Credit Card Glossary
The History of Credit Cards
The use of credit cards goes all the way back to ancient Egypt more than 3000 years ago. The first modern cards were department store cards that appeared around 1914. These cards were only good for goods that could be bought in the store.
It wasn’t until 1950 that Diner’s Club issued the first credit cards to be used at restaurants. The invention is the brainchild of Frank X. McNamara (the owner of Diner’s Club), lawyer Ralph Sneider and Alfred Blooomingdale (of Bloomingdale Department stores).
The credit card was invented in a restaurant where all three men were having dinner. When it came time to pay the bill, McNamara realized he had no cash thus inspiring the three men to come up with the idea of a credit card that could act as an I.O.U. In addition this card could be used at any place and not just one store.
Interestingly, Diner’s Club then provided credit through businesses to individuals but it did not charge interest. Payment in full was required at the end of each month. The source of profit for the company was a combination of a small annual fee to card holders (that was $3 in 1951) and a 7 percent surcharge to the merchants subscribing to Diner’s Club on each purchase.
At first Diner’s Club only served the clientele of fourteen company-approved restaurants in New York. This first card was printed on paper.
From an initial distribution of only 200 cards the membership for Diner’s Club soared to over 20,000 with in the first year. Oddly the founder, Frank McNamara thought the whole thing was just a fad and sold his credit card interest to his partners Sneider and Bloomingdale for $200,000.
Eight years after the invention of the Diner’s Club card, American Express joined the credit card business. Like Diner’s club the point of this card was to pay it off in full at the end of each month.
Credit cards became even more popular with the advent of the bank credit card system that we now know as MasterCard and Visa.
In 1959 Visa was called Bank Americard. It was the first national bank credit card company to set up a system by which the individual banks credited the accounts of merchants upon receiving sales receipts. The banks that participated in BankAmericard credit card program then paid the stores immediately. At the end of the billing period, the cardholder received a monthly statement from Bank Americacard showing all of his or her charges and the option to either pay the entire account in full or pay a required minimum charge along with interest on an unpaid balance.
Mastercharge, which later changed its name to MasterCard, soon followed the example of Bank Americard and the credit card industry was born.