Today, credit cards are one of the most important sources of big bank profits. However, a look at the history of credit cards shows that things weren’t always that way.
While it may seem today that credit is impersonal and calculated, credit was once a privilege built around personal trust and long-lasting relationships. In the late 19th century, stores began offering credit to their best and most trustworthy customers. Instead of paying each time they visited the shop, a regular could defer payments to the future by using store-issued metal coins or plates that had their account number engraved. Shops would record the purchase details, and add the cost of the item bought to the customer’s balance owed.
By the 1920s, shops started issuing paper cards instead of metal plates, but even these became cumbersome. Consumers had to hold different cards for each shop, and this made the sector ripe for disruption.
Diners Club, the first independent credit card company in the world, did just that in the 1950s. Their cards allowed people to make travel and entertainment purchases, even with different vendors.
Bank of America took this idea and ran with it, forever changing the history of credit cards. They launched the “BankAmericard” in Fresno, California, by sending it out to all 60,000 residents at once. Soon all consumers and vendors in the city were using the same card, and the concept of mass-mailing cards to the public spread like a wildfire.
After these risky mass mailings of credit cards eventually culminated in the Chicago Debacle of 1966, they were outlawed in the 1970s for causing “financial chaos”. With no applications required, many people including compulsive debtors, crooks, and narcotics addicts were able to receive easy credit. By the time such mass airdrops became illegal, 100 million cards had already been unleashed on the U.S. population without a need for an application.
In 1976, the BankAmericard system eventually became Visa. It was soon after this point that credit cards would enter their golden age for banks: as savings rates fell in the early 1980s, the interest rates on debt did not. Credit cards became a “cash cow”, and they’ve been a key source of bank profits ever since.
Today, 80% of U.S. households own multiple cards, and they account for just under $1 trillion of consumer debt.
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