Credit history

Elvis, bubble gum and travelling salesmen. Tom Toulson heads back to the Roaring 20s to discover the origins of the credit card

The concept of credit is nothing new. It was used three thousand years ago in the early civilizations of Assyria, Babylon and Egypt. Pretty much as soon as human beings thought of asking "How much is that?" we figured out how to say "Can I pay you later?" No wonder really. You'd never build anything as big as the pyramids if you had to pay for it all up front in pigs and primitive coins. So credit's been around for a while but what about our little plastic friend the credit card? The answer takes us to that cradle of modern civilisation, the place where Elvis and bubble gum were born. The story of credit cards, like burgers and Rock 'n' Roll, is an American tale. Like all the good American stories it's about cars, travelling salesmen, eating and money.

It begins in the Roaring Twenties. Department stores and hotels start letting patrons pay on credit with little paper cards. Why? Because their customers loved their new cars. They could cross town for a shopping spree. But they couldn't be bothered to jump back in their Cadillacs and drive all the way to the bank to pay for it. So the store card was born.

Banks themselves didn't get in on the act until after the Second World War. In 1946 a Brooklyn banker by the name of John Biggins let his clients run up bills all over town on what he called the "Charg-It" card. They paid him back at the end of every month. It could only be used in Brooklyn and you had to be an account holder with Biggins's bank.

Then in 1949 (or so the story goes) a businessman named Frank X. McNamara was having a lunch with colleagues at Major's Cabin Grill in New York. I like to think the scene went something went like this: They've just finished their burgers and apple pie when Frank realizes to his horror that he's left his wallet in the office, which happens to be half way up a sky scraper. He's not going to make it; he's eaten far too much pie. Can he owe them, he asks? No, he can't. But that's load of baloney! There should be a system by which people who want to have large business lunches but whose wallet wont fit in their pants can pay with credit, some sort of "club card". The people he was eating with agreed and paid the bill. But Frank didn't forget. He found a couple of partners and launched The Diner's Club Card, setting themselves up as creditors. Originally they gave it out to their friends and it was accepted in 27 restaurants in New York. Two years later 20,000 people, mostly salesmen who need to get around and take clients to lunch, were carrying the card.

In 1958 American Express, and Bank of America both launched cards. The latter had the catchy name BankAmericard but was eventually to become Visa in 1977. The next year American Express introduced the first plastic card. All of these cards still worked within a "closed looped" system. The card issuer settled all transactions directly with the buyer and seller and fixed dates for repayment. Each card was tied to a single creditor.

All this changed in 1966. First, Bank of America started to license out their card to the banks. Fourteen of these banks responded by joining together and creating their own Interlink credit card (first called Mastercharge and then, in 1979, the more familiar Mastercard). These cards were not linked to a single creditor, they were "open looped". The customer could also defer payment, which opened up the intoxicating possibility of racking up mountains of debt.

Back home in 1967, while Mick Jagger and co. were doing their best to try and make this country a little more like America, Barclays did their bit by launching the UK's first general credit card. The 1980s saw the British banks generally accepting either Mastercard or Visa. In 1990 a forerunner of chip and pin was introduced in France. Then the real thing was rolled out in 2004, which I'm sure we all remember. I've just about learnt the delicate social etiquette of when to shield you pin-entering fingers and now they're talking about putting cards in phones. This will probably end up with my father (who's only just learnt how to text) accidentally sending me a lot of money, so I'm all for it.

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