Credit cards have become ubiquitous in the modern economy, being used for millions of transactions on a daily basis. The number of credit cards in circulation in the U.S. exceeds the nation’s population, with more than 500 million active cards registered to businesses and individuals.
More than 68 percent of the U.S. population has at least one credit card, and these cards have become integral to the economy, providing convenience in purchasing, quick capital for entrepreneurial or scholastic needs and helping to fuel our consumer based economy. While credit has existed for thousands of years, the concept of the credit card is a relatively new innovation. Credit cards have existed for less than a century, but in that time have become a key part of the worldwide economy.
The modern credit card got its start in the 1950s, when the Diners club issued cards to 200 customers, which allowed them to use it to cover charges at 27 restaurants throughout New York. The idea caught on, and in 1958 American Express began offering credit cards, followed by Bank of America, which issued the BankAmericard, the forerunner to Visa, the same year.
The early credit cards were primarily designed for high income customers who frequently traveled and entertained business guests. The early charge cards required members to pay off their entire balances at the end of each month, as opposed to modern revolving balance credit cards which allow customers to carry balances from month to month so long as they make minimum payments.
Credit cards with revolving balances were introduced by American Express in 1959. These cards became popular because they gave customers greater flexibility in managing their money.
The 1960s were a time of growth for credit card companies, as the concept began to catch on with middle America and new innovations were introduced to the market which made credit cards more convenient and accessible to the general public. In 1966, a national credit card system was made possible when some credit-issuing banks joined to together. This alliance made a widespread network of credit card use possible. During the 60s and 70s credit card companies developed standardized rules for maintaining and submitting records of credit card purchases, and a host of companies devoted to managing the vast paper flow created by credit card use (remember, this is before the widespread use of computers for commercial purposes) were born.
By the 1970s, credit card transactions had become a large part of the economy, and the federal government began more stringently regulating the industry. One of the earlier federal regulations was a law banning the mass mailing of active credit cards to people who had not requested them.
In the 1980s and 1990s, computerization and the beginning of the digital age further revolutionized the industry. The quick transmission of data, the reduced need for paper records and the convenience of electronic card readers and scanners created by the Information Age helped credit card companies expand their business by being more accessible to businesses, being able to offer more competitive rates to the average consumer and reducing payment processing costs. It was in the 1980s that the magnetic strip now present on all credit cards first came into use.
The computer age also helped credit card companies refine their businesses by allowing them to better understand their customers. Because computers made it easy for companies to monitor and evaluate customers spending and payment habits through data mining, credit card companies were able to reduce their risks and increase their profits thanks to their greater understanding of groups of cardholders.
The Internet age further fueled the credit card boom by giving consumers a new avenue to use their credit cards. Further advances in information technology also helped increase efficiency for credit card companies. Other technological innovations helped to reduce the amount of credit card fraud being perpetuated by unscrupulous individuals. However, credit card fraud remains a thorny problem for the economy as a whole, resulting in higher costs to consumers as merchants increase their prices to buffer against the risk created by credit card fraud.
Today, credit card transactions account for more than $1 trillion in commerce each year. The economic crisis of 2008-present has resulted in a large number of credit card defaults and there is fear that a massive number of defaults by credit cardholders could plunge the world economy into an depressionary abyss. The U.S. government is beginning to take steps to rein in some of the excesses in the credit and other financial services industries that helped contribute to the current economic crisis.