Credit cards were not invented on a blank sheet of paper. They gradually evolved out of the payment card industry and through the growth of consumer credit.
Attitudes towards consumer debt gradually changed throughout the twentieth century. At the beginning of the century it was not seen as respectable to use debt to finance the purchase of consumer goods. It was done, but it was seen as the mark of a respectable person that they did not go into debt. This was not a fixed attitude as it had been acceptable to buy a house with a mortgage (as middle class status was often tied up with property ownership) and in the 1920s with the growth of the motor car and many electrical goods there was a growth of consumer credit.
The immediate predecessor of the credit card was the revolving line of consumer credit. This was a line of credit that many middle class families, particularly those with a salary, or an unstable, sales based income, could buy goods and pay for them later. These lines of credit often interest being charged.
At the same time charge cards were being developed. These cards were not credit cards as we know them now as they were either supported by a bank account or they had to be settled in full when the monthly bill arrived. The first charge card that went beyond a single store was the Diners Club card that was used in New York restaurants, but later spread to restaurants throughout the word. The first Diners Club charge card was made of cardboard.
American Express soon took the idea. American Express had always been an innovator in financial services, and had invented the first travellers’ cheque. The payment card was a natural extension of their existing travellers’ cheque network and American Express started to be accepted in hotels, restaurants and garages around the world which had previously accepted travellers’ cheques.
Marrying the payment card with the revolving line of credit was tried by a number of banks. The first bank to do this successfully was Bank of America in California. They decided to launch their product in Fresno, California where they had a very high market share already. They launched the card by mailing a large cross section of their Fresno customers with a pre-approved credit card. This quickly took off and soon became the VISA card.
The predecessor of the MasterCard was also started in California as competition for Bank of America. This was the first card co-operative (a model VISA would follow) as the constituent banks realised that none of them were big enough to successfully a credit card on their own.
