The History and Evolution of the Credit Card

By , CardRatings contributor

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July 4th falls on a Sunday this year. Unless you keep your cash at a bank with super-convenient hours (and disgruntled tellers), you'll probably rely on a piece of plastic with a magnetic stripe to handle your spending during the four day weekend. You couldn't have hit an ATM a few decades ago, just like you couldn't have splurged on that four-burner gas grill without your credit card's generous limit. While you're celebrating freedom this year, think about the pioneers who've helped liberate your spending habits from the "bankers' hours" of the 20th Century.

Skip the Bank, But Don't Skip the Check
Credit cards and charge cards changed the way we do business by allowing consumers to use the same account with multiple vendors. Depending on who you ask, the first modern charge card came from either Brooklyn or Manhattan. In 1946, Flatbush resident John Biggins pitched his bank bosses the idea of acting as middlemen for transactions between merchants and depositors. When his neighbors used their "Charge-It" cards at Brooklyn businesses, Biggins would transfer cash from buyer to seller.

A few years later, a business dinner in the shadow of the Empire State Building almost turned into a nightmare for Frank McNamara. Vowing to never again ask his dining companions to cover his tab, McNamara returned to Major's Cabin Grill a year later with his own invention: the Diner's Club card. Banks added revolving credit to the cards championed by Biggins and McNamara, evolving into the credit card accounts we know today.

MasterCharge and BankAmericard Knew How to Send Great Mail
As regional banks joined the credit card fray, two camps formed. Bank of America used its market dominance to launch the BankAmericard. A coalition of smaller lenders joined forces under the MasterCharge logo. American Express (American Express is a CardRatings.com advertiser), wanting to reinvent itself after a tumultuous few decades in the travel services business, rolled out the first plastic credit card in 1959. Merchants who accepted credit cards discovered that they could stay open later, since buyers didn't have to collect cash from bank tellers for major purchases.

In today's economy, most of us get excited just to see a credit card offer in our mailbox. During the 1960s, banks would simply send an activated BankAmericard or MasterCharge card to your house, no questions asked. You qualified for a card by keeping your other accounts with the bank in good standing, or by looking like a decent credit risk to a company that wanted to poach your business. Mail carriers delivered over 100 million working credit cards to American homes before fearful regulators forced banks to abandon the practice.

Credit Gets Magnetic
By the early 1970s, Americans grew accustomed to relying on credit cards. Merchants and banks turned to computers to pick up the pace of processing transactions, and the magnetic stripe was born. During the same era, a newly independent BankAmericard rebranded itself as Visa and got into the travelers cheque business. Meanwhile, American Express celebrated the tenth anniversary of its Gold Card, whose profits rivaled those of its heritage travel services.

The most recent major player in the credit card business emerged in 1986, when Sears tried to achieve synergy between its retail and financial divisions by launching the Discover Card. Not only did it create some fancy cards, it brought the concept of cash back rewards to the mainstream by throwing down the gauntlet in a Super Bowl ad. Technology has driven the credit card industry since then, ushering innovations like contactless credit cards and one-time-use account numbers.

Credit cards aren't done evolving, either. Right now, banks are experimenting with credit cards embedded in cell phones and credit cards tied to your retinal scan. Pretty soon, you won't even need to carry an actual credit card to exercise your purchasing power. Instead of an account number, you could find yourself shopping with a unique key phrase. Virtual wallets containing dozens of disposable accounts could someday protect you from identity theft. And if this Independence Day leaves you nostalgic for the days when you carried pictures of our founding fathers in your wallet, you can request a customized credit card emblazoned with a picture of Mount Rushmore.


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