The History and Evolution of Credit Cards

Posted on Monday, April 15th, 2024 | By IndusInd Bank

Credit cards have increasingly become an integral part of the lives of many people while making payments. Right from small purchases such as groceries to big-ticket purchases such as white goods and automobiles, more and more people are using credit cards. But who came up with the idea of the credit card in the first place? How did the credit card evolve from the time it was invented to its current avatar? 

Credit Card History – A Fascinating Journey

The origin of credit cards lies in the invention of the system of credit, which extended as far back as the 1700s. Credit coins and charge plates were invented, which the farmers could use with certain merchants. Then this form of credit evolved and began to be seen in departmental stores and hotels, which used their own system of credit.

The First Bank Card: Charg-It

In credit card history, the first entry of cards in banking was in 1946 when John Biggins, a banker in Brooklyn, conceptualised the Charg-It card. He aimed to increase the bank’s customer base, and customers with an account with the bank were given cards that could be used at select merchant outlets. The merchants would send the receipts to the bank, the bank would make the payment for purchases made and then forward a bill to the customer. The customer was subsequently expected to pay the bank.

The First Modern Credit Card: The Diner’s Club Card

Frank McNamara invented the first modern credit card in 1950. He was dining at a New York restaurant and realised he had forgotten his wallet when it was time to pay the bill. An embarrassing situation to find oneself in, he would soon introduce the Diner’s Club card, which could be used in restaurants without having to carry cash. Soon, however, the usage of this card was expanded beyond restaurants by including other retail outlets. This was a charge card where the bank would bill the customers who were expected to repay at the end of the month. The Diner’s Club Card gained prominence quite quickly. From its invention in 1950, it soon gained pace in major US cities and by 1953 began to be accepted in Cuba, Mexico, the UK, and Canada.

The Evolution of Credit Cards

Credit cards soon began gaining traction to the point that most banks began issuing credit cards. The payment structure also evolved in the sense that while customers were billed every month and were expected to pay within a certain date, they could now roll over this credit from month to month. Visa, Mastercard, American Express, and Discover emerged as some of the most prominent credit card issuers in the 20^th century.

Credit Card Advancements

The credit card industry has transformed quite a bit since then in the following ways:

Credit Reporting and Scoring: A credit score is a measure of the cardholder’s creditworthiness. The FICO Score, which became the industry standard, was first introduced in 1989.

Industrial Regulations: With the Equal Credit Opportunity Act coming into force, credit card companies were prohibited from discriminating based on race or gender. Other laws were also passed that enabled customers to dispute unauthorised charges on their cards.

Magnetic Strips: To enhance the security of the cards and eliminate the possibility of fraud, magnetic strips on cards were introduced in 1969 by IBM as a method of processing credit card information.

One-time Code: To add an extra layer of security, the magnetic chip on the cards began generating one-time codes when a transaction was in process. CVV codes were also introduced to boost the security of the card during payment.

While CVV is the same printed 3-digit number on the back of every card, a One-Time Password (popularly known as OTP) is a one-time use, limited-validity code. The banking server usually sends it to the registered mobile number and email address when completing an online transaction, which needs to be entered correctly on the payment platform to complete the payment.

Credit Card Invention in a Nutshell

There have been considerable innovations in the credit card industry ever since the first credit card was issued. With the rise in competition and evolution in technology, customers are now spoilt for choice when selecting credit cards. Looking to apply for a Lifetime Free Credit Card. Apply with IndusInd Bank in 3 easy steps and get plethora of benefits. Click here to apply.

Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.