Credit for the idea of credit is given to Cowperthwaite & Sons, of New York City, for being the first large American store to set up “formal” charge accounts payable on a monthly basis. The year—1807!
In 1905, Spiegel began offering everything in its catalog available on credit terms. Sears began adding installment accounts the next year.
The first revolving credit terms
In the late 1930s, John Wanamaker’s began offering revolving credit terms on its Charge-A-Plate accounts. Plateholders were given the option of paying off their balance each month or just a portion of it. Wanamaker’s was the first “credit card” to offer this feature.
In 1955, Diners Club was starting to catch on in a big way. A host of travel and entertainment cards were coming onto the market to try to get their fair share of the new consumer money.
American Express came onto the market in 1958. They were considered as major competitors at the time since they could use the float from their traveler’s check operation to finance their new credit card venture.
The origin of credit cards
Our love affair with credit cards really began in 1950 by businessman Frank McNamara. After eating a meal at a fine New York restaurant he was embarrassed to find he had no cash with him. He had to phone his wife to bring money to pay the bill. Thus the idea of Diners Club was born; the card that started it all.
The first year Diners Club operated it had 200 cardholders that paid $3.00 a year to be able to charge meals at 27 restaurants in New York City. By the end of the second year the company was processing more than a million dollars a year in charges.
The first obstacle Diners Club had to overcome was the reluctance of people to apply for the new card. People couldn’t accept the fact that all they had to do was apply and they’d be accepted there had to be a catch.
The trick was that merchants were charged a 10% discount fee. Each time the card was used merchants would only receive 90% of the actual billing, leaving a healthy profit for a small company with no competition.
Carte Blanche’s advertising promise
One interesting anecdote is about a young man who took up Carte Blanche’s advertising promise to “open up a new and magical world.” The 19 year old, who earned $73 a week, embarked on a $10,000 one month spending spree.
After finally being arrested on his trip, the cardholder wrote a letter to Mr. Hilton, founder of the Carte Blanche card, stating that if Mr. Hilton didn’t clean-up his credit department’s act so that he would find himself bankrupt soon.
The start of bank cards
Bank cards started making their important appearance in 1958 with the introduction of the BankAmericard. BankAmericard was the first bank credit card to turn a profit.
That attracted the attention of other banks around the country and alliances were formed for other institutions to begin issuing BankAmericards.
Wells Fargo Bank declined to join the BankAmericard association and set up its own with 77 others to form Master Charge.
The unsolicited credit cards craze
At around that point, America started becoming credit card crazy. At a time when cards could be sent without consumer approval, five Chicago banks decided to load up the Chicago market with credit cards just before the Christmas shopping season.
Five million credit cards were sent to potential customers. Some people got as many as 15 cards. A dog named Alice was blessed with four accounts in her name!
At this time, banks across the country were pushing out as many credit cards as possible. Their reasoning: They had to make sure there were enough cardholders out there to make it worthwhile for merchants to accept bank cards.
One problem with sending out the unsolicited credit cards were people didn’t know they were supposed to get them. If they never reached the proper hands and fell into use by thieves, cardholders wouldn’t realize it until the first bill came in.
A bill for a card you didn’t request or use was a problem. At that time, you were legally responsible for any charges incurred on a card with your name on it. That’s whether you requested a credit card or not…
Regulating credit cards
In 1970, a law was passed prohibiting credit card issuers from sending cards to those who didn’t request them. But it didn’t really matter. The companies had already saturated the market.
In 1973, the Marquette Bank in Minneapolis became the first bank to charge an annual fee.
The first bank to use the out-of-state direct mail solicitation was Citibank in 1977. Because of Citibank’s success, others followed suit. All the direct mail offers, to give you credit cards, are a result of Citibank’s successful pioneering of the direct mail offer.
Copyright 1991, Greg Tunks
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