A
credit card is a small
plastic card issued to users as a system of
payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services.
[1] The issuer of the card creates a
revolving account and grants a
line of credit to the
consumer (or the user) from which the user can borrow money for payment to a
merchant or as a
cash advance to the user.
A credit card is different from a
charge card: a charge card requires the balance to be paid in full each month. In contrast, credit cards allow the consumers a continuing balance of debt, subject to
interest being charged. A credit card also differs from a
cash card, which can be used like currency by the owner of the card. Most credit cards are issued by
banks or
credit unions, and are the shape and size specified by the
ISO/IEC 7810 standard as ID-1. This is defined as 85.60 × 53.98 mm (3.370 × 2.125 in) (3
3/
8 × 2
1/
8 in) in size.
History
The concept of using a card for purchases was described in 1887 by
Edward Bellamy in his utopian novel
Looking Backward. Bellamy used the term
credit card eleven times in this novel.
[2]
The modern credit card was the successor of a variety of merchant credit schemes. It was first used in the 1920s, in the United States, specifically to sell
fuel to a growing number of
automobile owners. In 1938 several companies started to accept each other's cards.
Western Union had begun issuing charge cards to its frequent customers in 1921. Some charge cards were printed on paper card stock, but were easily counterfeited.
The Charga-Plate, developed in 1928, was an early predecessor to the credit card and used in the U.S. from the 1930s to the late 1950s. It was a 2½" × 1¼" rectangle of sheet metal related to
Addressograph and military
dog tag systems. It was embossed with the customer's name, city and state. It held a small paper card for a signature. In recording a purchase, the plate was laid into a recess in the imprinter, with a paper "charge slip" positioned on top of it. The record of the transaction included an impression of the embossed information, made by the imprinter pressing an
inked ribbon against the charge slip.
[3] Charga-Plate was a trademark of Farrington Manufacturing Co. Charga-Plates were issued by large-scale merchants to their regular customers, much like department store credit cards of today. In some cases, the plates were kept in the issuing store rather than held by customers. When an authorized user made a purchase, a clerk retrieved the plate from the store's files and then processed the purchase. Charga-Plates speeded back-office bookkeeping that was done manually in paper ledgers in each store, before computers.
The concept of customers paying different merchants using the same card was implemented in 1950 by Ralph Schneider and
Frank McNamara, founders of
Diners Club, to consolidate multiple cards. The Diners Club, which was created partially through a merger with Dine and Sign, produced the first "general purpose"
charge card, and required the entire bill to be paid with each statement. That was followed by
Carte Blanche and in 1958 by
American Express which created a worldwide credit card network (although these were initially charge cards that acquired credit card features after BankAmericard demonstrated the feasibility of the concept).
However, until 1958, no one had been able to create a working
revolving credit financial instrument issued by a third-party bank that was generally accepted by a large number of merchants (as opposed to merchant-issued revolving cards accepted by only a few merchants). A dozen experiments by small American banks had been attempted (and had failed). In September 1958,
Bank of America launched the
BankAmericard in
Fresno, California. BankAmericard became the first successful recognizably modern credit card (although it underwent a troubled gestation during which its creator resigned), and with its overseas affiliates, eventually evolved into the
Visa system. In 1966, the ancestor of
MasterCard was born when a group of California banks established Master Charge to compete with BankAmericard; it received a significant boost when
Citibank merged its proprietary
Everything Card (launched in 1967) into Master Charge in 1969.
Early credit cards in the U.S., of which BankAmericard was the most prominent example, were mass produced and mass mailed unsolicited to bank customers who were thought to be good credit risks. But, “They have been mailed off to unemployables, drunks, narcotics addicts and to compulsive debtors, a process President Johnson’s Special Assistant Betty Furness found very like ‘giving sugar to diabetics’.”
[4] These mass mailings were known as "drops" in banking terminology, and were outlawed in 1970 due to the financial chaos that they caused, but not before 100 million credit cards had been dropped into the U.S. population. After 1970, only credit card applications could be sent unsolicited in mass mailings.
The fractured nature of the U.S. banking system under the
Glass–Steagall Act meant that credit cards became an effective way for those who were traveling around the country to move their credit to places where they could not directly use their banking facilities. In 1966
Barclaycard in the UK launched the first credit card outside of the U.S.
There are now countless variations on the basic concept of revolving credit for individuals (as issued by banks and honored by a network of financial institutions), including organization-branded credit cards, corporate-user credit cards, store cards and so on.
Although credit cards reached very high adoption levels in the US, Canada and the UK in the mid twentieth century, many cultures were more cash-oriented, or developed alternative forms of cash-less payments, such as
Carte bleue or the
Eurocard (Germany, France, Switzerland, and others). In these places, adoption of credit cards was initially much slower. It took until the 1990s to reach anything like the percentage market-penetration levels achieved in the US, Canada, or UK. In some countries, acceptance still remains poor as the use of a credit card system depends on the banking system being perceived as reliable.
Japan remains a very cash oriented society, with credit card adoption being limited to only the largest of merchants, although an alternative system based on RFIDs inside cellphones has seen some acceptance. Because of strict regulations regarding banking system overdrafts, some countries, France in particular, were much faster to develop and adopt chip-based credit cards which are now seen as major anti-fraud credit devices.
Debit cards and
online banking are used more widely than credit cards in some countries.
The design of the credit card itself has become a major selling point in recent years. The value of the card to the issuer is often related to the customer's usage of the card, or to the customer's financial worth. This has led to the rise of Co-Brand and
Affinity cards - where the card design is related to the "affinity" (a university or professional society, for example) leading to higher card usage. In most cases a percentage of the value of the card is returned to the affinity group.
