Credit Cards - History, Rewards And Risks

If there is one single factor that has revolutionized shopping, travel and business in the last six decades, it is the credit card, also casually referred to as plastic money. In fact, across most of the world, any commercial activity is inconceivable without the omnipresent 'C' card. Internet commerce has made the credit card even more indispensable to modern existence.

The credit card system, like many other innovations, was born originally in Europe and traveled subsequently to the United States. In the late nineteenth century, certain European merchants began offering credit to their customers by issuing cards that could be used in lieu of cash. In the early decades of the nineteenth century, the first credit cards were introduced in the United States, mostly to traveling salesmen. These cards were issued by oil companies and hotels and were more a matter of offering convenience than financial accommodation. Later, merchants began accepting each other's credit cards. The first commercial bank credit card was introduced by Franklin National Bank of New York in 1951; clients who were found creditworthy were given cards that could be used for shopping. The processing system for these first cards was very complicated when compared to the electronic systems used in today's transactions. The merchants accepting the card had to copy the customer's name, personal information and repayment schedule on slips, which had to be sent to the issuing bank for settlement.

Credit cards have, no doubt, made life very convenient; they have, to a large degree, eliminated the need for carrying cash and minimized the attendant risks; they have made it possible for people to make purchases of high-priced items against anticipated income. Making hotel and travel bookings and purchases on the internet from the comfort of one's home has become a reality only because the credit card can be electronically submitted and accepted as payment. The employment and ancillary business generated by the card system is mind-boggling in scale and is growing each day. In fact today's economy is often referred to as the credit card economy, a system built almost entirely on spending anticipated future earnings.

Credit cards are also exposed to the hazard of identity theft; when the card and customer information is communicated between processing agencies over lines that are not completely secure, such data is misappropriated by people who can use the stolen cards to make huge purchases. Credit card companies have introduced several measures to improve security of processes and data handling technology, but have been unable to completely erase the risks of card misuse.

On the debit side credit cards are responsible for leading individuals and families to financial ruin. Card companies compete with each other to secure clients and in the process ignore established norms of credit worthiness. Customers, on the other hand, are lured by the illusory comfort of spending freely on several cards without a bank balance and consequently find themselves in debt to a number of card establishments, for amounts far exceeding their financial capacity. Human business ingenuity has always been adept at exploiting individual misery and in this case, a whole ancillary industry has sprung up to address these unfortunate financial situations. The services they offer come under various names - debt consolidation, debt management and debt solutions - but they all perform the collective function of pushing an individual further into the debt trap.

Many individuals and families are driven to insolvency and bankruptcy by the indiscriminate spending facilitated by credit cards. Sociologists blame the credit card system for encouraging overspending and financial irresponsibility and for ruining careers and families. The card system is blamed for allowing people to leverage on low cash balances to build up dangerous levels of debt. The fact is, however, that credit cards are here to stay and grow and it is up to the users to exercise discretion while spending. Cards have made modern life immensely comfortable, eliminated the risks associated with cash handling and made possible the magic of internet commerce.