When Were Credit Cards Invented? A Brief History of Credit Cards

As you swipe your credit card repeatedly throughout your day — at the grocery store, gas station, or to grab a coffee — you might not think much about it. Credit cards offer a secure and quick way to pay for goods and services and have become ingrained in our daily lives. But, how did credit cards rise to prominence as most people’s preferred method of payment?

Credit cards are accepted at most places worldwide, but how and when did this happen? Let’s look at the history of credit cards, discuss some of the major regulations passed, and even go over some of the inventions that have made credit cards a safe and reliable form of payment.

A Brief History of Credit Cards

Ancient Credit

While credit cards as we know them didn’t exist until the 20th century, the concept of purchasing with credit dates back much further. A prime example of this is in agriculture.

Since it takes many months to see a return between the planting and harvesting of the crops, farmers would regularly promise to repay creditors after they received money from the sale of their crops.

Specifically, in ancient Babylon, tenant farmers would pay the merchant class in the form of crops and military service in exchange for the right to farm on their land. While no money changed hands, this form of bartering formed the basis for our modern banking system.

Later, as Babylon gained wealth and prosperity, loans were provided on clay tablets. The tablets noted the names of the parties involved, the amount and duration of the loan, the collateral held, and even the interest to be collected! These are all things we see as common practices with modern credit cards.

Hot Tip:

As an interesting tidbit about the clay-tablet system in Babylon: once the loan had been repaid, the clay tablets were broken to note that the contract had been fulfilled.

More recently, “running tabs” allowed certain customers to run up a bill to be paid at a later date. This was usually an informal process that required the merchant to know (and trust!) the purchaser of goods or services. This worked in smaller areas but ultimately wasn’t really scalable.

First Store Cards

Department stores, and later hotels and gas stations, began offering cards to valued customers in the early 1900s. This allowed customers to purchase goods and pay for hotel stays without having cash on hand. These cards only worked at the stores that issued them, similar to a store-branded credit card.

Metal Plates

In 1914, Western Union launched “Metal Money,” which was also known as “Charge Plates”. These “plates” allowed select customers to receive free, deferred bill payments. “Charga-Plates” were introduced by Farrington Manufacturing Co. shortly after and offered a similar convenience.

First Bank Cards

Charg-It Cards came a bit later, in 1946, but were notable due to their resemblance to our modern credit system. John Biggins introduced it in Brooklyn, New York, and allowed customers in a 2-mile radius to pay retailers on credit.

When a customer of Biggins Bank would use this card, the bill would be forwarded from the retailer to the bank for payment. As you can see, the main limiting factor was the distance.

Diners Club Card

In 1949, Frank McNamara created the Diners Club Card. This card was accepted at a number of merchants outside of a small, geographic area and allowed customers to pay for their purchases later. It skyrocketed in popularity, expanding to major cities within the U.S. and growing to over 42,000 members in a single year.

First Interbank Cards

Interbank cards are what we use today. We swipe our card (Visa, for example) at a retailer and the payment network — Visa in this case — acts as an intermediary that connects the retailer with our card’s issuer to process, approve, and pay the transactions. These networks are the reason that credit cards are so widely accepted today!

Large payment networks facilitated widespread credit card usage, and issuers rushed to get into the new and rapidly-growing market:

American Express

American Express launched a card in 1958 for purchases relating to travel and entertainment. This card required bills to be repaid at the end of each month. Amex also issued the first card made of plastic in 1959.

Bank of America

Meanwhile, in California, Bank of America issued their BankAmericard, also in 1958. The credit limit was $300 and allowed customers to carry a balance — if they paid interest. Customers could use this card at any retailer willing to accept it, making this the first general-purpose credit card.

In 1968, Bank of America began to license its cards to other banks domestically in order to expand on a national scale. This network eventually became Visa.

Mastercard

Master Charge was created in 1967 on the East Coast to compete with BankAmericard. It made huge advances in the payment-processing system by introducing a central computer network that connected merchants with card-issuing banks. Master Charge was later renamed Mastercard.

Discover

In 1986, Sears, Roebuck, and Co. launched the Discover Card. Discover purchased Diners Club International in 2008 to expand its global network.

First Reward Credit Cards

In 1984, Diners Club introduced its “Club Rewards” program. Shortly after, in 1987, Citibank established a groundbreaking rewards program that allowed customers to earn free or reduced airfare on American Airlines. 

However, it wasn’t until the 1990s that reward programs really gained momentum. American Express first launched its Membership Rewards program in 1991. This is also when card issuers began enticing customers with sign-up bonuses, cash-back perks, and co-branded deals.

Innovations in Credit Cards

Credit cards have come a long way since clay blocks or even metal plates. They’ve adapted to the times to make them secure and easy to use. Some of the major innovations in credit cards include:

Magnetic Strip

Before the move to the magnetic strips, credit card transactions were mostly physical — an imprint of the card was made and had to be processed manually. With the introduction of the magnetic strip by an IBM engineer named Forrest Parry in 1969, this process was able to be digitized.

All card information was able to be held in a secure manner and processed quickly via computer. This was a huge step for credit cards and had become the standard internationally by 1971.

EMV Chip

In 2011, credit card companies started making the shift to EMV (Europay, Mastercard, and Visa) chips to offer increased protection and encryption on cards. This was done to mitigate a rise in credit card fraud at the hands of people stealing information from the magnetic strips on credit cards.

The EMV chip generates a 1-time code for each credit card transaction, leading to more security than the magnetic strip.

Hot Tip:

The EMV chip adds another level of security to credit card transactions. This means that inserting your card’s chip is more secure than swiping with the magnetic strip!

Contactless Pay

In 2008, most credit card companies, including Visa, Mastercard, and American Express, introduced contactless pay as a feature on their credit cards.

In 2011, Google Pay, then known as Android Pay, was the first entity to store card information electronically in Google Wallet and to allow payments without a physical card present. Apple Pay was launched in 2014. Both options allowed customers to pay via smartphones, watches, and other wearable devices.

This short-range, wireless technology (called near-field communication, or NFC) allows people to “tap to pay” by hovering over a card or device over a card terminal. This method also uses the EMV chip to provide added security!

Credit Card Rules and Regulations

There have been a few major pieces of legislation passed that relate to credit cards:

Truth in Lending Act

This was the first major piece of legislation passed to protect consumers from predatory lending practices. Passed in 1968, the Truth in Lending Act (TILA) standardized how banks and card issuers calculated (and disclosed) annual percentage rates (APRs) as well as terms and conditions of credit cards and other types of loans, including mortgages and auto loans.

The TILA would eventually be part of a larger Consumer Credit Protection Act.

Fair Credit Reporting Act

In 1970, the Fair Credit Reporting Act was passed to ensure only correct information could be used by credit reporting bureaus (such as Experian, Equifax, and Transunion) in making credit decisions. This act primarily protects consumers’ personal information.

A comprehensive credit scoring system (FICO) wasn’t developed until 1989, but companies were still required to disclose certain information, such as:

• Why you were denied credit, insurance, or employment
• Access to your credit file via AnnualCreditReport.com
• Notifying consumers that they have the right to dispute inaccurate or incomplete information

Unsolicited Credit Card Act

Also in 1970, the Federal Trade Commission banned credit cards from being mailed to consumers without their consent by passing the Unsolicited Credit Card Act. This was obviously a problem as multiple cards could be issued in your name without you even knowing it.

Bottom Line:

If you receive a credit card you didn’t apply for, contact the Consumer Financial Protection Bureau immediately!

Fair Credit Billing Act

The Fair Credit Billing Act was passed in 1974 as an amendment to the TILA. This act further protects consumers from unfair billing practices — such as unauthorized charges or not providing goods and services. This only applies to credit cards, not other loans.

This act allows consumers to dispute a charge on their credit card within 60 days of receiving a bill.

Equal Credit Opportunity Act

The Equal Credit Opportunity Act (ECOA) was passed in 1974 and prohibits lenders from discriminating in all aspects of credit-related decisions. The Department of Justice can file lawsuits against lenders where they see a pattern of discrimination.

Specifically, the ECOA makes it illegal to discriminate based on:

• Age
• Applicant’s Exercise of Specific Consumer Protection Laws
• Color
• Marital Status
• National Origin
• Race
• Receipt of Public Assitance
• Religion
• Sex

Fair Debt Collection Practices Act

The Fair Debt Collection Practices Act (FDCPA) was passed in 1977 and defines the parameters by which a third-party agency is allowed to collect on consumer debt. This applies to credit card debt, as well as medical debt, student loans, mortgages, and more.

Basically, a debt collection agency isn’t allowed to use deceptive tactics or be abusive or unfair in order to collect consumer debt.

Credit Card Accountability, Responsibility, and Disclosure Act

The Credit Card Accountability, Responsibility, and Disclosure Act (CARD) was passed in 2009. It was a sweeping piece of legislation that made major changes to how credit cards are regulated.

The main goal was to stop deceptive lending practices by credit card issuers. It did this by making terminology consistent across issuers, changing advertising rules to protect younger consumers, and eliminating/lowering certain credit card charges.

Final Thoughts

A credit system has existed in society in some form for thousands of years and has been able to adapt to the times throughout history. Technology and regulations have helped protect consumers in an ever-changing landscape.

While the concept of credit cards is sure to stand the test of time, the plastic cards we use today may be a thing of the past, just like clay tablets and metal plates are relics of the past.