The History of Credit Cards

Credit has been around for as long as humans have been trading. It was mostly given on good faith and expected to be paid in full. It wasn’t until just over 50 years ago, however, that the credit card industry was born.

Diners’ Club holds the claim as the first credit card that was accepted by a variety of merchants, even so it was still more of a charge card than a credit card since purchases were expected to be paid in full each month.

“According to a representative from Diners’ Club, the story began in 1949 when a man named Frank McNamara had a business dinner in New York’s Major’s Cabin Grill. When the bill arrived, Frank realized he’d forgotten his wallet. He managed to find his way out of the pickle, but he decided there should be an alternative to cash. McNamara and his partner, Ralph Schneider, returned to Major’s Cabin Grill in February of 1950 and paid the bill with a small, cardboard card. Coined the Diners’ Club Card and used mainly for travel and entertainment purposes, it claims the title of the first credit card in widespread use.”

Diners’ Club reached 20,000 cardholders in 1951. Soon after American Express (established 1850) jumped into the market with its own purple card in 1958. But it wasn’t until 1959 that credit cards went plastic with the debut of a new American Express card, which by the way was still really a charge card.

Also in 1959 MasterCard trumped Amex’s plastic card with the introduction of revolving credit. Over the next decade the credit card industry took off when Visa and MasterCard both formed their own groups of credit-issuing banks. As the bank card industry grew, banks interested in issuing cards became members of either the Visa association or MasterCard association. Their members shared card program costs, making the bank card program available to even small financial institutions. Later, changes to the association bylaws allowed banks to belong to both associations and issue both types of cards to their customers. Today American Express, Diner’s Club and relative newbee Discover (owned by Sears) operate independently of the Visa and MasterCard systems.
  • In 1968, consumers’ total credit debt was $8 billion (in current dollars). Now the total exceeds $880 billion.(SOURCE: Federal Reserve Bank)
  • At least one in ten consumers have more than 10 credit cards in their wallets. However the overall average number of credit cards per consumer is 4.(SOURCE: Experian’s “National Score Index”)

For most of us it is difficult to imagine life without the convenience of credit cards, debit cards, or ATMs, yet when you think about it the world hasn’t been using these tools very long. Maybe we’re still figuring out how to do it right.

Next Thursday credit card execs will meet at with White House officials to discuss transparency of their lending practices. At that meeting some of the largest credit card lenders will need to explain hiked interest rates, imposed fees, slashed credit lines and their use of bailout funds.


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