History of the creation of bank plastic cards (continued).

The process of creating a viable banking product was rapid, but it was not without clouds. We continue the series of publications about bank credit cards and the stages of evolutionary development of this instrument.

After non-bank credit cards, such as Diner Club, American Express and many other cards from large supermarkets that offered loans to their customers, began to gain a place in the sun, banks began to seriously think about their capabilities in consumer lending. They felt strong competition from non-banking financial companies that acted as an intermediary between buyer and seller. A significant drawback in the credit card payment scheme was the mandatory membership in, say, the Diner Club to pay for dinner at a restaurant; American Express - in order to be able to pay while traveling. To get a credit line in a store, you need to become a member of the chain supermarket club. 

Banks tried to take advantage of this drawback and wanted to combine payment for all goods and services in one credit card. 

One of the bank employees of Alexander Kish Jr., who implemented the Charge-It program, talks about his practical experience.  

As we already know from our first publication, the first bank to try to implement this program was Flatbush National Bank. True, he was able to extend his services only to commercial establishments located in his neighborhood. 

At that time, of the available banking products, it was possible to use only a revolving credit line, the so-called “revolving loan”. However, the lending limit was only $500. To get a loan for a larger amount, it was necessary to fill out a whole bunch of bank documents and provide numerous certificates. 

The credit department employee needed to make inquiries to the credit bureau to find out the credit history, contact the employer to confirm the place of work and find out the employee's reputation. Large loan applications were sent to a credit committee, which could reject the documents. This took a lot of time. In other words, you had to prove that you can do just fine without a loan and only then could you get one.. In addition, bank loans had a clear classification: mortgage loans, car loans, home improvement loans, consumer loans, pawnshop loans. The philosophy of bank lending was outdated and needed updating. A new product was needed that could combine different types of credit into one simple way to access a bank loan account. 

Banks saw a profitable prospect in credit cards. There were no analogues of this product yet. At the stage of formation of the banking infrastructure, this enterprise turned out to be not such a profitable business. Alexander Kish talks about how it was necessary to organize a new banking structure for the production of embossed plastic cards. Provide retail outlets with imprinters and forms for slips. It was necessary to install new telephone lines for communication with trading establishments, and entire departments for reconciliation of payments were created, which were supposed to work 24 hours a day and 365 days a year. This approach blurred the line in the established stereotype of “banking workday”.  

A “banking security department” was created to find clients who were avoiding paying interest and repaying the loan. An advertising campaign was launched to promote the banking product. Ads with the logo and information that you can pay with a credit card were posted in retail chains. An increase in sales of banking products required an increase in personnel. According to preliminary calculations, the recoupment of expenses could last for a long 5 years. 

No other new banking product has ever caused such a big stir in banking, notes Alexander Kish in his story. Competing banks immediately felt a threat to their business in the field of retail lending and did their best to counteract their rivals. Bank representatives contacted their clients and demanded repayment of the open line of credit if the clients agreed to use bank credit cards. The American Bankers Association rejected membership of banks that introduced the new product. Such opposition jeopardized the development of bank cards and the increase in the profitable volume of the loan portfolio..

Managers of large grocery stores did not accept credit cards, citing very thin margins on food products. They always asked the question: “How many card holders will there be in my area? Will this benefit me?

Credit managers at large retail stores were particularly vocal opponents of plastic cards. They argued to business owners that using bank loans would take away part of their income and lead to a loss of brand identity and loss of customer loyalty. 

Accountants, fearing the loss of lucrative accounts receivable audits, warned their clients not to give third parties information about their bank accounts. 

There were problems at the legislative level. They tried to limit lending using bank cards by imposing limits on interest rates. Losses from fraudulent transactions were written off to a bank account. All this needed to be regulated at the legislative level.

For the recognition and development of the card industry, the Association of Bank Accounts Charge It was organized, which gradually included more and more banks. It was much easier to solve global legal issues at the legislative level together. 

It took many years before Banks were able to offer a viable banking product that provided instant access to credit, around the clock, virtually anywhere.