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The evolution of credit cards

"At the time, individual stores issued charge cards -- something like credit cards that would allow you to pay on installments. But if you were shopping, let's say, in New York, you would have to carry around many different cards. So this created a card that people could use at many different merchants," says David S. Evans, economist and author of "Paying with Plastic: The Digital Revolution in Buying and Borrowing."

The general-purpose Diners Club card was a big innovation, says Evans. The original card was a charge card, meaning the balance had to be paid at the end of the month.

Competitors entered the market shortly thereafter, such as the American Express card in 1958 and Carte Blanche, issued by Hilton Hotels Corp.

Emergence of Visa, Mastercard

Banks also issued their own credit cards throughout the 1950s. Visa got its start as a bank-issued card in 1958, although it was called BankAmericard, named after Bank of America, then a California bank.

"Back when there were no national banks, only state or local banks, Bank of America introduced a credit card -- a true credit card where you could pay things off over time," says Evans.

"Then, in 1966, they set up a national franchise program. Banks around the country were licensed to issue the BankAmericard credit card. That was a pure franchise organization where Bank of America was the franchiser, like McDonalds, and the other banks were franchisees issuing the cards.

For various reasons, franchisee banks chafed under the agreement. Evans says the franchisees rebelled, leading to the elimination of the franchise organization and the institution of a "true cooperative where Bank of America was just one of many banks that had a share in the cooperative. And that was the birth of Visa," he says.

BankAmericard officially became known as Visa in 1976.

Mastercard also came about as the result of a cooperative effort between various banks.

"Mastercharge, which was known as Interbank, really began as a group of banks largely in the Northeast that wanted to get together and honor each other's cards so that people could use the card outside of the immediate bank area," says Mandell.

"Don't forget, back in those days, there were laws against interstate banking, so banks were really confined only to states in most cases," he says.

Banks issuing credit cards needed to make sure the cards were widely accepted enough to make them useful. This meant they had to sign up merchants in addition to getting other banks to honor them.


For their part, merchants welcomed the cards, even though it cost them money.

"Merchants had a choice, basically," says Mandell. "They could sign up or not sign up. And if they did sign up, they would have to pay a small part of their proceeds. Called the merchant discount, it started at 7 percent and started coming down fairly quickly thereafter."

Editorial Disclaimer: The editorial content is not provided or commissioned by the credit card issuers. Opinions expressed here are author’s alone, not those of the credit card issuers, and have not been reviewed, approved or otherwise endorsed by the credit card issuers.

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