Credit cards have evolved from rudimentary, bulky metal plates to the sleek pieces of plastic we carry in our wallets today – and it’s easy to forget that there is a story behind the ease with which we now pay for goods and services thanks to credit cards. What’s a charge plate? What was a knuckle-buster? When was the first “real” credit card available? Read on to find out the history of credit cards.
While we use them every day for small and large purchases alike, the history of credit cards is often overlooked. The credit card has become a mainstay in the global economy, allowing consumers to buy now and pay later with a line of credit that eliminates the need to carry cash or other currency. Since its humble beginnings, the concept of credit and lending has advanced to become the credit card we all know today – “paying with plastic” is, in fact, so common that U.S. credit card debt topped more than $4 trillion in December of 2018, and as of 2018 Experian estimates that the average American adult carries $6,506 in personal credit card debt. The credit card has evolved considerably over the last few decades, particularly with the introduction of digital wallets. The wide variety of credit cards available in today’s financial market, along with the convenience it affords consumers who want to make large purchases without breaking the bank, has seen a surge in the popularity of credit cards that makes it easy to forget their early days. Let’s explore the rich history of credit cards.
What Came Before the Credit Card?
The concept of currency – a means of exchange for goods and services that dates back as far as recorded history goes – has evolved from the exchange of cattle and camels to the money we know today – dollar bills, pound coins, the Euro, and most recently, digital currency. Currency has taken some truly fascinating steps throughout history: At various stages, people have exchanged items ranging from seashells to beaver pelts, stringed wampum beads to foodstuffs, and even farm animals. A common theme throughout history has been the exchange of precious metals and stones like gold, silver, diamonds, opals and more, for goods and services; precious metals were seen as opulent and were difficult to obtain – a rarity which lent them more value in society’s eyes. In fact, entire empires were built around gold, and in some cases entire continents were explored and conquered in a search for gold, silver and the like. The first iteration of monetary currency that replaced the use of items for barter was the minted coin, which is believed to have originated in Lydia, an area that is now part of Turkey, in 600 B.C. Currency eventually evolved from coins into printed banknotes, and lending evolved to match it. Carrying currency was, and can still be, dangerous – the value assigned to these items meant that carrying them could put you at risk from thieves, bandits and even corrupt officials. Banks were formed as a means to help protect money, as carrying around a lot of wealth was impractical due to the dangers associated with it. Currency helped to encourage international commerce, especially after the introduction of the Florin around 1250 A.D. – a gold coin minted in Florence that was widely accepted across Europe until Marco Polo introduced the concept of paper money from his travels. Throughout this time-frame, it has been documented that there were lenders, and the earliest pawnbrokers date back more than 3,000 years to ancient Greece and Rome. As such, people have engaged in credit-like transactions for centuries, with examples of credit systems going back to Babylon and the Code of Hammurabi – a set of laws that established, among other things, rules for loaning and paying back money as well as how interest could be charged.
The Evolution of Credit, and Credit Cards
Following the progression of time, technology also evolved to become more advanced; so, too, did the concept of lending and credit. The idea of credit began to gain popularity among small merchants in the late 1800s and the exchange of credit coins and papers as temporary currency set the stage for the modern credit card.
There were several precursors to the sleek, small plastic cards we know today as credit cards. Department stores and hotels began to issue paper cards to loyal customers as early as 1885, with a credit line that was only available at one location. Fast-forward to 1914, when Western Union issued bulky metal plates to select customers that allowed them to defer payment until a later date; this was then followed by oil companies creating courtesy cards that allowed loyal customers to finance gas and repair services at their gas stations. Western Union had already pioneered e-money, having developed electronic fund transfers via telegram as early as 1860, which also helped establish the foundation for the modern credit card transaction.
The Charge Plate
The charge plate, also known as a Charga-Plate, is the first example of a metal card that fit into the cardholder’s wallet. Developed in 1928, this was a personalized courtesy card that was embossed with the cardholder’s information, with paper on the back for the cardholder’s signature. Made of aluminum or white metal, these were the predecessor to the modern credit card and were approximately the size of a dog tag. The Charga-Plate’s embossed details made it easy for salesclerks to quickly make imprints of the customer’s payment details. While this system differs from how the current credit card functions – the Charga-Plate could only be used with larger merchants within their store networks – it represents the first wallet-sized embossed card, which was later emulated across the industry.
In 1946, Brooklyn banker, John Biggins, designed the first bank card system, which functioned similarly to a modern credit card: Called the Charg-It model, it allowed a customer to pay for goods or services at a retailer using their card; the issuing bank would then reimburse the retailer and seek payment from the customer. Charg-it was promoted as a way for local stores to offer credit to patrons of their bank, and the concept caught on quickly and was adapted multiple times into what we know today as a charge card.
What was the First Credit Card?
Diners Club is credited with creating the first version of what is now known as the credit card. Initially a cardboard card, the Diners Club Card was first issued in 1950 as a charge card that was designed for consumers who wanted to pay back their entertainment and travel purchases at a later date. If there was ever any doubt as to whether this concept would catch on, by 1951 – one year after its inception – the Diners Club had more than 42,000 members. Other banks and financiers noticed the roaring success of the Diners Club Card and decided to develop their own credit cards so that they, too, could get in on the action.
In the early days of credit cards, payment processes were clunky and slow. Most often, merchants used what is called a zip-zap machine, also known as a knuckle-buster, to manually process payments. Cards were embossed, meaning that personal details were raised, in order to make it easier for these machines to record the customer’s information onto carbon paper receipts, which were then used for manual processing.
The zip-zap machine got its name for the sound it makes when a sales clerk uses it; the nickname knuckle-buster comes from the movement required to operate it.
The advent of the magnetic stripe that has become universally present on the back of credit, debit, and charge cards – as well as government identification cards, bus passes, subway cards, etc. – paved the way for computerized payment processing. Before this method was introduced to credit cards, transactions were physical. The magnetic stripe was adopted as a standard for payment cards in the United States in 1969 and quickly replaced the use of the zip-zap machine; digital payments were considered the way of the future, and in 2019 have now become the norm.
More credit card firsts:
- In 1984, Diners Club introduced the credit card industry’s first rewards program: Club Rewards.
- In 1987, Citibank created the first airline credit card reward program, partnering with American Airlines to give customers the ability to use their card to earn free or reduced airfare with the airline.
- In 1991, American Express launched its first rewards program, called Membership Rewards. It became the world’s largest card-based rewards program a decade later.
- The 1990s also saw the introduction of EMV chip technology as a means to protect sensitive personal data from fraudsters who might attempt to steal from or “hack” the information contained on the magnetic stripe of credit cards.
- In 2002, Bank of America introduced a smaller, keychain-sized version of their credit cards, starting a “mini card” fad.
- In 2008, the first mobile wallet was introduced, beginning with the Apple app store. Mobile wallets have advanced far beyond this first example and can now be found on a variety of mobile devices including smart watches, tablets, and phones.
- Contactless payments first were seen in the late ‘90s but were not very popular. With the advent of mobile wallets and smart devices, contactless payments have become much more convenient and are now widespread.
The credit card has a place in the wallet of nearly every household in the United States and, by extension, the world – but few know its history. The evolution of credit lines, payment methods, and physical cards is ongoing – and it’s worth pointing out that as technology advances, physical cards may soon be a thing of the past like the zip-zap machines they replaced. There are now hundreds of credit card issuers and thousands of credit card offers on the market; banks now offer cards that allow consumers to earn rewards towards travel, cash back, or even simply build (or rebuild) their credit. Sixty years after the first credit card, Diners Club is now part of Discover, and the credit space has adapted to modern times. It will be interesting to see what the credit card looks like 60 years from now, too.