Credit Cards - A History

You may find it hard to believe, but credit cards, have only been around for a little over 50 years. In 1951, the Franklin National Bank of New York began screening loan customers for a credit account, if approved; they were given a card that they could use to make purchases at local retail establishments. Participating merchants would write down the information on the card and submit it to Franklin National Bank for payment; the bank would then in turn bill the customer. Merchants participating in this program were required to pay a flat fee to cover the bank's cost in providing the service.

1958 saw another company enter into the world or credit cards. American Express, who up until this point primarily dealt with travelers checks, began issuing a charge card to its customers for entertainment and travel expenses. This card was accepted at participating hotels, airlines and restaurants. Participants were required to pay the balance in full at the end of the month, much the same as today with an American Express charge card.

In 1959, Bank of America based in California at the time, began to issue its credit card, the BankAmericard, within the state. This was the first universal card, accepted at many merchants. In 1966 bank card associations started to form with Bank of America developing licensing agreements with other banks, which allowed them to issue credit cards to an even broader market.

In 1967, four banks in California formed the Western States Bankcard Association and introduced MasterCharge. This program (renamed Mastercard in 1979) was created to compete with the BankAmericard (renamed Visa in 1976).

As this industry grew throughout the 60s and 70s, banks that were interested in issuing credit cards to their customers, became members of either the Visa or MasterCard Association. As a way to keep costs down for all participants, member banks shared the card program costs; this allowed even small financial institutions to offer credit cards to their customers. Initially a financial institution was required to choose one organization to belong to but over the course of time, changes to the association bylaws, allowed financial institutions to belong to both associations. This gave banks the opportunity to offer both Visa and MasterCard to their customers.

It was not until 1987 that American Express decided to offer not only a charge card, but a credit card as well. Up until this time, the primary focus for American Express was on business clients. This produced significant revenue from participating merchants as there was a fee charged by American Express, which each merchant paid in order to accept the card. American Express also charged an annual fee to card holders. With the surging popularity of credit cards, American Express now offered customers two ways handle expenses.

The final company to enter the credit card world, Discover Card, was originally part of the Sears Corporation. Established in 1985, this card featured no annual fee (uncommon at that time) and offered a "cashback bonus". The Discover Card quickly gained popularity and is still a very recognizable card today.

As technology evolves, there will surely be more participants in the credit card industry. One thing that is certain, we have come a long way in a short time from the small local bank that offered the first credit card in 1951.