Credit – and by association the credit card – is now a part of the American lifestyle. This is however not a recent phenomenon. It was just inevitable that the credit card would be invented by Americans. Americans have always been about using credit comfortable.
Americans also have consistently needed credit: borrowing to purchase land, to establish a company, to travel west in search of precious metals or in pursuit of valuable animal furs. Others went into debt to be able to get to America in the first place — as the colonies’ indentured servants did — or stumbled into debt, and were released by royal decree to join English general James Oglethorpe in establishing the colony of Georgia. By 1800 the United States was an independent country, with debt being a way of life for many of its citizens. In rural areas, folks purchased horses, carriages, plows, seeds, clocks and family furniture . Many guaranteed to pay in full at harvest time; others -book credit.
Open book credit was used to buy low-cost essentials of life like food and clothes. A shopkeeper enabled customers to take the goods they wanted, and to pay what they could afford to, paying in part but not all of their balance — much do now. Yet very few fell into drowning debt. 19th century retailers additionally offered a non-revolving sort of credit, the installment plan. These strategies were restricted to well-to-do customers who bought expensive items like a piano or carpeting. By the turn of the century, installment buying was no longer limited to the rich, as well as working class families could buy goods that are discretionary on payment. It got so that installment buying became connected with the needy. A further refinement on installment plans arrived early in the 20th century with the launch of the charge card or the department store house card.
The charge card was first offered, like installment plans had originally been, to buyers of high-end goods. Up market stores supplied their prized customers, which naturally made them really happy with the house card. The house card was suitable: they didn’t have to take large sums of cash or experience the identification hassle if they paid by check. The customer simply presented a clerk for recording of the sale with the house card, and received a statement once a month for thirty days’ worth of purchases. The invoice paid in full each month. Nothing charged but obtained customer devotion. The biggest advantage was that sales per customer raised, but although this charge card made it simple for the store to keep track of sales.
The history of credit took a turn that was huge with a brand new development: growing auto sales. Automobiles were crucial but expensive to buy as just one purchase. The automobile was desired by everyone, and everyone was forced to buy cars. Installment buying for cars gave respectability to buying on credit. Another importance of autos on credit was that they let people to go long distances to areas where they were total strangers, in a short time. That was common with the early autos. Drivers could end up far from home, in need of expensive repairs, and without enough cash to pay in their opinion. To solve that difficulty, oil companies came out with their own sort of credit card along with the evolution of tokenization. This credit card could be used to buy gas, oil, and mechanical service. Unlike the department store charge card or house card, the oil company credit card could be used everywhere around the country.
Three men finally achieved this in a New York restaurant in 1949 over lunch. They were convinced that there was money to be made in consumer credit, and attempted to discover a way to tap on it. The charge card or house card boosted sales and customer loyalty, but without interest, earnings was not generated by the charge accounts by themselves. Payment sales did create interest, but that was meant to cover the seller’s prices, and not to make income. Assume this third party promised the sellers many customers, those who would not have gone to them otherwise. Wouldn’t these well-heeled spenders be more inclined to patronize those establishments where they’d credit? Wouldn’t business owners, finding their sales increase and their profits soar, be willing to return a small percent to the third party which helped provide them? Wouldn’t those small percentages add as much as a small fortune?
They sounded out the restaurant owner, inquiring how much credit card company that went his way would be worth. The owner responded, “Seven percent.” And, Diners Club was in company. The early Diners Club credit card looked like miniature books. The owner’s name was on the front of the credit card booklet; inside were the names of organizations that had agreed to accept the credit card. Owners didn’t pay annual fees or any interest, but they paid off their whole credit card bill each month.
By 1951, Diners Club had not gone national and shown its first credit card connected gain. Four years later, the first paper credit card was replaced by the familiar plastic credit card. In 1950, Diners Club had begun charging an annual $3 fee and had a selection of 300 businesses for over 35,000 credit card holders. By the mid-1960s, the like, hotels, airlines, retail stores and eateries were happy to take the Diners Club credit card. The creators’ fantasy of an universal credit card, used for various purchases all over the world, was being realized.
Diners Club had its imitators. In 1958, American Express issued the Hilton Hotel chain and an unique credit card introduced Carte Blanch. All three were known as travel and entertainment credit cards, differentiating them from another type of credit card, the bankcard. Banks entered the credit card marketplace over one hundred US banks offered credit cards to their own customers, and by 1955 during the early 1950s. They’d no national credit card distribution because the law confined interstate banking, although they were slowly making money. To Bank of America, the biggest US credit card business belonged in 1958, but its BankAmericard could be used just in California.
Bank of America pioneered the national interchange that would enable all banks throughout the state to offer BankAmericard to enlarge the newly fledged credit card’s geographical usefulness. This credit card organization later metamorphosed into Visa. The credit card supply issue was solved by this move. Additionally, it prompted large banks in the east to form a rival national credit card network, Interbank Card Association which became Master Charge, and later, MasterCard. Despite initial resistance from department stores, and other house card and charge card issuers, they were eventually signed by the two credit card organizations up. The credit card business has come a long way.