Credit Card Origins
A Short History of Credit Cards
In the 1930s, America sped up. The Ford Model T had a death-defying speed of 40 MPH, and suddenly Americans were whizzing everywhere. (Not that kind of whizzing, weirdo.)
Thanks to the Model T, Americans now needed all kinds of stuff for their cars: snazzy driving gloves and glasses, car accessories, and, of course, gas. To keep up with demand, Amoco, Shell, Standard Oil, and Texaco opened up filling stations all across the country. They were all competing for business, which meant that some started offering credit to drivers, letting drivers get their gas right away and pay for it later.
It was only the 1930s, but even then, people were in a hurry.
In 1939, Standard Oil sent out 250,000 paper cards to random Americans, hoping that some of them would use the cards to fuel up at their gas stations.
Other gas stations followed suit, and by the 1940s, aluminum charge plates (aptly named Charga-Plates) were being used. They're collectors items now, but they were changing the world back then.
The Macy's Charge Coin Parade
And it wasn't just the gas stations that wanted to offer credit.
In the 1920s, the company now known as Prince—er, Macy's—lured in its best customers with a "Pay What You Can" promotion. They extended credit to loyal customers, giving these customers special metal coins that quickly became status symbols.
Pretty soon, tons of department stores were designing special charge coins. Gimbel's released its credit charge coins in leather carrying cases, while a department store in Philadelphia had theirs hang from a keychain. They all wanted people to feel special for being able to whip these things out to pay for their purchases.
Charge coins stayed pretty popular through the 1930s, during the Great Depression. Department stores wanted customers to keep buying, even though times were hard and there wasn't much money to be had.
Charge Cards to the (Dinner) Rescue
In the 1950s, things changed.
Before then, charge cards belonged to specific companies or gas stations, and you could only use your card or charge coin at the specific store that issued it. If you defaulted on your charge coin or card, the gas station or department store had to make up the difference.
Then came the epic dinner fail.
Businessman Frankie McNamarra of New York went to a famous Big Apple restaurant and was embarrassed when he realized he had forgotten his wallet. His wife saved his butt by bringing cash to the restaurant, but the experience gave McNamarra an idea that would change the lives of shopaholics forever: a charge card that could be used in different places—not just in one store.
McNamarra invented the Diners Card, a charge card that could be used at New York City restaurants. At first, it could be used in about twelve local restaurants, but soon, Diners Cards were accepted almost everywhere. Once customers started applying for the Diners Card in droves, hotels and travel companies started accepting the card, too. American Express even got in on the bandwagon, offering its own charge card or "member card" to those who qualified.
The important thing about these early cards? You had to pay off the full amount every month—no matter how much you charged. If you charged tens of thousands of dollars in first-class travel tickets, hotels, yacht fuel, restaurant meals, and golf clubs, there was no excuse; you had cut a check and pay for the whole thing. The point was to make shopping more convenient—not to lend money.
Not surprisingly, it made charge cards something of a rich person's accessory.
So how was American Express getting money if they weren't charging interest? Well, they were charging a small processing fee of about 2% to the companies accepting the card. The idea was that the card was making it easier for the customer to pay so it was potentially luring in customers to the store. In turn, the business paid American Express a little extra cash.
Joe Average Gets a Card
Charge cards were great for the rich, but what about people who couldn't pay for all that yacht fuel? Companies and banks soon realized that they could make more money by charging interest to customers who needed short-term loans.
And so credit card associations like MasterCard and Visa were born. These companies charged customers a percentage of their purchases in exchange for giving them the ability to charge money they didn't have. If Bob the Plumber suddenly found that he needed a new transmission and couldn't afford the $1,000, he could just whip out his credit card, pay the whole thing, and then pay the money off gradually over time.
Our credit cards now have fancy chips embedded in them and pictures of our favorite vacay spot on the front, but the idea is pretty much the same.