History of the creation of bank plastic cards

How long ago did the idea of ​​payments using bank cards arise?

If we look for an analogy to plastic cards in the distant past, we cannot help but mention the clay “bills” that were used by the inhabitants of ancient Babylon to exchange valuables handed over to the temple for storage for similar valuables in another city. In ancient Greece, “Chirograph” was invented as a means of identifying a person (Greek: “hiro” - hand, “graph” - to write). This is a document of ownership of valuables signed by the owner. To receive money, it was necessary to duplicate the signature.

The world's first bank card was issued in 1951 by the New York Long Island Bank. In the same year, Franklin National Bank of New York released a card with more advanced payment technology, similar to that which is currently used. The bank card allowed its owner to pay at retail establishments close to the bank. 

However, shortly before the advent of bank cards, the first issuer of mass credit cards was the non-bank financial institution Diners Club International, founded on January 28, 1950. In 1949, the three founders of this company, Frank McNamara, lawyer Ralph Schneider and the grandson of the owner of a chain of large supermarkets, Alfred Bloomingdale, in the center of Manhattan, at the Major's Cabin Grill restaurant, came up with a basic scheme of payments between a retail outlet and its client. 

The idea arose when, over dinner, a conversation came up about one of the clients of the financial company Hamilton Credit Corp., owned by Frank McNamara. He said that his client from the Bronx, for a certain percentage, gave his neighbors the right to use his bank account to pay for purchases in stores. This scheme provided the ability to use the bank account holder's creditworthiness to purchase goods from a store by a third party. Store sellers called the account holder and, having received permission over the phone, wrote down the cost of the purchase to his account. An innovation was the presence of a creditworthy intermediary in the payment scheme. They really liked this financial scheme, although it had certain drawbacks..  

Friends called the owner of the Major's Cabin Grill restaurant and asked him the following question:

- How much will you pay for us to provide your establishment with a new client? 

- Seven percent, the restaurant owner answered without hesitation. 

This rate has been used for credit cards for several decades. Much later, when the Diners Club business became successful, the founders of this business asked the owner of the restaurant why he then said exactly 7 percent? To which he replied that the travel agency pays its agents 10% for each new client.  

The idea of ​​the three companions was as follows: the owner of the Diners Club card could freely, at any time, pay at a restaurant using a club card, without having cash with him. The Intermediary promptly paid the cardholder's bills to the restaurant, and at the end of the month the cardholder settled with the Intermediary, paying all bills at once with one bank payment. To attract new clients for the restaurant, the restaurant owner paid the intermediary 7% of the new client’s purchase amount. In addition, the Intermediary received $3 for issuing and servicing the credit card.  

In the first month, credit cards covered about a dozen nearby restaurants and had a turnover of about $2 thousand, and in 1951 the idea brought the company a profit of $61.2 thousand from a turnover of $6.2 million.

Cards were used first made of cardboard, and later, to identify customers, embossed cards with raised font were used, which had already been used previously to pay for gasoline. 

Farrington Manufacturing was the first to produce metal cards back in 1928 - Charga-Plates, on which the card holder’s details were embossed in a special font. This font is still called Farrington 7B. The process of filling out special forms (slips) was accelerated with the help of a device called an imprinter. Using carbon paper and an imprinter, an imprint of the buyer's details was made from a metal card onto the form. The slip served as a kind of check to account for purchases on each card and settlements with the seller.

In 1951, Diners Club gave a license to use its scheme in the UK.. The British company Finders Services is issuing a credit card in Europe for the first time. 

But Diners Club was not the first company to massively use credit cards. 

In 1914, the first cardboard credit cards were provided by Western Union to government employees who were able to send telegrams free of charge, at the expense of the US government.  

But if we talk about bank cards, the founder and ideological father of bank cards is considered to be John Biggins, a consumer lending specialist at the Flatbush National Bank, who in 1946 developed the “ChargeIt” lending scheme, which provides receipts from store customers for purchases, which were then paid for by the bank. This classic chain of operations is still used for payments using a bank plastic card.

The main idea of ​​bank credit cards is that a certain physical medium with the owner’s details (card) is used as an access key to the buyer’s bank account for non-cash payments between the buyer and the seller, bypassing the stage of cash transfer. Moreover, a feature of this calculation was the presence of the bank’s credit function. In case of insufficient funds in the buyer's account, the bank provided an interest-bearing loan to the buyer with a subsequent obligation to return it. 

Let us pay attention to the nuance that in this scheme all participants in the transaction are identified. The bank knows the client and the buyer between whom the settlement is taking place. The buyer and seller establish a partnership using a banking intermediary, who also enjoys a certain creditworthiness and trust of both partners. Each party from this trio “knows” the other two parties to the transaction. This is the very first and simplest stage in the evolution of bank cards, but the evolution of payments using cards still continues...

In 1958, the largest American bank, Bank of America, released a pilot project of the BankAmericard credit card, which competed with the Diner Card. 

Over time, other banking organizations could join the project, so in order not to slow down the international integration of the payment system, later, it was decided to rename BankAmericard to VISA.

The American Express company, which delivers traveler's checks, enters the market of universal credit cards in 1958, and in 1959 cards change from paper to plastic.

In November 1966, Wells Fargo Bank founded the California Bank Card Association and used the name “Master Charge.” And in Europe, in the same year, Eurocard was founded as an alternative to American Express.

In our next review, we will take a closer look at the operators of the international payment systems market and their competition for their market share, and also touch on the issue of types of banking plastic cards and the further evolution of plastic.