Monday, 12 August 2019
While paying with plastic might seem very modern, the idea behind it has been around for quite a long time.
As early as the 1860s, department stores issued coins stamped with account numbers to make it easier for customers to make purchases on their store charge accounts. These coins soon became charge plates, the predecessors of the modern-day credit card.
What started as a fairly basic way to make buying easier nearly two centuries ago has changed our lives. Today there are more than 1.5 billion credit cards in the United States, and almost 70 percent of Americans have at least one credit card in their wallet.
From their humble origins in the nineteenth century, charge cards evolved from single store purchasing tickets to powerful tools accepted on international networks. But they remained charge cards, with users having to pay their bill in full at the end of each billing cycle. Widespread, card-based revolving credit had not yet been born.
This happened in 1958, when Bank of America created the first credit card, which gave customers the ability to make purchases without having to pay their bill off each month. Cardholders made a modest monthly payment and were charged a finance fee for the ability to pay their balance off over time.
In less than a decade, Bank of America's card went national and became the first multipurpose credit card, meaning it could be used to make all kinds of purchases from scores of participating merchants. Once Bank of America's card went international, it was renamed Visa.
At around the same time, MasterCard burst on the scene and became a strong competitor for Bank of America's VISA. Soon, American Express and Discover also became prominent players in the credit card business. The modern credit card industry was established.
By the 1970s, the use of credit cards had expanded dramatically, and Congress stepped in to pass legislation to govern the industry. These laws regulated how consumer credit data was gathered and managed, prevented credit discrimination and protected consumers from predatory billing and collection practices.
In general, there is no federal law that limits the interest rate that a credit card company can charge. State laws, where the card company is headquartered typically determines the maximum interest rate a card issuer can charge.
Credit cards haven't always come with points or cash back. This practice started in 1989 when Citibank started rewarding customers with American Airlines points they could accrue and redeem for plane tickets. The program was so popular, it essentially transformed the credit card industry, and today, rewards programs are considered one of the most attractive card features to many cardholders.
Credit cards have come a long way since raised numbers on a plastic rectangle. Once more cards made their way into circulation, security and fraud prevention became a pressing issue.
The magnetic stripe, which started being used in the 1970s, was the first major breakthrough in the protection of personal and financial information. This technology was the industry standard until around 2010 when the use of computer chips and personal identification numbers (PINs) provided more robust protection for consumers.
While technology has made credit cards more secure, it could also lead to the demise of the actual plastic card as new smartphone-based payment methods are rapidly gaining traction. In fact, a recent finder.com survey found more than 110 million Americans have used a digital wallet to make a payment at least once, and globally those numbers are predicted to increase dramatically over the next few years.
It's nearly impossible to underestimate the impact credit cards have had on how we make purchases and manage our money. And credit cards — in ever-evolving forms and iterations — will continue to change how we make purchases, finance our lifestyles and move dollars around our economy.
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