The History of Credit Cards

Credit is a method of selling goods or services without the buyer having cash in hand. A credit card is only an automatic way of offering credit to a consumer. Today, every credit card carries an identifying number that speeds shopping transactions.

The use of credit cards originated in the United States during the 1920s, when individual firms, such as oil companies and hotel chains, began issuing them to customers. Early credit cards involved sales directly between the merchant offering the credit and credit card, and that merchant's customer. Around 1938, companies started to accept each other's cards. Today, credit cards allow you to make purchases with countless third parties.

The inventor of the first bank issued credit card was John Biggins of the Flatbush National Bank of Brooklyn in New York. In 1946, Biggins invented the "Charge-It" program between bank customers and local merchants. Merchants could deposit sales slips into the bank and the bank billed the customer who used the card.

Although the early part of the century saw an increase in individual store credit accounts, a credit card that could be used at more than one merchant was not invented until 1950. It all started when Frank X. McNamara and two of his friends went out to a dinner.

In 1949, Frank X McNamara went out to eat with two of his friends. At the end of the meal, McNamara reached into his pocket for his wallet so that he could pay for the meal (in cash). He was shocked to discover that he had forgotten his wallet. To his embarrassment, he then had to call his wife and have her bring him some money. McNamara came up with a new idea - a credit card that could be used at multiple locations. What was particularly novel about this concept was that there would be a middleman between companies and their customers. In 1950, McNamara started a new company - the Diners Club, which was going to be a middleman. The Diners Club was going to offer credit to individuals for many companies (then bill the customers and pay the companies).

The first Diners Club credit cards were given out in 1950 to 200 people (most were friends and acquaintances of McNamara) and accepted by 14 restaurants in New York. The cards were not made of plastic; instead, the first Diners Club credit cards were made of a paper stock with the accepting locations printed on the back. The concept of the card grew and by the end of 1950, 20,000 people were using the Diners Club credit card.

The Diners Club credit card continued to grow more popular and didn't receive competition until 1958. In that year, both American Express and the Bank Americard (later called VISA) arrived. MasterCard came up in 1966.

Credit cards were first promoted to traveling salesmen (more common in that era) for use on the road. By the early 1960s, more companies offered credit cards, advertising them as a time-saving device rather than a form of credit. American Express and MasterCard became huge successes overnight.

The concept of a universal credit card quickly spread across the world.