The History of Credit

Article by FNB and VISA

To know where you are going, it is important to know where you have been. With the increasing use and acceptance of plastic money in the form of debit, credit and pre-paid cards, as well as the growing global movement towards a cashless society, we investigate the history of the card and offer insights into where the industry is heading.

Credit was first used in Assyria, Babylon and Egypt 3000 years ago. The bill of exchange — the forerunner of banknotes — was established in the 14th century. Debts were settled by one-third cash and two-thirds bill of exchange. Paper money followed only in the 17th century.

Christopher Thornton, offering furniture that could be paid off on a weekly basis, placed the first advertisement for credit in 1730. From the 18th century until the early part of the 20th, tallymen sold clothes in return for small weekly payments. They were called 'tallymen' because they kept a record or tally of what people had bought on a wooden stick. One side of the stick was marked with notches to represent the amount of debt and the other side was a record of payments. In the 1920s, a shopper's plate — a 'buy now, pay later' system — was introduced in the USA. It could only be used in the shops that issued it.

The first charge cards

In 1950, the first 'plastic money' — charge cards — were issued in the USA, followed in the next year by the arrival of the first-ever credit cards issued to 200 consumers who could use them at 27 restaurants in New York. But it was only until the establishment of standards for the magnetic strip in 1970 that the credit card became part of the information age.

Since the introduction of bank cards in the early 1950s, the global acceptance and use of this form of payment system has grown exponentially. Today there is even a word for the study of money-like objects, such as credit cards, namely exonumia.

Exonumiasts collect any form of money — from the now familiar plastic cards to older paper merchant cards and even metal tokens that were accepted as early merchant credit cards. The first credit cards were made of celluloid and then metal and fibre, then paper and are now plastic.

Within the first seven years 5-million credit cards circulated in the US

Payment cards are a relatively recent development. Visa, for example, traces its history back 50 years to 1958 and within the first seven years 5-million credit cards circulated in the US.

Long before the first credit cards were issued, a visionary of the 19th century wrote that a cashless society, using credit cards for purchases, would exist at the end of the 20th century. Falling asleep in 1887, the narrator of Edward Bellamy's novel Looking Backward, published in 1888, wakes in the year 2000 to an America whose problems have been solved by getting rid of buying and selling.

Instead, 'A credit corresponding to his share of the annual product of the nation is given to every citizen on the public books at the beginning of each year, and a credit card issued him with which he procures at the public storehouses, found in every community, whatever he desires, whenever he desires it.' Bellamy's credit card is actually more similar to what we would call a debit card — one that draws from an established account.

The credit card was the successor of a variety of merchant credit schemes following the development of store-specific metal charge cards in 1928. These cards continued the system of extending credit to favoured customers and in 1938 several companies in America started to accept each other’s cards.

Early charge cards did not possess the key feature of modern credit cards: revolving credit, which allows cardholders to pay balances over time, while simultaneously charging new amounts. There are now countless variations on the basic concept of revolving credit for individuals, including organisation-branded credit cards, corporate-user credit cards and store cards.

The growth of credit cards has had an enormous impact on the global economy

The growth of credit cards has had an enormous impact on the global economy, changing buying habits by making it much easier for consumers to finance purchases.

Advances in technology have facilitated the use of credit cards. Merchants are now connected to banks electronically, so purchases are approved rapidly; online shopping on the Internet is possible with payment cards.

An alternative to credit cards is the debit card, which deducts the price of goods and services directly from customers' bank accounts. The design of the card itself has become a major selling point in recent years. Since the value of the card to the issuer is related to the customer's use of the card, there has been a rise of co-brand and affinity cards, leading to higher card use. In most cases, a percentage of the value of the card is returned to the affinity group.

The introduction of the latest in Visa chip card and contactless technology is bringing about the next evolution in plastic cards. Transactions are not only easier and more convenient, but may feature increased security as the card never leaves the holder's hand. Editor's Note: I don't know about that statement. RFID, by some accounts, may have a major security flaw enabling fraudsters to intercept the wireless transmission of the radio frequency waves. Doesn't have to leave the pocket. I've read reports that indicate the card information can, ironically, be "swiped" while it's sitting in the consumers wallet.

This cutting edge technology has an application beyond just banking and the functionality chip cards offer holds much potential for the card industry. The amount of storage space and the processing power of the chip card may allow various forms of information to be stored and utilised, such as biometric and personal contact info. These advances may likely contribute to making the concept of a cashless society a reality and also make the idea of having a single card for everything you need a realistic possibility.

While we still have some way to go before reaching Bellamy's vision of a cashless society, the rise of plastic money has put payment cards in nearly everyone's hands and it certainly looks to be a pivotal mechanism in the future of payment.