of credit card use.

EMV computer chip cards

Using an embedded computer chip to protect data, EMV was released in 1994 and took card safety one step further. Created in an effort to reduce fraudulent spending and counterfeit cards, EMV is the little chip we’re used to seeing on all cards today. 

EMV chip cards are used with chip and pin technology whereby the card is inserted into a compliant machine, a consumer enters their pin and the chip communicates with the card reader to authenticate the transaction. 

Although not totally fraud-proof, the EMV chip and pin technology’s reported to have reduced losses by up to 80% according to a 2018 report by Visa.

Contactless

Introduced for the first time in 2007, paying by card contactlessly has skyrocketed in popularity in recent years with almost two-thirds of UK consumers adopting the technology.

It’s done using radio frequency identification (RFID) technology, and all the purchaser has to do is wave their card near the machine and the signal is picked up. 

There are fears this new way to pay on card is an easy ticket for fraudsters since the consumer doesn’t need to enter a pin, and for this reason contactless transactions are limited to £30.

Mobile

The latest technology introduced to make card transactions even more convenient is mobile payments. The consumer enters their card details into their smartphone and can then pay using their device in a similar way to a contactless transaction. 

Google introduced their wallet first in 2011, followed by Apple Pay in 2014. The payments work using near field communication (NFC) technology, based on RFID. 

Worried your ability to take card payments is stuck in the dark ages? Whether it’s contactless, mobile, portable or countertop, we’ve got the expertise you need to bring your systems into the present day. Get in touch with our team on 08082 393254 to see how we can help. 





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