Ethan Clarke
The history of plastic charge cards can be traced back to the mid-20th century, with the introduction of the Diners Club card in 1950, which is widely considered the first modern charge card. The Diners Club card allowed customers to pay at multiple high-end businesses, first in the United States and later internationally. Early credit cards were made of materials such as celluloid plastic, metal, and cardboard, and the first plastic credit card was introduced by American Express in 1959.
| Characteristics | Values |
|---|---|
| First modern charge card | Diners Club Card, 1950 |
| First plastic credit card | American Express, 1959 |
| First plastic credit card with magnetic stripe | IBM, 1960s |
| First general-purpose credit card | BankAmericard, 1958 |
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What You'll Learn
The Diners Club Card: the first modern charge card
The Diners Club Card is widely recognised as the first modern charge card. The idea for the card came about in 1949 when New York businessman Frank McNamara forgot his wallet while dining out with clients at Major's Cabin Grill in Manhattan, New York. Embarrassed, McNamara decided to create a membership card that allowed restaurant guests to settle their bills monthly instead of carrying cash.
The Diners Club Card was launched on 8 February 1950 when McNamara returned to Major's Cabin Grill and paid with a prototype of the card. The card was initially made of cardboard, charged participating restaurants a 5% to 7% processing fee, and had accumulated around 42,000 users across the United States by the end of 1951. Cardholders could sign up for free, but the company later started charging a $3 annual fee, which soon increased to $5. By the end of 1952, the number of cardholders had more than doubled to 42,000.
The Diners Club Card allowed patrons to charge their meal to the card, with the restaurant sending the bill to Diners Club, who would then send payment directly to the restaurant's bank, taking a small commission for the transaction. Cardholders were required to pay their bill in full each month to Diners Club. The card was first used in 27 participating restaurants, and soon expanded to other establishments, including hotels, car rentals, and flower shops. By 1953, the card began to be used internationally, becoming the first internationally accepted charge card in the UK, Canada, Cuba, and Mexico.
The first plastic Diners Club Card was introduced in 1961, and by the mid-1960s, Diners Club had 1.3 million cardholders.
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The evolution of materials used
The first modern charge card, the Diners Club card, was made of cardboard. It was launched in 1950 and allowed customers to pay at multiple high-end businesses, first in the United States and later internationally. Cardholders were required to pay their bill in full each month.
In 1958, the Bank of America mailed out 60,000 unsolicited BankAmericards, the first general-purpose credit cards that could be used wherever they were accepted. This card could also be carried over into the following month, provided the customer paid the interest accumulated.
In 1959, American Express became the first company to offer a plastic credit card instead of cardboard. By 1961, Diners Club had also started offering a plastic credit card.
Today, most credit cards are made of polyvinyl chloride (PVC) plastic. However, some are made from metal, and the chip part of credit cards is metallic.
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The rise of plastic credit cards
The history of plastic credit cards began in the mid-20th century, with the introduction of the first modern charge card, the Diners Club card, in 1950. This card allowed customers to pay at multiple high-end businesses, first in the United States and later internationally. Within a year, the Diners Club card had around 42,000 users across the United States, proving the concept of credit cards was here to stay.
In 1958, the Bank of America in California launched the BankAmericard, the first general-purpose credit card that could be used wherever it was accepted. It also introduced a key feature of modern credit cards: customers could carry a balance into the following month, provided they paid the accumulated interest. By 1966, the practice had become commonplace as more states licensed the BankAmericard, which was rebranded as Visa in 1970.
In 1959, American Express became the first company to offer a plastic credit card instead of a cardboard one. The addition of a magnetic stripe to plastic credit cards in the 1980s made the payment process faster and more secure for customers and merchants. Electronic credit card readers automatically decode personal and financial information embedded in the magnetic stripe, helping to spread the use of credit cards worldwide.
Today, there are hundreds of types of plastic and metal credit cards, as well as virtual cards that can be stored on smartphones. The design of the credit card itself has become a major selling point, with collectors seeking to collect various embodiments of credit, from early plastic cards to older paper merchant cards and metal tokens.
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The introduction of magnetic stripes
The concept of using coated magnetic stripes to store data is credited to German engineer Fritz Pfleumer in the 1920s. However, it was not until the 1960s that the magnetic stripe card was introduced. This innovation is largely credited to IBM engineer Forrest Parry, who began working for the company in 1957.
Parry is said to have wanted to combine a strip of magnetised tape with a plastic identity card for CIA officials to create a more secure identity card. He couldn't figure out how to do this until his wife, who was ironing clothes at the time, suggested using the iron to melt the strip onto the card. This story is corroborated by IBM itself.
In 1969, IBM engineer Jerome Svigals spearheaded the establishment of standards for magnetic stripe technology. IBM also developed a reliable way of securing magnetic stripes to plastic cards, using a hot stamping process. The magnetic stripe allowed banks to encode card information onto magnetic tape laminated to the back of the card. This made purchasing with credit cards faster and allowed greater use of computers during the process.
In 1970, IBM teamed up with American Airlines and American Express to launch an experimental self-service ticketing system at Chicago's O'Hare Airport. Passengers could use magnetic stripe credit cards at kiosks to make reservations and purchases. This form of credit card technology prevailed for nearly 50 years, but is now being phased out in favour of EMV chips and contactless payment methods.
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Advancements in credit card security
Credit card security has evolved significantly over the years, driven by the need to stay ahead of fraudsters and the emergence of innovative technologies. Here are some key advancements in credit card security:
Magnetic Stripes and Microprocessors: In the 1960s, magnetic stripe technology, also known as "magstripe," was introduced to credit cards. This allowed cards to store user information, banking data, and purchase history, making it easier to detect and prevent fraud. Later, microprocessors were embedded into cards, enhancing security and requiring specialised payment terminals to read the chip.
Chip Technology: The introduction of chip technology, such as EMV (Europay, Mastercard, and Visa) chips, added an extra layer of security to credit cards. These chips generate unique transaction codes, making it difficult for fraudsters to replicate card information. Chip-and-PIN (Personal Identification Number) technology further enhanced security by requiring cardholders to enter a PIN to authorise transactions.
Point-to-Point Encryption (P2PE): P2PE ensures that transaction data is fully encrypted from the point of sale until it reaches a secure environment outside the merchant's network. This prevents cardholder data from being accessible within the merchant's systems, reducing the risk of data breaches and enhancing privacy.
Biometrics and Interactive Payment Cards: Visa and other companies have started incorporating biometrics, such as fingerprint or facial recognition, into card verification processes. Additionally, interactive payment cards with buttons, displays, and LEDs are being introduced, offering dynamic security features and two-way authentication.
EWallet Integration: The development of eWallet applications allows users to store multiple credit, debit, and other cards on their smartphones. These virtual cards provide an extra layer of security by removing the need to expose physical card details during transactions.
Fraud Detection and Prevention: Credit card companies and financial institutions are investing in advanced technologies, such as machine learning and big data analytics, to detect and prevent fraudulent transactions. Purchase alerts and timely reporting of suspicious activities are also encouraged to minimise the impact of fraud.
The ongoing advancements in credit card security aim to protect cardholders' information, prevent fraud, and provide peace of mind to consumers.
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Frequently asked questions
The first plastic charge cards were introduced in 1958 by American Express.
The first plastic charge card was called the American Express card.
The first charge cards were made of cardboard.
The first charge card, the Diners Club Card, was used for dining, entertainment, and travel expenses.
