The First Charge Cards

Charge cards date back to 1914 when Western Union provided metal cards giving free, deferred-payment privileges to preferred customers. These cards came to be called "metal money."

In 1924, General Petroleum Corporation issued the first metal money for gasoline and automotive services first to employees and select customers and later to the general public.

In the late 1930's, American Telephone and Telegraph (AT&T) introduced the "Bell System Credit Card." Soon, railroads and airlines introduced similar cards. Credit cards grew in popularity until the beginning of World War II when "Regulation W" restricted the use of such cards during the war and temporarily suppressed the growth of this new payment alternative.

After the Depression and World War II, modes of travel were more advanced and more accessible to the majority of people, so travel became more popular. People were also beginning to acquire more costly modern conveniences for their homes, such as kitchen appliances and washing machines. These demands on the budget made the concept of credit more popular - people could buy things with credit cards that they could not afford to buy with cash.

Evolution

In 1946, a New York banker developed a credit system called Charge-It. When customers charged local retail purchases, the merchant deposited the charges at Biggins Bank and the bank reimbursed the merchant for the sale. The bank later collected payment from the customer.

In 1951, customers of New York's Franklin National Bank submitted an application for a loan and were screened for credit. Approved customers were given a card they could use to make retail purchases. The merchant copied the customer information from the card onto a sales slip and called the bank for approval of transactions over a certain amount. The bank would credit the merchant account for the loan minus a fee to cover the costs of providing the loan.

Cardholders liked the convenience and the line of credit offered by the new cards. Merchants found that credit card customers usually spent more than if they had to pay with cash. Handling the bank-issued cards was safer for the merchant and less costly than maintaining his own credit program.

By 1959, many banks were offering the option of revolving credit, which allowed customers to make regular payments on the balance owed rather than having to pay off the entire balance at one time.

Bankcard Associations

Bankcard associations began in 1965 when Bank of America formed licensing agreements with other banks. This enabled them to issue BankAmericard and Interchange transactions among participating banks.

By 1966, fourteen US banks formed Interlink, a new association with the ability to exchange information on credit card transactions. In 1967, four California banks formed the Western States Bankcard Association and introduced the MasterCharge program to compete with the BankAmericard program.

As the bankcard industry grew, banks interested in issuing cards became members of either BankAmericard or MasterCharge. Their members shared card program costs, making the bankcard program available to even small financial institutions.

Credit Card Processing

As credit card processing became more complicated, outside service companies began to sell processing services to VISA and MasterCard association members. This reduced the cost of programs for Issuing Banks and Acquirers and increased the size of the bankcard industry.

MasterCharge and BankAmericard developed rules and standardized procedures for handling the bankcard paper flow in order to reduce fraud and misuse of cards. The two associations also created international processing systems to handle the exchange of money and information and established an arbitration procedure to settle disputes between members.

In 1977, BankAmericard became VISA, and in 1979, MasterCharge changed its name to MasterCard.

Both VISA and MasterCard are not for-profit organizations who both issue credit cards and set and maintain the rules for processing. They are both run by board members who are mostly high-level executives from their member banks.