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The origins of the credit card

By Jeremy Simon

Do you know where your credit card comes from -- beyond the return address on the envelope from your card issuer?  The approximately 2 billion credit cards in use today across the globe have an interesting history. 

The idea of a credit card is not new.  In fact, mentions of credit cards can be found from 1890, when some European merchants offered a credit card as a perk to better customers.

The birth of Diners Club
Still, the origin of the first wide-use charge account dates to the late 1940s, and is attributed to New York businessman Frank McNamara.  The story goes that in the fall of 1949, McNamara went to pay the bill after entertaining a client at Major's Cabin Grill, only to realize he had left his wallet in another suit.   

Luckily for McNamara, his wife was able to save him from potential embarrassment.  But he continued to think about what happened and began to consider why a businessman could not freely spend what he could afford instead of just the cash in his wallet.

Fast forward a few weeks, and McNamara was sitting down with his lawyer, Frank Schneider, to discuss the details for a relatively simple idea -- a club of diners who would be able to sign for their meals at certain restaurants and then settle the bill at a later date.  As his idea became a reality, McNamara enrolled 27 establishments in his plan, also offering $3 memberships in his diner's club to 200 friends and acquaintances. 

McNamara and Schneider became the first diners to say "charge it" when they sat down to a February 1950 meal at Major's.  The credit card industry recognizes the importance of this meal even though the Diners Club card was not technically a credit card, since Diners Club members were expected to settle their bills each month.

With 20,000 cardholders by the end of 1950, the Diners Club was an instant success.  By 1952, franchises has been set up on Canada, France and Cuba, and in 1955, Western Airlines became the first air carrier to take payment by the Diners Club card.

More companies begin offering cards
On the heels of Diners Club, American Express introduced a card in 1958 for paying entertainment and travel costs.  The next year, Bank of America issued a "revolving credit" card that could be used for a greater range of purchases and paid off over a longer period of time, with interest.  But due to federal banking regulations, the card was only valid in California.

In 1966, Bank of America started forming licensing agreements with other banks that allowed cardholders in different states to charge purchases.  The same year saw 14 other banks unite to create Interlink, a bank card processing agreement that allowed them to share credit card transaction information. 

One year later, in 1967, four California banks established the MasterCharge program.  Twelve years later, the program was renamed MasterCard to compete with the BankAmericard program (which was itself renamed VISA in 1977).

In 1981, the Diners Club was purchased by Citicorp.  Still, the origin of the credit card industry can be traced to Frank McNamara's innovation, which allows members to make payment for a purchase at a later date.

Published: June 27, 2008

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