Although credit cards are now considered to be a mainstay of almost every country’s economy, it was once viewed as a novelty catering to only the rich. The general public’s viewpoint on credit cards has gone through a paradigm shift and is now more accepting of the plastic card than ever. That said, have you ever wondered how credit cards came to be? No? Then you’re in for a ride! In this chapter, we’re going to be exploring the origins of credit cards and how they evolved through the years. 

The origin of credit cards  

As you’ve already read in the first chapter of this module, the first ever modern version of the credit card was issued by Diners Club in 1950. This card could be used at multiple different retail outlets to purchase things on credit. And at the end of the month, consumers would then have to repay the amount they took as credit. Though this card from Diners Club is widely regarded as the first ever modern credit card, it actually isn’t the first “credit” card.

As a matter of fact, there have been multiple attempts at creating a credit card way before the year 1950. Around the early 1900s in the U.S., many oil marketing companies and department stores tried to offer their customers credit in the form of a card. These companies would give their customers proprietary cards, which can be used to buy things from their stores and outlets on credit. That said, the aim of these cards was to promote loyalty and not convenience. 

A few decades later, roughly around the 1940s in the U.S., air travel cards were issued to consumers. This allowed them to purchase air tickets from multiple different airlines on credit. After the air travel cards came the Charg-It card. Launched by a banker named John Biggins, the Charg-It card came about in 1946 and was only made available to bank customers. The customers of the card could only make local purchases on credit. The bank would reimburse the merchant for the purchase and then would collect the same from the customer at a later date.   

The evolution of credit cards 

After Diners Club launched the first ever modern credit card in 1950, many others like American Express were quick to follow. Until 1959, credit cards were issued in either cardboard, celluloid, or other paper-like materials, which were prone to degradation over time. American Express changed the game entirely when it revolutionized the credit card scene by introducing plastic cards, which we now know and love. 

The evolution didn’t just stop there though. Remember the black strip at the back of each credit card, which we have even to this date? This piece of black strip is magnetic and was introduced in the 1980s, changing the appearance of credit cards once again. This magnetic strip contained card data such as the card number, the expiry date, and the CVV, among others. The data on the strip could be read only by specialized equipment within just a fraction of a second and made transactions much safer and faster.  

The invention of the magnetic stripe

You know how your cards have a black stripe on the back? In the early 1960s, IBM engineer Forrest Parry printed it on a plastic card. Parry's magnetic tape was originally used to store information for CIA identification cards, but it quickly evolved into a simple and affordable solution to store account information for payment cards and point-of-sale terminals.

Credit card transactions were more physical than digital before the advent of the magnetic stripe, so this was a significant step forward. Instead than relying on human processing, payment transactions might be digitized. Magnetic stripes became a U.S. payment card standard in 1969, and an international standard two years later.

Plastic money in India

Debit and credit cards were not widely used in India back in the day. The vast bulk of plastic money transactions took place solely at ATMs. However, with the emergence of internet shopping in the 2010s, the usage of plastic money skyrocketed, with the majority of purchases done using debit and credit cards. After the demonetization of the 1000 and 500 rupee notes in late 2016, the usage of cards is believed to have skyrocketed. As a result of this occurrence, there was an unexpected shortage of cash, prompting consumers to turn to electronic payments such as e-wallet, which need card-related information.

Plastic money and its various avatars 

Here is a list of different sorts of cards based on their intended use:

Debit cards

Debit is the most commonly used sort of plastic money. The bulk of transactions are conducted either buying online or withdrawing cash from an ATM. Here, the money is taken immediately from the user's bank account when a transaction is done using a debit card. 

Credit cards

Users who use a credit card may withdraw money or borrow money up to their credit limit. These cards are often issued by banks, however they may also be issued by non-financial entities. Users who have been charged must clear their balance reflected on their statement within the time restriction that has been assigned to them. It's possible to think of it as a short-term loan.

ATM cards

These cards are used to make cash withdrawals from an Automated Teller Machine (ATM). ATM cards may be issued individually or used in conjunction with a debit card.

Wrapping up

What probably started off as a measure to enhance customer loyalty turned out to be the foundation stone for a far better and a more convenient way to make payments. Despite having a lukewarm origin, credit cards are now ubiquitous in the economy and are fuelling our purchases every single day. 

And if you thought that this excellent financial tool has reached the end of its evolutionary cycle, you’re in for a surprise. In the next chapter, we’re going to see just how credit cards of today have evolved and kept pace with technology.        

A quick recap

• Until 1959, credit cards were issued in either cardboard, celluloid, or other paper-like materials, which were prone to degradation over time. 
• American Express changed the game entirely when it revolutionized the credit card scene by introducing plastic cards, which we now know and love. 
• Debit and credit cards were not widely used in India back in the day. The vast bulk of plastic money transactions took place solely at ATMs. 

However, with the emergence of internet shopping in the 2010s, the usage of plastic money skyrocketed, with the majority of purchases done using debit and credit cards.