It may seem like fintech is forcing unprecedented changes on the payments world today, but a look back in time reveals that cards – first credit, then debit – have a long history of revolutionizing our industry, transforming consumer finances, spending and culture along the way.
Let’s travel back in time, shall we?
From Dinner Party to Diners Club – Here’s Where It All Began
In 1949, New York businessman Frank McNamara was hosting a business dinner when he committed a major professional fail: He forgot his wallet.
Which embarrassing event happened next has been debated throughout history. Did he convince the restaurant owner to let him sign for the bill and pay later, or did his wife have to drop everything and deliver his wallet to him?
Either way, the incident made a huge impression on McNamara. In February 1950, he launched the world’s first charge card.
Called Diners Club Card, the new payment form (which wasn’t made of plastic until 1961) was used primarily for travel and entertainment purposes. It grew in popularity so quickly that copycat cards soon emerged, including Alfred Bloomingdale’s West Coast dining and entertainment card, which eventually merged with Diners Club to form a nationwide network.
Within 10 years, American Express, Bank of America (later Visa) and the Interbank Card Association (later MasterCard) introduced their own card products to consumers. Early charge cards were initially marketed to wealthy consumers who paid their balances in full each month. However, soon our industry pioneers began to recognize the universal appeal of this amazing invention.
In 1959, MasterCard made history by offering cardholders the option of maintaining a revolving balance, providing average Americans with a new way to finance big ticket items.
The Roaring 80s – Credit Took Off, and Debit Was Born
According to PBS, the 1980s ushered in a real heyday for credit cards. The number of credit cards in circulation more than doubled, credit card spending increased more than five-fold, and the average household credit card balance rose from $518 to nearly $2,700.
In 1983, the debit card was introduced, providing consumers with a new way to access their checking accounts. And unlike credit cards, debit cards were granted to anyone with a checking account, regardless of credit history.
How “Portable Credit” Transformed Commerce Forever
The creation of what might be called “portable credit” is a historical legacy of credit cards that is frequently overlooked, according to John MacAllister, industry expert and principal at consulting firm Dorado Industries in Rolling Hills Estates, Calif.
MacAllister notes that early cards allowed consumers, for the first time, to take their credit with them wherever they went. And this phenomenon was unfolding at a time when our society was becoming much more mobile.
“Big ticket items were traditionally financed by the merchant community,” he said. “Everybody had a charge plate, and consumer credit didn’t really exist in banking. So if you moved from Portland, where you were a customer of Meier & Frank, to Los Angeles, you had to reestablish credit.”
He added, “Cards brought uniformity to consumer credit and allowed financial institutions to extend credit in a way that standardized underwriting, with things like credit histories and credit scores.”
Fast Forward to Today
With the advent of digital wallets and other mobile payment apps, one might conjecture that the days of cards are numbered. However, industry research suggests otherwise. In fact, total transactions at payment card networks grew 6.8 percent from 2014 to 2015, according to a Federal Reserve Board report released in November 2016. That rate of growth has remained steady over the past four years.
Consider also that most mobile payment apps require debit or credit card credentials, and also enjoy the security and payment authorization offered by card networks and their issuers.
This isn’t to say, however, that the role cards play in the consumer landscape won’t shift going forward. New mobile payment options are easier, faster – and more portable – than cards, and they are already leaving their mark on our industry.
One thing is certain, though. Fintech will continue to advance at the speed of light – bringing with it an expanding array of new payment options to improve the lives of consumers on the go.