The history of credit cards

To fully appreciate the modern convenience of credit cards, simply tap your card at a payment terminal, pause while it processes and consider what it replaced.

Prior to plastic, money as a means of exchange for goods and services was cumbersome, if not outright dangerous. Beginning as far back as 9,000 B.C. with cattle and camels, currency took some truly odd shapes, from cowrie shells, bronze and copper imitation cowrie shells, and gold and silver nuggets to Chinese deerskin notes and Native American stringed wampum beads.

From the beginning, credit cards offered significant advantages over all forms of money: They’re pocket-size, easily portable, relatively secure and have no intrinsic value in themselves. What’s more, true credit cards buy you time to pay your bill, typically with a modest fee attached.

The invention of credit cards

According to historian Jonathan Kenoyer, the concept of using a valueless instrument to represent banking transactions dates back 5,000 years, when the ancient Mesopotamians used clay tablets to conduct trade with the Harappan civilization. While still cumbersome, a slab of clay with seals from both civilizations certainly beat the tons of copper each would have had to melt down to produce the coins of that era.

However, the credit card prototype has changed since early human history:

• Circa 1800s: Merchants used credit coins and charge plates to extend credit to local farmers and ranchers until they collected profits from harvests.
• 1946: Charge cards were launched by banker John Biggins with the Charg-It card, used in a two-block radius of his bank in New York City. Customer purchases were forwarded to his bank and merchants were reimbursed later in what was known as the “closed-loop system.”
• 1950: The Diners Club Card debuted when Frank McNamara forgot his wallet and couldn’t pay for a business dinner. He proposed the idea of a small cardboard card, which members could use like a charge card and pay the bill in full every month.
• 1958: American Express launched its first credit card made of cardboard, followed shortly by the first plastic credit card in 1959.

The invention of bank cards and revolving credit

Major banks would soon launch their own consumer cards, but with a welcome twist. Instead of users having to settle their bill in full each month, bank cards would truly become credit cards by offering revolving credit, which allowed cardholders to carry their monthly balance forward for a nominal finance charge.

Bank of America was first out of the gate in 1958, mailing unsolicited credit cards to select California markets. In 1966, BankAmericard went national to become the nation’s first licensed general-purpose credit card. It would be renamed Visa a decade later to acknowledge its growing international presence.

Also in 1966, a group of California banks formed the Interbank Card Association (ITC), which would soon issue the nation’s second major bank card, Mastercard. Present-day Mastercard competes directly with a similar Visa organization, both of which are run by boards comprised primarily of current and former high-level executives from major corporations.

Unlike their nonbank competitors, the bank card associations operate in an “open-loop” system that requires interbank cooperation, as well as transfers of funds. While banks initially had to choose between the Visa and Mastercard association, changes to association bylaws have since allowed them to join both associations and issue both types of cards to their customers.

Regulation and litigation

As the popularity of credit cards exploded in the 1970s, so did legislation aimed at addressing consumer complaints against this fast-growing industry. Among the regulatory course corrections:

• The Fair Credit Reporting Act of 1970 restricted the collection and use of credit report data.
• The Unsolicited Credit Card Act of 1970 prohibited issuers from sending active cards to customers who hadn’t requested them.
• The Fair Credit Billing Act of 1974 amended the Truth in Lending Act to rein in abusive billing practices and enable consumers to dispute billing errors.
• Also in 1974, the Equal Credit Opportunity Act was passed to prevent lenders from discriminating against any applicant based on gender, race, marital status, national origin or religion.
• The Fair Debt Collection Practices Act of 1977 amended the Consumer Credit Protection Act to prohibit predatory debt collection practices and rework the debtor’s bill of rights.
• The Credit Card Accountability, Responsibility and Disclosure Act of 2009 added consumer protection in the form of limitations on credit card interest rates, fees and charges placed on cardholders’ accounts.

The debut of the Sears Corporation’s Discover Card at the 1986 Super Bowl resulted in major litigation when Discover filed an antitrust suit against Mastercard and Visa for unlawfully preventing their association banks from issuing Discover cards. The six-year litigation ended in 2004 when the U.S. Supreme Court declined to hear the defendants’ appeal, effectively allowing banks and other card issuers to issue multiple card brands.

Passage of the CARD Act, provided greater transparency for consumers and eliminated or reduced a range of card issuer transgressions involving interest rate hikes, late fees and over-limit fees in the depths of the Great Recession.

Evolving credit card technology

Since the early 1960s, when IBM introduced magnetic stripe (or “mag-stripe”) verification to credit cards, technological innovations have occasionally stolen center stage in the cashless payment play.

But some technological changes have emerged as standards. While the vast majority of credit cards still have a 1960s-era magnetic stripe, cards that include a microchip, visible on the front of the card, are now standard. Here’s how credit card technology has changed over the years:

• 1980s: The first smart chip-enabled credit card was created and became popular throughout Europe, even appearing in the 1995 film “French Kiss.”
• 1996: Europay, Mastercard and Visa copublished the standard smart chip specifications, called EMV chips. These chip-enabled cards have the advantage of using encrypted communication rather than relying on an unencrypted magnetic stripe that’s easy to read and copy onto a fraudulent card, otherwise known as cloning.
• 2005: Radio-frequency identification (RFID) was first experimented with using a Samsung NFC smartphone for certain shops and retailers in Caen, France.
• 2010: Barclay and Orange partnered to launch a contactless payment card. This technology allows consumers to complete a transaction by tapping your card against a compatible terminal and features similar encryption to EMV smart chips.
• 2014: Apple releases Apple Pay, allowing cardholders to load their information on their smartphones and leave their cards at home.
• 2015: Google launches its own contactless phone wallet system, Android Pay, now called Google Pay.
• 2015: The retail payments industry underwent a liability shift, causing the costs of fraudulent transactions to be borne by the retailer if it chooses not to upgrade its terminals to accept the new cards.
• 2021: Gasoline retailers’ liability shift is enacted.

The future of credit cards

What will credit cards look like in 25, 50 or 100 years? It’s clear that we won’t always need a physical artifact to represent our financial accounts. In fact, many issuers now offer virtual credit cards upon request if you want an extra level of security while you shop.

After all, we don’t carry around cards that represent all of our loans and investments. The near future likely lies with greater adoption of payments enabled by smartphones and other contactless devices, even as no standard has emerged from all the competing technologies available.

In fact, the technology of credit cards has evolved greatly in recent years. Plenty of retailers in 2021 still didn’t have RFID-compatible terminals. However, now most merchant terminals are RFID compatible, and contactless payments are ubiquitous. Many popular credit cards are also now compatible with the most popular mobile payment systems.

Nevertheless, there are also tens of millions of consumers who would still rather pull out their favorite card than try to guess if a retailer’s particular terminal is compatible with their payment system. As it has with so many other technologies, when a dominant standard emerges, it will look obvious to all in retrospect.

Beyond radio frequency enabled cards, phones and wearables, the next step will be payments made using biometric authorization, such as fingerprints, iris scans and facial recognition. However, challenges still remain. While you can easily get a new account number if your credit card’s information is stolen, it’s not that easy with biometrics. You can’t change your fingerprints or the pattern of the blood vessels in your eyes if someone steals that data.

Judging by the changes we see around us today — from rapidly evolving online and mobile payment technologies to home appliances that monitor and digitally reorder their own contents — card payments will be increasingly integrated into our lives in new and creative ways. Just as we make purchases with internet-enabled devices from companies like Amazon and Google, perhaps we’ll make purchases through our cars, refrigerators or even our toasters.

But what continues to remain largely the same is your credit card account, regardless of which physical device, if any, is attached to it. Credit card accounts continue to provide the most secure and convenient method of payment possible. These accounts also offer us unmatched benefits, with many featuring the chance to earn rewards for spending.

And of course, credit card users continue to have the option of financing their purchases over time or avoiding interest charges by paying their balances in full. The laws pertaining to these accounts have undergone legal reform approximately once in every generation, such as the Fair Credit Billing Act of 1974 and the CARD Act of 2009. So, it’s likely that we’ll see further refinements of these laws in the future.

Ultimately, it’s the financial terms of credit card accounts that are the essential and timeless features of our “cards,” regardless of whether we continue to use some kind of device to access our accounts in the future.