When Were Credit Cards Invented: A Brief History

ByG. Dautovic
April 18, 2022

When were credit cards invented? This is a question that many people ask, and the answer is not as straightforward as you might think.

The first modern credit card was created in the 1950s, but it was not until the late 1970s that they became widely popular in our society. In this blog post, we will discuss the history of credit cards and their impact on modern society.

Prehistoric Forms of Credit

For thousands of years, people have been using various forms of credit to purchase goods and services. The first known form of credit was used in Mesopotamia circa 3,000 BC. The Code of Hammurabi, which was used in Babylon, contained regulations for citizens to lend and repay borrowed money.

At that time, people would deposit grain or other valuables with a temple or merchant and receive an IOU for the value of the deposit. This IOU could then be used to purchase goods or services from another person.

In the early days of banking transactions, there was no interest charged on the IOUs, and they were typically repaid within a short period. However, as time went on, lenders began charging interest, which led to the development of modern-day loans.

The Merging of "Credit" and "Card"

The use of physical objects to identify customer accounts goes back to the late 19th century and early 20th century. Companies that offered revolving credit would give their customers a physical object, like a coin or medal, with the merchant's name and logo and the customer's account number. This made it easier for customers to keep track of their accounts and buy things.

As with credit cards later, the merchant would imprint the coin or medal on the customer's sales slip. In the late 1920s and 1930s, these would become the so-called Charga-Plates, metal cards with a rectangular shape that was essentially a cross between military dog tags and modern credit card design. 

The First Credit Card

The first payment method similar to modern credit cards was created in the 1950s by Frank McNamara and Ralph Schneider.

McNamara was a businessman who often forgot his wallet when he went out to dinner. To solve this problem, he came up with the idea of a small plastic payment card that could be used to pay only in some restaurants in New York City. This charge card, which we now know as a credit card, was initially called the "Diners Club Card" and was the first card that used revolving credit to operate.

The Diner's Club Card was a success, and soon other businesses began offering similar cards.

Brief History of Credit Cards

1910s - Metal Card: Western Union launches a "metal money" card that can be used to make purchases and withdrawals from any of their offices.

1920s - Charga-Plate: Charga-Plate is introduced as a way to streamline the credit process for merchants. It is a metal plate that contains the customer's name and account number.

1950s - Diners Club Card: Diner's Club unveils its first charge card. It can only be used at select restaurants in New York City. In 1959 American Express launches a cardboard card, followed soon by the first plastic credit card.

1960s - BankAmericard: Bank of America launches the first mass-produced payment card, called the BankAmericard. It was later renamed Visa and can be considered the first modern credit card.

1970s - Master Charge: The Interbank Card Association (now MasterCard) introduces Master Charge as a competitor to BankAmericard.

1980s - Magnetic Strips: Although invented two decades earlier, by this stage, most credit cards start getting magnetic stripes on the back, which allows them to be read by specialized electronic machines.

1990s - Internet Purchases: Credit cards are introduced to the internet, allowing people to make purchases online.

2000s - Chip Cards: Chip cards are introduced as a way to reduce fraud. They are also known as EMV cards (chip-and-PIN in Europe).

2014 - Apple Pay: Apple Pay makes contactless payments with an iPhone possible. It is followed by Android Pay (now known as Google Pay) in 2015.

Evolution of Credit Card Technology

The invention of the credit card was a watershed moment in history, allowing it to become more widely used as a payment option.

An IBM engineer called Forrest Parry is credited with attaching magnetic tape to the backs of cards so that customers' information might be "swiped" at a point-of-sale terminal.

In 1984, a more advanced technology was developed in France, called the Carte Bleue. This credit card system used an embedded microprocessor chip that could store data, making it more secure against fraudsters. Two years later, the Discover card was launched as one of the first cash-back cards in the world.

By 1996, the first specifications for EMV chips were released, eventually becoming the standard for chip cards. These specifications outlined how the chips would function and how they would be used to reduce fraud and make credit card transactions more secure.

In 2001, Europay International, MasterCard, and Visa—the three major players in the credit card industry—adopted this technology and created the EMV standard.

Personalization took off in 2002 with the advent of embossed account numbers on the front of cards and signature panels on the back.

In 2004, mass production of "smart" credit cards embedded with microchips began. These days, you may also encounter contactless cards that let you pay by waving or tapping your card near a reader.

Credit Card Legislation

Credit card legislation has evolved greatly over the past decades. Several landmark laws were passed to further protect consumers from unfair or deceptive practices by credit card companies. These laws have set limits on the fees that credit issuers can charge and forced them to disclose certain information to consumers and credit reporting agencies.

Truth In Lending Act

The Truth in Lending Act (TILA) was passed in 1968 as a way to protect consumers from unfair billing practices. The law required banks to disclose all rates and fees associated with a loan so that the consumer could compare offers easily. TILA also gave the borrower the right to back out of a loan within three days.

Even so, this law had some limitations. For example, it did not set limits on how much interest a lending institution can charge. Additionally, the act did not require banks to approve loans before they were issued. While it provided some consumer protections, there were still some ways that banks could take advantage of them.

Fair Credit Billing Act (1974)

The Fair Credit Billing Act (FCBA) is federal legislation that was enacted in 1974 and significantly modified the Truth In Lending Act. The regulation applies only to open-end credit accounts, such as bank cards, charge cards, and home equity loans, and was designed to protect customers from unfair billing practices.

The FCBA extends the rights of borrowers who are qualified to challenge any fees that they believe to be incorrect, such as charges for goods or services not provided and excessive billing. The regulation also prohibits creditors from reporting your account as delinquent if you dispute a charge and establishes procedures for how both parties should handle and respond to billing errors.

The FCBA was a significant piece of legislation that protected consumers from deceptive billing practices and set standards for how credit card companies and customers should deal with disputed charges. 

The legislation has helped ensure that consumers are not unjustly penalized for disputing a payment, and it has assured that billing difficulties are handled fairly and openly. Due to the Fair Credit Billing Act, customers these days have greater protection against credit card billing mistakes.

Fair Debt Collection Practices Act (1977)

The Fair Debt Collection Practices Act (FDCPA) is a law that was passed in 1977 and amended the Truth in Lending Act in several key ways. The FDCPA prohibits debt collectors from engaging in unfair, deceptive, or abusive practices when collecting a debt.

It also gives consumers the right to dispute a debt and request validation of the debt and provides guidelines on how both parties should handle and respond to a disputed debt.

Credit Card Accountability Responsibility and Disclosure Act of 2009

The Credit Card Act of 2009 is a credit card legislation passed in the United States in 2009. The act imposed stricter regulations on the credit card industry, such as banning universal default and double-cycle billing.

The Credit Card Act of 2009 has been credited with helping reduce credit card debt and lowering the number of bankruptcies in the United States.

Critics of the Credit Card Act of 2009 argue that it has hurt consumers by making it more difficult to get credit. They also say that it has made it harder to use credit cards responsibly.

Credit Cards Today

The current state of credit cards is one of constant change and evolution.

New technologies are being introduced, new legislation is being passed, and the industry is continually adapting to the needs of consumers, but many feel that there's more to be done.

For example, some companies continue to employ deferred interest in conjunction with a zero-percent introductory APR period.

This means that if you don't pay off your balance in full by the end of the intro period, you'll be retroactively charged interest on the entire amount you borrowed, even though you thought you weren't being charged any interest at all.

What's more, late payment fees have been rising in recent years. The upper-limit late payment fee is now $38, up from $35 in 2009. And if you're more than 60 days late on a payment, you could be charged a penalty APR as high as 29.99%.

Clearly, there are still some improvements to be made in the industry. But overall, today's credit cards are more user-friendly and easier to use responsibly than early credit cards ever were.

The Future of Credit Cards

The future of credit cards is likely to be shaped by two major forces: the continued growth of online shopping and the increasing usage of mobile devices.

As more and more consumers shop online, credit card companies will likely develop new ways to make their products more secure. One possibility is the use of biometrics, such as fingerprint or iris scanners, to verify the identity of the cardholder. Another possibility is the use of blockchain technology to create a decentralized database of transactions that is less vulnerable to hacking.

With mobile devices becoming ever more prevalent in our daily lives, credit card issuers are likely to develop new ways to make their products more convenient to use. One possibility is the broader use of NFC (Near Field Communication) technology to pay for purchases with a tap of the phone. Another possibility is employing mobile apps to manage account balances and track spending.

Conclusion

So there you have it. If you wondered when did credit cards come out and what their history looks like, you now know that this tale is a long and ongoing story of evolution and adaptation. Credit cards have undergone a dramatic transformation from the early days of charge cards to the current state of affairs.

And while there's still room for improvement, today's credit cards are more user-friendly and easier to use responsibly than ever before. With the continued growth of online shopping and the increasing use of mobile devices, the future of credit cards is likely to be one of continued innovation and adaptation.

FAQ

Who created the credit card?

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The first card we consider a credit card was invented in 1950 by Frank McNamara and Ralph Schneider. Earlier examples and precursors to the modern credit card include the Charg-It cards by John Biggins, “metal money” by Western Union, and Charga-Plates which were first introduced in the late 1920s.

What is the Credit Card Act of 2009?

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The Credit Card Act of 2009 is a piece of legislation passed to protect consumers from the unfair practices of credit card issuers. The act includes provisions such as a ban on retroactive interest rate increases and a requirement that consumers be given 45 days' notice for any changes to their interest rates.

What inspired the first credit card?

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The modern credit card owes its existence to Frank McNamara and Ralph Schneider. Diner's Club was a members-only club that allowed customers to charge their meals to their account and then pay for them at the end of the month. The concept was wildly successful and led to the creation of the modern credit card concept.

When were credit cards invented?

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The Diner's Club was the first modern-type credit card in history to be issued in the United States. It was initially designed for use at restaurants but later gave its customers the ability to purchase goods and services without having to carry cash.

About author

I have always thought of myself as a writer, but I began my career as a data operator with a large fintech firm. This position proved invaluable for learning how banks and other financial institutions operate. Daily correspondence with banking experts gave me insight into the systems and policies that power the economy. When I got the chance to translate my experience into words, I gladly joined the smart, enthusiastic Fortunly team.

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