In the early 1900s, oil companies and department stories issued their own proprietary cards, according to StanSienkiewicz, in a paper for the Philadelphia Federal Reserve entitled "Credit Cards and Payment Efficiency." Such cards were accepted only at the business that issued the card and in limited locations. While modern credit cards are mainly used for convenience, these predecessor cards were developed as a means of creating customer loyalty and improving customer service, Sienkiewicz says.
The first bankcard, named "Charg-It," was introduced in 1946 by John Biggins, a banker in Brooklyn, according to MasterCard. When a customer used it for a purchase, the bill was forwarded to Biggins' bank. The bank reimbursed the merchant and obtained payment from the customer. The catches: Purchases could only be made locally, and Charg-It cardholders had to have an account at Biggins' bank. In 1951, the firstbank credit card appeared in New York's Franklin National Bank for loan customers. It also could be used only by the bank's account holders.
The Diners Club Card was the next step in credit cards. 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 realizedhe'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 cardin widespread use.
By 1951, there were 20,000 Diners Club cardholders. A decade later, the card was replaced with plastic. Diners Club Card purchases were made on credit, but it was technically a charge card, meaning the bill had to be paid in full at the end of each month.
According to its archivist, American Express formed in 1850. It specialized in deliveries as a competitorto the U.S. Postal Service, money orders (1882) and traveler's checks, which the company invented in 1891. The company discussed creating a travel charge card as early as 1946, but it was the launch of the rival Diners Club card that put things in motion.
In 1958 the company emerged into the credit card industry with its own product, a purple charge card for travel and entertainment expenses.In 1959, American Express introduced the first card made of plastic (previous cards were made of cardboard or celluloid).
American Express soon introduced local currency credit cards in other countries. About 1 million cards were being used at about 85,000 establishments within the first five years, both in and out of the U.S. In the 1990s, the company expanded into an all-purpose card. AmericanExpress, or Amex as it often is called, is about to celebrate its 50th credit card anniversary.
The Diners Club and American Express cards "functioned in what is known as a 'closed-loop' system, made up of the consumer, the merchant and the issuer of the card," Sienkiewicz writes. "In this structure, the issuer both authorizes and handles all aspects of the transaction andsettles directly with both the consumer and the merchant."
In 1959, the option of maintaining a revolving balance was introduced, according to MasterCard. This meant cardholders no longer had to pay off their full bills at the end of each cycle. While this carried the risk of accumulating finance charges, it gave customers greater flexibility in managing their money.
Bank card associations