Used wisely, credit cards can be a helpful addition to a person's money management. After all, they offer access to instant cash for emergency situations and often come with a whole host of benefits from cashback to airmiles and shopping and travel privileges. But there are just as many tales of woe, as for many that easy access to money is too tempting. The National receives more and more letters every week from readers struggling to repay large credit card debts. So, what is the history behind this financial tool, which is both loved and hated?
1880s - 1900s
American oil companies and department stores began to issue their own cards, which could only be used at the issuing business and in limited locations. In the UK, the first credit voucher product was introduced by Provident Clothing Group in 1880 – customers could use the vouchers to pay at shops on an approved list.
1950
In 1949, so the story goes, businessman Frank McNamara forgot his wallet while out for dinner in New York and had to call his wife to bring him cash. A year later the head of the Hamilton Credit Corporation returned and paid his bill with a ‘card’, literally made out of cardboard – the first universal card, dubbed the Diners Club, available in 27 restaurants to 200 people for a $3 membership fee, with stores charged seven per cent. Within two years, Mr McNamara’s invention had 20,000 cardholders, and it became a plastic card a decade later.
1951
Franklin National Bank in New York began offering loans to approved customers by way of a bank card that they could use for retail purchases. Donald McCullough launched Finders Service as the first UK charge card after a trip to America.
1958
American Express had formed in 1850 as a competitor to the US Postal Service, also offering money orders and travellers’ cheques. Its charge card was launched in 1958 with an annual fee of $6, $1 higher than Diners Club. A million of its cards were in use within five years.
Visa got its start as a bank-issued card the same year, when 60,000 residents of Fresno, California, received an unsolicited, mass-mailed credit card. It was the first to offer a ‘revolving credit’ – ie. not paying the balance off in full each month – with a $300 limit.
1962
Diners Club arrived in the UK following a merger with Finders Services. American Express launched in the UK a year later for applicants earning at least £2,000 (Dh10,591). It worked in 3,000 UK outlets and 83,000 overseas; the Bank of England imposed a limit of £75 on any single item bought abroad.
1966
The Bank of America formed Interbank, a scheme of banks who could use the BankAmericard, renamed the Master Charge card – later MasterCard. Banks who signed up had to pay a small part of their proceeds – the merchant discount – starting at seven per cent. In the UK, Barclays issued the first home-grown credit card, the Barclaycard.
1968
MasterCard and Eurocard joined forces to allow MasterCard access to the European market, and Eurocard to the MasterCard network. The UK Access card was launched in and joined this alliance in 1972 (it disappeared in the 1980s as MasterCard took hold).
1976
BankAmericard became Visa, run by a cooperative of American banks. The name was chosen by the company’s founder, Dee Hock, to be easily pronounced worldwide.
1977
The UK Consumer Credit Act came into force – section 84 limited customer liability to no more than £50 if cards were stolen and used by someone else, while Section 75 gave protection to consumers buying substandard products on their credit card and allowed them to claim compensation from their credit card company.
1978
The Marquette court ruling was the turning point for credit cards, when interstate laws prohibiting a bank in one state from lending money in another were overturned. Many banks set up in Dakota and Delaware, where there were no limitations on interest rates.
1981
Mashreq claims to be the first UAE bank to issue a credit card this year.
1986
Discover, originally part of the Sears group, became a fourth credit card competitor in the US. A 2004 antitrust court ruling, instigated by the US government, allowed banks and card issuers to give customers American Express or Discover as well as the standard Visa and MasterCard.
1987
American Express introduced the Optima card, their first true credit card product – almost 30 years after Visa.
1988
Visa tested the world’s first multi-function chip card, the SuperSmart card, in Japan. France introduced chip and PIN two years later, which started coming to the UK from 2002.
1989
Citibank set up the first reward points scheme with American Airlines.
2009
Credit card use increased dramatically after the global financial crisis, leading to the US passing the Credit Cardholders’ Bill of Rights. It ensures that customers: are given 21 days to pay from the date of a bill being posted; are given 45 days’ notice of increasing rates; can expect low introductory rates to last at least six months; with a poor credit score and low-balance cards do not have excessive fees.
Today
There are now, according to compareit4me.com, some 5.9 million debit and credit cards in circulation in the UAE. Abroad, over 50 per cent of all transactions in the US and UK are made on plastic.
pf@thenational.ae
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