Evolution of Credit Cards – Replace Your Paper Money
A credit card is a small piece of rectangular plastic which is as broad as a sheet of paper, though it cannot be folded.
Initially credit cards were metal tokens in the shape of coins. They then changed to metal plates to celluloid then to fiber and now plastic.
With now a photo of the holder and a magnetic strip on the reverse containing security information such as a personal identification number enabling the card to be used at money dispensing machines (ATM’s) and merchant establishments.
What is meant by ‘Credit’?
Credit is the system of buying some produce or service without having to pay for it at the time of the transaction. The payment is made at a predetermined later date with the addition of a fee to the billed amount. This is like loaning someone money to buy something without actually giving them the cash but instead giving them the product they want to buy.
So, the system of credit is not new to humanity, In fact, it is as old as civilization itself or perhaps even older. The entrepreneurs of the inhuman kind have been proclaimed responsible for identifying human needs as a rollicking business, and so they invented the credit card system.
Though, disputed by many, The Diners Club is credited to be the ones to invent the credit card in 1950.
When Were Credit Cards Invented?
In contradiction to the theory that ‘The Diners Club’ started the credit card system, the Encyclopedia Britannica records the origin of credit cards in the United States as far back as the 1920’s.
During this time, firms such as oil companies and hotel chains started issuing credit cards to their regular and valued customers who were free to use their services and pay them at a later date.
These cards were only useful for purchasing goods and services from the companies and establishments that issued the card. However, references to credit cards have been found as early as 1890 in Europe.
It was only in the late 1930’s that companies started accepting each other’s credit cards. And this is the period when things began to get complicated for accountants.
Computers Promoted the Use Of Credit Cards
In the beginning, there were no computers to record the credit card transactions and the process of verifying the credit balance of the card was done manually through a regularly updated credit card directory, much like a telephone directory. This system was time consuming and tedious and provided many loop holes for credit card fraud.
Today, with computerization, the use of a credit card is instantaneous. All one needs to do is to ‘swipe’ the card through a slot machine and the amount entered. If there is an adequate balance in the account of the holder, then the transaction is completed, and the customer billed a month later.
Usually credit cards allow for a 50 day credit free period. If the outstanding bill is paid during this time the customer does not have to pay any interest on the transactions, else there is a whopping 2.9% charge per month on the billed amount.
Who Issues Credit Cards?
Banks and financial institutions are the main issuers and promoters of credit cards. The invention of the first bank-issued credit card is credited to John Biggins of the Flatbush National Bank of Brooklyn in New York. This was the year 1946, and Biggins did not know at the time, that he had hit upon an idea that would take the world of credit by storm, in times to come.
From this first credit card, called “Charge-It”, many cards have flooded the market such as all famous “American Express” credit cards and the Diners credit card.
The BankAmericard was issued by the Bank of America in 1958. This card is now well-known as the “VISA” card. Just about the same time, the very popular “MasterCard” came into being. These are the two main credit cards being used today. The period of plastic currency had begun.