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02/06/2016

History of Credit Cards

The credit card we know and use today has had quite an exciting past since the first credit card type arrangement was set up in 1946. Here at WB Debtcare, we thought we would share this history with you and outline the issues associated with credit cards, such as credit card debt, as well as credit card consolidation.

The Early Beginnings

“Charge-It” was the worlds first bank card, introduced in Brooklyn by a banker called John Biggins in 1946. His card only allowed local purchases to be made by the customer, which would then be forwarded to Biggins’ bank. The bank would reimburse the merchant and obtain the payment from the customer – under the condition that the customer had an account with Biggins’ bank. But it wasn’t until 1951 that the first bank credit card appeared – again, in New York. The first credit card was known as the Diners Club Card. Supposedly, the card began in 1949 when a man named Frank McNamara went to New York’s Major’s Cabin Grill for a business dinner, but when he went to pay, realised that he had forgotten his wallet. Fortunately, he managed to wiggle is way out of the situation by deciding that there should be an alternative to cash. In early 1950, Frank and one of his partners returned to Major’s Cabin Grill and paid for the bill using a small, cardboard card, this became the Diners Club Card. The card was mainly used for travel and entertainment, but claims the title of the first widely used credit card. The Diners Club Card was unlike the charge cards issued by individual shops in that it could be anywhere as long as the balance was paid off at the end of each month.

Plastic Cards

Just one year after the Diners Club Card was first used, there were over 20,000 card holders, and a decade after that, the card was replaced with plastic. However, although purchases were made on credit, it was technically a charge card as the bill had to be paid in full by the end of each month. American Express formed in 1850, specialising in deliveries as a competitor to the US Postal Services money orders and traveller’s checks, invented by the company in 1891. Supposedly, the company had considered creating a travel charge card in 1946, but it wasn’t until 1959 that American Express introduced the first card made from plastic. American Express then went on the introduce credit cards in other countries with around one million cards being used by a whopping 85,000 establishments within the first five years.

Closed Loop System

Both the American Express card and the Diners Club Card operated under a closed loop system between the customer, the merchant and the issuer of the card. Under this system, the issuer is responsible for both authorizing and handling all aspects of the transaction. They are also required to settle all this directly with the merchant and the customers. This was the approach adopted by credit card providers, until 1959 when the option of maintaining a revolving balance was introduced. This allowed people to no longer pay off the balance on their card in full, and gave them flexibility in managing money, however, it held the risk of accumulating financial charges.

Bank Card Associations

In 1966, a group of credit issuing banks joined together and formed a national credit card system as the “InterBank Card Association” – which is now known as MasterCard.  These new associations operated differently in that they operated as an open-loop which required interbank communications and transfers. Although Visa and MasterCard operated under the new open-look system, the original cards continued to operate as a closed-loop.

The Evolution of Credit Card Processing

The processing of credit cards became more complicated, with many outside companies selling processing services to Visa and MasterCard members. As the cost of issuing cards etc. dropped, the industry was able to expand while Visa and MasterCard developed standardised rules and procedures regarding the handling of paper flow in an effort to reduce fraud and card misuse.

Present and Future

As more banks and companies joined the growing industry of credit cards, more and more people began using cards, and the credit card became apart of everyday life – almost to the point where many of us don’t remember life before credit cards. However, as we move into the future, many new technological developments are moving payment away from cards to the likes of mobile, while credit cards can now be used via contactless, which has made paying faster and easier than ever.

Credit Card Debt and Credit Card Consolidation

Unfortunately, as it becomes easier pay for things and receive credit from banks, it is becoming increasingly easy for people to land themselves in debt. Many people spend more money than they can afford without realising it, resulting in debt, often on a number of credit cards. Fortunately, that is where we come in. Here at WB Debtcare we want to help you overcome your credit card debt with credit card consolidation. The implementation of a credit card consolidation scheme helps manage your debts effectively to help you overcome your debts and ease financial burden. If you are looking for advice or are looking for credit card consolidation, then get in touch today.