Credit Cards – A Short History

Predicted

Unbelievably, the concept of credit cards was predicted in Edward Bellamy’s Utopian novel “Looking Backward: 2000 – 1887”. The book was first published in 1888 and apparently had more than 10 references to the credit card, well before Bellamy could have understood how important credit cards would be to our lives 123 years later.

The fact that we now have websites to compare credit cards could hardly been foreseen by the merchants and chain stores who launched the customer accounts which later evolved into the credit cards we know today. These schemes, which were essentially to encourage customer loyalty, were made popular by a growing number of petrol buying car owners in the 1920’s.

First documented use

The first popular use of plastic payment cards in modern times in the UK was in the 1950’s when Donald McCullough launched a card called Finders Services in 1951 (after a trip to the USA) although this merged with Credit Card Services a year later to form Diners Club. Diners Club created a card to allow restaurant diners to settle their bills through one system, although this was technically a charge card as card holders had to settle their bills in full every month.

It wasn’t until 1958 that a bank in the USA first issued a revolving credit financial instrument that could be accepted by multiple merchants. Up until then, most cards or schemes were offered by the merchants themselves to promote their own services and businesses.

Because back then High Street Banks weren’t linked by sophisticated computer networks as they are now, people travelling around the country couldn’t easily take their bank credit with them, and therefore a centrally available system of charging expenditure quickly gained popularity.

Widespread use

American Express launched their first payment charge card in the UK in September 1963. They were given permission by the Bank of England to operate the scheme “as long as users weren’t allowed to spend more than £75 on any single item purchased from abroad”. American Express charged a fee to card holders from the outset, and it started at £3, 12s. Companies could also apply for American Express charge cards to be issued to members of staff.

Barclays claim to have invented the credit card as we know it in the UK when they launched Barclaycard from a converted boot factory in Northampton in June 1966. Barclays bought the credit card system from Bank America in California.

They set up the system and got their High Street branches to trawl through their records by hand to find the banks 1 million most credit worthy customers and then sent each of them a letter inviting them to take up the card.

A year later in 1967, Barclays launched a cash-point card and a huge break for the industry occurred when the government allowed cards to offer extended credit.

Credit card usage grew quickly in the USA and the UK in the 1970’s and 1980’s. In those days, there was a large measure of trust involved in a bank letting an individual loose with a credit card because the amount you spent on the card could so easily be abused. Real time balance and card checking at point-of-sale wasn’t adopted widely by merchants until the early nineties.  Although merchants could call through to the card issuer to check that the credit card was real (early cards were easy to forge) and obtain authorisation, because in the delay in processing paper sales vouchers people could very easily abuse their credit limits.

The first real rival to Barclaycard was called Access. It was launched in 1972 by a consortium of other main UK banks, the Midland (now HSBC), Lloyds, NatWest and the Royal Bank of Scotland.

It took considerably longer for credit cards to catch on in Europe where consumers are much more cash-orientated and banks were widely distrusted.  Later however it was the French who lead the way in adopting Chip and PIN based cards, now seen as a major deterrent in credit card fraud. The UK moved over to the Chip and PIN system on 14th February 2006.

March 2010 figures show there are more than 80 million credit and debit cards in use in the UK, 20 million more than the number of people living here. Big companies see that small piece of plastic in our wallets and purses as prime advertising space and are promoting ever more exotic loyalty and reward schemes.

Right up to date

The latest craze is prepaid credit cards, available to anyone regardless of their credit history, background or income further fueling the move to shopping online even for those on low incomes. There are even overseas currency prepaid cards available online in Euros and US Dollars $ so when you travel abroad, you can use your card in the local currency, avoiding the card issuers heavy penalties for cross currency transactions.

The balance transfer credit cards are giving new customers 20 months interest free periods on balances transferred from other credit cards.

Contactless payments cards are becoming widespread and can give an instant authorisation and transaction for small purchases. The convenience and status credit cards give us mean that like mobile phones, almost everyone in the country wants to have the latest and most innovative ones available.

And of course we now have websites like this one dedicated to providing all the information in one place to quickly compare credit cards, review the latest offers, and to apply and be accepted online without having to talk to another human being. That’s progress!

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