• Automobile buying needs showed buying on time was respectable
• Americans had felt comfortable with credit for centuries.
It took another thirty years before the credit card as we know it was invented. Three men finally accomplished this over lunch in a New York City restaurant in 1949.
They were convinced that there was money to be made in consumer credit, and tried to find a way to tap it. The charge card or house card boosted sales and customer loyalty, but without interest, the charge accounts by themselves did not generate revenue. Installment sales did produce interest, but that was meant to cover the seller’s costs, and not to earn income.
Suppose, the three wondered, that a third party inserted itself between buyers and sellers. Suppose this third party promised the sellers many customers, those who would not have gone to them otherwise. Suppose the same party offered affluent people with good credit records a diverse choice of establishments (not just one department store or a chain of gas stations) where they could charge what they bought, no questions asked. Wouldn’t these well-heeled spenders be more inclined to patronize those establishments where they had credit? Wouldn’t business owners, seeing their sales increase and their profits soar, be willing to return a small percentage to the third party that helped provide them with the new customer base? Wouldn’t those small percentages add up to a small fortune?
They sounded out the restaurant owner, asking how much credit card business that went his way would be worth. The owner replied, “Seven percent.” And, Diners Club was in business.
The early Diners Club credit card looked like miniature books. The owner’s name was on the front of the credit card booklet; inside were the names of establishments that had agreed to accept the credit card. Owners didn’t pay any interest or annual fees, but they paid off their entire credit card bill every month.
By 1951, Diners Club had gone international and shown its first credit card related profit. Four years later, the familiar plastic credit card replaced the original paper credit card. In 1950, Diners Club had begun charging an annual $3 fee and had a selection of 300 businesses for over 35,000 credit card holders. By the mid-1960s, restaurants, hotels, airlines, retail shops and the like were happy to accept the Diners Club credit card. The founders’ dream of a universal credit card, used for various purchases all over the world, was being realized.
Diners Club had its imitators. In 1958, American Express issued its own credit card and the Hilton Hotel chain introduced Carte Blanch. All three were known as travel and entertainment credit cards, distinguishing them from another type of credit card, the bankcard.
Seeing Diners Club’s success, banks entered the credit card market during the early 1950s, and by 1955 over one hundred US banks offered credit cards to their customers. They were slowly making money, but they had no national credit card distribution because the law restricted interstate banking. In 1958, the largest US credit card operation belonged to Bank of America, but its BankAmericard could be used only in California.
To expand the newly fledged credit card’s geographical usefulness, Bank of America pioneered the national interchange that would enable all banks all over the country to offer BankAmericard. This credit card association later metamorphosed into Visa.
This move solved the credit card distribution problem. It also prompted large banks in the east to form a rival national credit card network, Interbank Card Association which became Master Charge, and later, MasterCard. Despite initial resistance from department stores, and other house card and charge card issuers, the two credit card associations eventually signed them up in the 1980s. The credit card industry had come of age.
Today, it is a rare business that does not display the Visa and MasterCard logos, along with those of the other credit card companies.
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