A Short History of Payments (and Credit Cards)
1755 BCE
Code of Hammurabi in Babylonia – A collection of 282 rules were written in cuneiform that established standards for commercial interactions, including terms of payment (e.g., buy now and pay at a later date).
1458 CE
Double-entry Bookkeeping was invented by Benedetto Cotrugli, an Italian merchant and economist. The first edition of his work was entitled “Della Mercatura e del Mercante Perfetto" – “Of Commerce and the Perfect Merchant.” A later edition was retitled “Libro de l'Arte de la Mercatura” - “Book on the Art of Trade.”
Pre 1865
Coins, paper currency, or a handshake and a ledger notation.
1865
Charge coins (also called Charge Tokens) were introduced in Boston and quickly spread to other cities. These coins were about the size of a modern US Quarter or Half-dollar. Each one had a unique number stamped on it. The coins were handed out to a merchant’s best customers. When a customer with a Charge Coin purchased an item at a store, a store clerk would look up the number stamped on the coin and match the number in a ledger to a customer’s name. If the purchaser was the person on record, the clerk would record the sale in a ledger and allow the purchaser to leave the store with the merchandise. The Customer would then repay the debt at a designated future date.
1914
Western Union issued metal plates to selected customers with which those customers could defer payments for Western Union services until a specified later date.
Early 1920s
Paper and metal “Curtesy” or “Credit” cards were introduced (printed, not embossed).
– Oil companies issued courtesy cards to select vehicle owners to encourage brand loyalty. Card usage was typically limited to specific geographic areas and could not be used for extended travel.
– Department stores gave “credit” cards to their wealthier customers to encourage more purchases. The credit was for the purchase, not an open-ended line of credit. The credit needed to be paid at a specified time (e.g., end of the month).
1928
Charge Plates – rectangular pieces of metal with embossed (raised) numbers and letters - were invented by Farmington Manufacturing Co. The charge plates contained a paper card glued to the back on which a customer would place his/her signature.
1930s
The use of charge plates spread across the United States and different merchant categories. These charge plate accounts were not yet credit cards with an open line of credit, but purchasing cards with payments in full due at a designated future date.
1934
The Air Travel Card was introduced by American Airlines and the Air Transport Association. By 1941 half of all US airline revenues were collected via the card platform. In 1948 it was the first internationally accepted card.
Post WWII
The post-war economic boom encouraged innovation throughout the payments space.
1946
Flatbush National Bank of Brooklyn (CEO John C. Biggins) created the Charg-It system, with which a customer could charge purchases from merchants within a designated two square block radius. Payments would be due at a specified future date.
1950
Diners Club card was launched by Frank McNamara and Ralph Schneider. It was a charge card for those who wanted to pay back their travel and entertainment expenses at a later date (e.g., not the evening of a restaurant meal). The card program had 42,000 members by 1951. Diners Club was the first international multipurpose charge card.
1951
Franklin National Bank in Long Island NY issued the first modern credit card. Card accounts were assessed interest charges if the balance was not paid in full by the due date. Also, participating merchants paid a fee to the bank for each transaction (e.g., the precursor to merchant discount and interchange fees).
1953
First National Bank of Omaha issued its own FNBO credit card.
1958
American Express launches the “Green Card.”
1958
Bank of America began issuing its own credit card with a revolving line of credit. Bank of America’s motivation was two-fold: participate in the burgeoning and growing charge card industry and streamline its own installment loan business.
BofA had a thriving installment loan business with which a customer could purchase an item (e.g., furniture) via an installment loan. A few months later that customer might choose to make another purchase via an installment loan. BofA was burdened with either having multiple installment loan accounts per customer or reprinting loan payment coupon books for installment loans every time a new item was purchased via a single installment loan account (and the principal amount of the installment loan increased). Open-ended, revolving lines of credit answered both inefficiencies.
1960
IBM invented and introduced Magnetic Stripe verification for credit cards. The magnetic strip on cards facilitated the transmission of card and transaction information with greater efficiency, fewer errors, and improved data security. Prior to the magnetic stripe, card and transaction information needed to be entered manually onto charge slips at the point of transaction. Those charge slips were then sent to a central data-entry sight where they were reentered manually into the merchant bank accounting system. Authorizations were obtained via phone calls to a centralized call center.
1961
JCB (Japanese Credit Bureau) was established. JCB issued Japan's first “credit” card (credit in the sense of purchase now, pay at a later date, not a revolving line of credit. The JBC process is sometimes referred to as "delayed debit"). In May 1961 JCB also became the first private company in Japan to offer customers automatic bank draft payment for credit card bills.
1965
Eurocard International N.V. was established. Based in Brussels, it operated as a not-for-profit membership association of European banks. It established the European Payment System Services (EPSS).
1966
BankAmerica introduced the BankAmericard network, which would later be renamed as Visa in 1976.
1966
Interbank Card Association (ICA) was formed by several regional banks. The transaction service they created was called Master Charge. In 1979, ICA rename the service to MasterCard.
The early members of the association included: United California Bank, Wells Fargo, Crocker National Bank, Bank of California, Marine Midland Bank of NY, and Farmers & Merchants Bank of Long Beach, CA.
The association grew out of a two-fold need: Efficiency gains through consolidating smaller and more limited card networks and to better compete with the new BankAmericard network.
1966
Barclaycard - Barclays Bank in the United Kingdom launched the first credit card outside the United States.
1967
Carte Bleue was introduced in France. It was an association started by BNP, CCF, Crédit du Nord, CIC, Crédit Lyonnais, and Société Générale. Technically, it was a debit transaction network, but it provided similar functionality as BankAmericard and ICA in that a cardholder could conduct purchases over a wide geography with a variety of participating merchants.
1966
Debit Cards - The Bank of Delaware launched a debit card pilot program as an alternative to carrying cash or a checkbook. In 1978, The First Bank of Seattle launched what many site as the first general roll-out of a debit card product.
1967
ATMs – Barclays (UK) installs the first automated cash dispensing machine. The machine would dispense packaged bundles of one-pound (£) notes. The process required users to insert special checks printed with ink containing trace amounts of Carbon 14. A bank employee would concurrently insert a voucher card. (Personalized ATM cards were not yet used in this process.) Barclays named the machine the De La Rue Automatic Cash System or DACS.
Automatic “Depot” machines date back to the early 1960s, but they did not dispense cash.
1969
ATMs - The first free standing Automatic Teller Machine that used personized cards with a magnetic stripe on the back of was introduced by Chemical Bank in Rockville, New York. Chemical Bank called it the Docuteller.
1984
Diners Club introduced Club Rewards, one of the first generation of card loyalty and promotion programs.
1986
Sears launched the Discover Card.
1986
Chip Cards - France's Carte Bancaire introduced the first Chip Card (a la Smart Card). The chip provided significant improvements in card functionality, data communication efficiency, and data security.
Chips on cards removed the need for embossed (raised) numbers and letters on a card. Although the volume of unembossed cards is steadily increasing, embossed cards remain in use today but only to accommodate tradition and appease customers who prefer the embossing.
1987
Citibank established a card rewards program with American Airlines, igniting the “Co-branding” trend, in which cards were co-branded with both the issuing bank’s name and the partner company’s name (e.g., JPMorganChase’s United Mileage Plus card).
1991
American Express launched the loyalty program called Membership Miles.
1995
Contactless Chip (RFID – Radio Frequency Identification or NFC – Near Field Communication) was first mass-issued and used by Seoul Bus Transportation Association for UPass cards used by passengers.
1997
FRID Key-fob purchases - Mobile Oil Corp and Verifone launched Speedpass, a keyfob-based FRID payment system for fuel purchases.
In 2007 Barclays launches the first Contactless chip card in the UK.
By 2008, many US card issuers offered contactless chip cards.
The application of contactless chips to payment cards would be the first step toward cutting the requirement that a “card” be used to conduct transactions. A payment chip could now reside within almost anything (e.g., a cell phone or a watch).
The Form Factor Revolution
Mobile phone payments and other types of non-card based payments had been enthusiastically discussed for a couple of decades prior to the mid 2010s, but no solution managed gain enough commercial success to broadly ignite a mobile (or other form factor) payments boom.
Card-Not-Present transactions such as phone orders, mail orders, and later internet purchases had been available for decades, but those transactions required the cardholder to communicate the card information to the merchant manually, not through an automated process.
Three technologies were needed to facility the next era of payments - Form Factor Revolution: Smart Phones, virtual wallets, and Contactless Chips with RFID capability.
1998
A company called Confinity began working on a digital payments platform for consumers and businesses. The company was renamed PayPal a year later. PayPal was the progenitor of digital payment acceptance by micro merchants (e.g., eBay sellers) and for person-to-person payments (P2P). Venmo, Braintree, Square, and many others were soon to follow.
2011
Starbucks mobile phone payment app was introduced. The Starbucks payment app was not the first mobile payment app, but it was one of the first to be commercially functional and successful across a wide geography.
2011
Virtual wallets were first introduced. Google Wallet and Android Pay allowed contactless payments to be made via smartphones rather than cards.
2014
Apple Pay was introduced, later replete with functionality on Apple watches. Apple Pay was not the first mobile payment app, but it was one of the first to be commercially functional and successful across a wide geography and across a wide merchant spectrum.
Other Important Dates
2005
MasterCard launched an Initial Public Offing (IPO) of stock, ending its 57-year-old status as a non-profit service association. MasterCard made the change to better enable itself to raise capital and insulate (former) members of the association from various legal risks associated with the payment network.
The change was not consequential for cardholders at the time, but fundamentally changed how Mastercard managed it business and interacted with entities formally known as Members, now typically called clients. Long term ramifications of the change are still playing out.
2008
Visa launched an Initial Public Offing (IPO) of stock, ending its 60-year-old status as a non-profit service association for all the same reasons and with all the same ramifications as MasterCard.
2012
The Durbin Amendment within the Dodd–Frank Wall Street Reform and Consumer Protection Act was enacted by Congress. The amendment capped Interchange Reimbursement Fees to 0.05% and $0.021 for all debit card transactions (PIN debit, non-PIN debit, and prepaid card transactions) issued by Financial Institutions with assets greater than $10 Billion. Smaller Financial Initiations, often referred to as “exempt” would continue to use a higher and more complex set of debit-related Interchange Reimbursement Fees.
The amendment net-effectively ended plans for more costly debit product features, functionalities, and promotional campaigns.
© 2023 Robert Holden
1755 BCE
Code of Hammurabi in Babylonia – A collection of 282 rules were written in cuneiform that established standards for commercial interactions, including terms of payment (e.g., buy now and pay at a later date).
1458 CE
Double-entry Bookkeeping was invented by Benedetto Cotrugli, an Italian merchant and economist. The first edition of his work was entitled “Della Mercatura e del Mercante Perfetto" – “Of Commerce and the Perfect Merchant.” A later edition was retitled “Libro de l'Arte de la Mercatura” - “Book on the Art of Trade.”
Pre 1865
Coins, paper currency, or a handshake and a ledger notation.
1865
Charge coins (also called Charge Tokens) were introduced in Boston and quickly spread to other cities. These coins were about the size of a modern US Quarter or Half-dollar. Each one had a unique number stamped on it. The coins were handed out to a merchant’s best customers. When a customer with a Charge Coin purchased an item at a store, a store clerk would look up the number stamped on the coin and match the number in a ledger to a customer’s name. If the purchaser was the person on record, the clerk would record the sale in a ledger and allow the purchaser to leave the store with the merchandise. The Customer would then repay the debt at a designated future date.
1914
Western Union issued metal plates to selected customers with which those customers could defer payments for Western Union services until a specified later date.
Early 1920s
Paper and metal “Curtesy” or “Credit” cards were introduced (printed, not embossed).
– Oil companies issued courtesy cards to select vehicle owners to encourage brand loyalty. Card usage was typically limited to specific geographic areas and could not be used for extended travel.
– Department stores gave “credit” cards to their wealthier customers to encourage more purchases. The credit was for the purchase, not an open-ended line of credit. The credit needed to be paid at a specified time (e.g., end of the month).
1928
Charge Plates – rectangular pieces of metal with embossed (raised) numbers and letters - were invented by Farmington Manufacturing Co. The charge plates contained a paper card glued to the back on which a customer would place his/her signature.
1930s
The use of charge plates spread across the United States and different merchant categories. These charge plate accounts were not yet credit cards with an open line of credit, but purchasing cards with payments in full due at a designated future date.
1934
The Air Travel Card was introduced by American Airlines and the Air Transport Association. By 1941 half of all US airline revenues were collected via the card platform. In 1948 it was the first internationally accepted card.
Post WWII
The post-war economic boom encouraged innovation throughout the payments space.
1946
Flatbush National Bank of Brooklyn (CEO John C. Biggins) created the Charg-It system, with which a customer could charge purchases from merchants within a designated two square block radius. Payments would be due at a specified future date.
1950
Diners Club card was launched by Frank McNamara and Ralph Schneider. It was a charge card for those who wanted to pay back their travel and entertainment expenses at a later date (e.g., not the evening of a restaurant meal). The card program had 42,000 members by 1951. Diners Club was the first international multipurpose charge card.
1951
Franklin National Bank in Long Island NY issued the first modern credit card. Card accounts were assessed interest charges if the balance was not paid in full by the due date. Also, participating merchants paid a fee to the bank for each transaction (e.g., the precursor to merchant discount and interchange fees).
1953
First National Bank of Omaha issued its own FNBO credit card.
1958
American Express launches the “Green Card.”
1958
Bank of America began issuing its own credit card with a revolving line of credit. Bank of America’s motivation was two-fold: participate in the burgeoning and growing charge card industry and streamline its own installment loan business.
BofA had a thriving installment loan business with which a customer could purchase an item (e.g., furniture) via an installment loan. A few months later that customer might choose to make another purchase via an installment loan. BofA was burdened with either having multiple installment loan accounts per customer or reprinting loan payment coupon books for installment loans every time a new item was purchased via a single installment loan account (and the principal amount of the installment loan increased). Open-ended, revolving lines of credit answered both inefficiencies.
1960
IBM invented and introduced Magnetic Stripe verification for credit cards. The magnetic strip on cards facilitated the transmission of card and transaction information with greater efficiency, fewer errors, and improved data security. Prior to the magnetic stripe, card and transaction information needed to be entered manually onto charge slips at the point of transaction. Those charge slips were then sent to a central data-entry sight where they were reentered manually into the merchant bank accounting system. Authorizations were obtained via phone calls to a centralized call center.
1961
JCB (Japanese Credit Bureau) was established. JCB issued Japan's first “credit” card (credit in the sense of purchase now, pay at a later date, not a revolving line of credit. The JBC process is sometimes referred to as "delayed debit"). In May 1961 JCB also became the first private company in Japan to offer customers automatic bank draft payment for credit card bills.
1965
Eurocard International N.V. was established. Based in Brussels, it operated as a not-for-profit membership association of European banks. It established the European Payment System Services (EPSS).
1966
BankAmerica introduced the BankAmericard network, which would later be renamed as Visa in 1976.
1966
Interbank Card Association (ICA) was formed by several regional banks. The transaction service they created was called Master Charge. In 1979, ICA rename the service to MasterCard.
The early members of the association included: United California Bank, Wells Fargo, Crocker National Bank, Bank of California, Marine Midland Bank of NY, and Farmers & Merchants Bank of Long Beach, CA.
The association grew out of a two-fold need: Efficiency gains through consolidating smaller and more limited card networks and to better compete with the new BankAmericard network.
1966
Barclaycard - Barclays Bank in the United Kingdom launched the first credit card outside the United States.
1967
Carte Bleue was introduced in France. It was an association started by BNP, CCF, Crédit du Nord, CIC, Crédit Lyonnais, and Société Générale. Technically, it was a debit transaction network, but it provided similar functionality as BankAmericard and ICA in that a cardholder could conduct purchases over a wide geography with a variety of participating merchants.
1966
Debit Cards - The Bank of Delaware launched a debit card pilot program as an alternative to carrying cash or a checkbook. In 1978, The First Bank of Seattle launched what many site as the first general roll-out of a debit card product.
1967
ATMs – Barclays (UK) installs the first automated cash dispensing machine. The machine would dispense packaged bundles of one-pound (£) notes. The process required users to insert special checks printed with ink containing trace amounts of Carbon 14. A bank employee would concurrently insert a voucher card. (Personalized ATM cards were not yet used in this process.) Barclays named the machine the De La Rue Automatic Cash System or DACS.
Automatic “Depot” machines date back to the early 1960s, but they did not dispense cash.
1969
ATMs - The first free standing Automatic Teller Machine that used personized cards with a magnetic stripe on the back of was introduced by Chemical Bank in Rockville, New York. Chemical Bank called it the Docuteller.
1984
Diners Club introduced Club Rewards, one of the first generation of card loyalty and promotion programs.
1986
Sears launched the Discover Card.
1986
Chip Cards - France's Carte Bancaire introduced the first Chip Card (a la Smart Card). The chip provided significant improvements in card functionality, data communication efficiency, and data security.
Chips on cards removed the need for embossed (raised) numbers and letters on a card. Although the volume of unembossed cards is steadily increasing, embossed cards remain in use today but only to accommodate tradition and appease customers who prefer the embossing.
1987
Citibank established a card rewards program with American Airlines, igniting the “Co-branding” trend, in which cards were co-branded with both the issuing bank’s name and the partner company’s name (e.g., JPMorganChase’s United Mileage Plus card).
1991
American Express launched the loyalty program called Membership Miles.
1995
Contactless Chip (RFID – Radio Frequency Identification or NFC – Near Field Communication) was first mass-issued and used by Seoul Bus Transportation Association for UPass cards used by passengers.
1997
FRID Key-fob purchases - Mobile Oil Corp and Verifone launched Speedpass, a keyfob-based FRID payment system for fuel purchases.
In 2007 Barclays launches the first Contactless chip card in the UK.
By 2008, many US card issuers offered contactless chip cards.
The application of contactless chips to payment cards would be the first step toward cutting the requirement that a “card” be used to conduct transactions. A payment chip could now reside within almost anything (e.g., a cell phone or a watch).
The Form Factor Revolution
Mobile phone payments and other types of non-card based payments had been enthusiastically discussed for a couple of decades prior to the mid 2010s, but no solution managed gain enough commercial success to broadly ignite a mobile (or other form factor) payments boom.
Card-Not-Present transactions such as phone orders, mail orders, and later internet purchases had been available for decades, but those transactions required the cardholder to communicate the card information to the merchant manually, not through an automated process.
Three technologies were needed to facility the next era of payments - Form Factor Revolution: Smart Phones, virtual wallets, and Contactless Chips with RFID capability.
1998
A company called Confinity began working on a digital payments platform for consumers and businesses. The company was renamed PayPal a year later. PayPal was the progenitor of digital payment acceptance by micro merchants (e.g., eBay sellers) and for person-to-person payments (P2P). Venmo, Braintree, Square, and many others were soon to follow.
2011
Starbucks mobile phone payment app was introduced. The Starbucks payment app was not the first mobile payment app, but it was one of the first to be commercially functional and successful across a wide geography.
2011
Virtual wallets were first introduced. Google Wallet and Android Pay allowed contactless payments to be made via smartphones rather than cards.
2014
Apple Pay was introduced, later replete with functionality on Apple watches. Apple Pay was not the first mobile payment app, but it was one of the first to be commercially functional and successful across a wide geography and across a wide merchant spectrum.
Other Important Dates
2005
MasterCard launched an Initial Public Offing (IPO) of stock, ending its 57-year-old status as a non-profit service association. MasterCard made the change to better enable itself to raise capital and insulate (former) members of the association from various legal risks associated with the payment network.
The change was not consequential for cardholders at the time, but fundamentally changed how Mastercard managed it business and interacted with entities formally known as Members, now typically called clients. Long term ramifications of the change are still playing out.
2008
Visa launched an Initial Public Offing (IPO) of stock, ending its 60-year-old status as a non-profit service association for all the same reasons and with all the same ramifications as MasterCard.
2012
The Durbin Amendment within the Dodd–Frank Wall Street Reform and Consumer Protection Act was enacted by Congress. The amendment capped Interchange Reimbursement Fees to 0.05% and $0.021 for all debit card transactions (PIN debit, non-PIN debit, and prepaid card transactions) issued by Financial Institutions with assets greater than $10 Billion. Smaller Financial Initiations, often referred to as “exempt” would continue to use a higher and more complex set of debit-related Interchange Reimbursement Fees.
The amendment net-effectively ended plans for more costly debit product features, functionalities, and promotional campaigns.
© 2023 Robert Holden