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Credit cards have a more interesting history than you might think. In addition, they have been around longer than you may realize. In fact, one of the first credit cards became available as early as 1951 when Franklin National Bank of New York screened the credit of loan customers and provided them with a card to make retail purchases. When cardholders used these first credit cards, merchants participating with the bank made a copy of the customer's information onto the sales slip. The bank then credited the merchant's account for the loan provided, minus a flat fee that was enforced for the convenience of providing the loan.

Seven years later, The American Express Company, which had previously been solely a traveler's check business, started to issue credit cards intended for entertainment and travel. These early credit cards were accepted at certain hotels, restaurants, and airline merchants.

Consumer Response

Consumers responded favorably to the first credit cards. Those who traveled for business were particularly fond of the convenience they offered. In addition, consumers tended to spend more money when they had a credit card than when they carried only cash, a side effect that was welcomed by merchants. This trend still continues today, with research showing that consumers average spending 112% more when they make purchases with their credit cards. In addition, merchants were happy with credit cards because they provided for a safer way for completing transactions because they reduced the likelihood of internal and external theft of computation mistakes.

The Boom in Acceptance

The Bank of America issued the BankAmericard in 1959 in California. This card was the first universal credit card to be offered that enjoyed widespread acceptance with merchants. In 1966, Bank of America forged licensing agreements with other banks, which made it possible to issue credit cards on a greater basis and allowed for transactions to be settled with participating banks.

In 1966, credit cards gained more momentum when 14 United States banks formed a bankcard processing association called Interlink. This made it possible for the banks to exchange information about the transactions made with the credit cards. The trend continued in 1967 when four banks in California created the Western States Bankcard Association. The MasterCharge program, which later became MasterCard in 1979, was born from this collaboration.

This MasterCharge program competed directly against the BankAmericard, which became Visa in 1976. These two organizations were the first to issue cards through member banks. They were also the first to establish a set of rules for processing credit card transactions. In addition, both groups were operated by board members, which consisted mostly of high-level executives from the banking organizations that were members of the collaboration.

As both organizations grew, banks wanting to issue credit cards decided whether they wanted to be a part of MasterCard Association or Visa Association. Those joining the memberships agreed to share in the cost of the program, which made it possible for smaller banks to participate in the program. As time progressed, banks were allowed to participate in both associations.

Fending Off Fraud

As more banks joined the associations, credit card processing became more complicated. As a result, outside service companies were contracted by the associations to process the services provided by Visa and MasterCard. This helped to reduce the internal costs of issuing cards, settling accounts, and paying merchants, which made it possible for the associations to grow further. At the same time, it increased the chances for fraud because the paperwork was passing through more hands. Therefore, the organization developed rules for handling procedures. They also created an internal processing system, which allowed them to exchange the information and money more efficiently and safely.

American Express Plays Catch Up

Although American Express issued one of the first credit cards, it took until 1987 for them to offer a card that allowed cardholders to pay the debt back over time. Initially, there cards focused primarily on entertainment and travel. They made their money primarily from annual membership fees from their customers as well as revenue from participating merchants. American Express still utilizes this technique, but now also offers credit cards without an annual fee. They also provide cards with reward programs and low introductory rate offers, just as MasterCard and Visa.