Origin Of Credit Cards
Ever wondered how the Diners Card got it’s name? Or how the first person thought of the concept of using a card to make a payment?
Yesterday I was conversing with a friend about the payments systems, and it got me wondering how cards came to be. The card you, and 2 billion other people across the globe use to make payments today has an interesting history:
There’s record of credit card use in 1890, when European merchants would offer a credit card as a benefit or a perk to their good customers. However, the origin of the credit card as we know it dates back to the 1940s. The story goes that in 1949, a New York businessman Frank McNamara went to pay the bill after entertaining a client at Major’s Cabin Grill (a famous New York Restaurant) only to realize that he had left his wallet at home (happens to the best of us).
Luckily for him, his wife was able to save him from the potentially embarassing situation, but it got him thinking of ways a businessman could spend freely what he could afford, and not be limited by the cash in his wallet. Weeks later, McNamara was discussing with his lawyer Frank Schneider the possibility of a “club of diners” who would be able to sign for their meals at certain restaurants then settle the bill at a later date. He then enrolled 27 establishments in his plan, also offering $3 memberships in his diner’s club to 200 friends and acquaintances.
McNamara and Schneider became the first diners to say “charge it” when they sat down to a February 1950 meal at Major’s. The credit card industry recognizes the importance of this meal even though the Diners Club card was not technically a credit card, since Diners Club members were expected to settle their bills each month.
With 20,000 cardholders by the end of 1950, the Diners Club was an instant success. By 1952, franchises has been set up on Canada, France and Cuba, and in 1955, Western Airlines became the first air carrier to take payment by the Diners Club card.
After this, American Express introduced a card in 1958 for paying entertainment and travel costs, and the following year Bank of America issued a credit card that could be used for a greater range of purchases, and be paid off over a longer period of time, with interest.
In 1966, Bank of America started forming licensing agreements with other banks that allowed cardholders in different states to charge purchases, as its existing card could only be used in California. The same year, 14 other banks united to create Interlink, a bank card processing agreement that allowed them to share credit card transaction information.
One year later, in 1967, four California banks established the MasterCharge program. Twelve years later, the program was renamed Mastercard to compete with the BankAmericard program (which was itself renamed VISA in 1977).
In 1981, the Diners Club was purchased by Citicorp. Still, the origin of the credit card industry can be traced to Frank McNamara’s innovation, which allows members to make payment for a purchase at a later date.
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