It all began when Frank McNamara, an American businessman, was entertaining clients at a New York restaurant and realised he had forgotten his wallet, and had no way to pay the bill.
His blushes were spared when his wife drove in with the cash, but the incident got Mr McNamara thinking, and so, 75 years ago this week, the credit card was born.
After a year in the planning, on February 6, 1950, Mr McNamara went back to Major’s Cabin Grill, again without any cash. This time, when the bill arrived he produced from his wallet a now familiar rectangle of plastic. Except it was initially made of cardboard.
With his partners, who included the department store heir Alfred Bloomingdale, Mr McNamara had created Diners Club, a network of restaurants who would accept the card in lieu of cash, along with the owner’s signature. Intended at first for use only in New York and by a select group of members, the idea expanded rapidly. Within a decade Diners Club had over a million members – and used plastic cards.
Paying using a universally accepted card rather than bulky cash or even a cheque was a revolution. Diners Club was actually a charge card, meaning the entire account had to be settled at the end of the month, rather than charging interest on outstanding balances.
Visa and Mastercard join the club
It was only eight years later that Bank of America launched its BankAmericard, with high street clout so powerful that traders could not afford to refuse it. And if you didn't pay the balance in full at the end of the month, interest was initially charged at around 12 per cent.
Bank of America also established its own clearing house, which it named Visa, offering services to other banks which wanted their own credit cards. A rival service was launched in 1966 and named Mastercard. Between them, Visa and Mastercard now have over 2.3 billion credit cards in circulation.
American banks at first posted unsolicited cards to customers almost at random and without credit checks. This was a new wild west of credit, in which cards were placed in the hands of what Time magazine described in 1970 as "unemployables, drunks, narcotics addicts". President Lyndon Johnson's special assistant Betty Furness likened it to "giving sugar to diabetics".
Symbolic of modern culture
Even when some order was restored with new regulations in the 1980s, the cards remained astonishingly popular and profitable, at least for the issuers – some cards now have interest rates of over 30 per cent. Rates have doubled in the past 10 years to an average APR (annual per cent rate) of nearly 23 per cent.
Global estimates are hard to come by but credit card balances owed by customers in the United States stood at $1.1 trillion (a thousand billion) at the end of 2023, or nearly $3,000 (Dh11,000) for every man, woman and child. In the United Kingdom, the value of credit card transactions in fees and interest was calculated at £13.8 billion (Dh62.70 bn) for 2022.
So ubiquitous and all-conquering has the credit card become that a Sharia-compliant credit card issued by HSBC in the UAE was chosen by Neil MacGregor, who was at that time director of the British Museum, for his 2010 radio series 100 Objects that Changed the World. He called paying with plastic the "ultimate symbol of triumphant consumer culture".
What does the future hold?
But 15 years after that series, and 75 years after its birth, the credit card’s future is less certain. “The whole payments landscape globally continues to be shaped and changed by what the technology of the day is,” Pete Wickes, general manager for Europe, the UK and the Middle East at Worldpay, said. “If you think about the rise of analogue technology, this was really the moment and rise of credit cards.“
“The emergence of the internet brought the arrival of new payment methods that were leveraged on the back of the credit cards,“ he added. “If you look at the digital innovations that continue to produce different types of payment methods, I would say that the future evolution of a credit card really resonates from what it is the consumers actually want.”
Worldpay’s global payment report found that nearly a third of store transactions are now made using a smartphone digital wallet such as Apple Wallet, Google Pay or Alipay, which is widely used in Asia. Within two years, that number is expected rise to nearly 50 per cent.
The plastic card, Mr Wickes predicted, will increasingly be kept at home, and instead we will think more in terms of an all-encompassing digital wallet. In the UAE, Worldpay’s figures show take-up of digital wallets lags behind the global average; they are used in less than a quarter of transactions, but by 2027 this is expected to rise to over 40 per cent.
“What you are effectively seeing there is, while credit cards will still be used and will not become exclusively digital, they are starting to change,” Mr Wickes said. “I think in 10 years they’ll still be here but will be even more limited. I think at some point some of the issuers will effectively issue a digital wallet on application.”
Tucked inside a digital wallet, the credit card will still have an important function. As well as being a line of credit, they will lure customers with benefits like rebates, airline points, airport lounge access and other discounts. Perhaps most importantly, credit cards offer a degree of consumer protection against loss that bank debit cards and account transactions do not have.
For the 21st-century consumer, the worry now is not leaving your wallet at home, but finding the battery is dead on your smartphone.
