ORIGINAL CREDIT CARDS
G'day folks,
Ever wondered about the first credit card? How many do you own? Better still, how much do you owe?
Charging
for products and services has become a way of life. No longer do people bring
cash when they buy a sweater or a large appliance, they charge it. Some people
do it for the convenience of not carrying cash; others "put it on
plastic" so they can purchase an item they cannot yet afford. The credit
card that allows them to do this is a twentieth century invention.
At the
beginning of the twentieth century, people had to pay cash for almost all
products and services. Although the early part of the century saw an increase
in individual store credit accounts, a credit card that could be used at more
than one merchant was not invented until 1950. It all started when Frank X.
McNamara and two of his friends went out to supper.
The Famous Supper
In 1949,
Frank X McNamara, head of the Hamilton Credit Corporation, went out to eat with
Alfred Bloomingdale, McNamara's long-time friend and grandson of the founder of
the Bloomingdale's store, and Ralph Sneider, McNamara's attorney. The three men
were eating at Major's Cabin Grill, a famous New York restaurant located next
to the Empire State Building, to discuss a problem customer
of the Hamilton Credit Corporation.
The
problem was that one of McNamara's customers had borrowed some money but was
unable to pay it back. This particular customer had gotten into trouble, when
he had lent a number of his charge cards (available from individual department
stores and gas stations) to his poor neighbours who needed items in an
emergency. For this service, the man required his neighbours to pay him back
the cost of the original purchase plus some extra money.
Unfortunately for the
man, many of his neighbours were unable to pay him back within a short period
of time and he was then forced to borrow money from the Hamilton Credit
Corporation.
At the
end of the meal with his two friends, McNamara reached into his pocket for his
wallet so that he could pay for the meal (in cash). He was shocked to discover
that he had forgotten his wallet. To his embarrassment, he then had to call his
wife and have her bring him some money. McNamara vowed never to let this happen
again.
Merging
the two concepts from that dinner, the lending of credit cards and not having
cash on hand to pay for the meal, McNamara came up with a new idea - a credit
card that could be used at multiple locations. What was particularly novel
about this concept was that there would be a middleman between companies and
their customers.
The Middleman
Though
the concept of credit has existed longer even than money, charge accounts
became popular in the early twentieth century. With the invention and growing
popularity of automobiles and airplanes, people now had the option to travel to
a variety of stores for their shopping needs. In an effort to capture customer
loyalty, various department stores and gas stations began to offer charge
accounts for their customers which could be accessed by a card.
Unfortunately,
people needed to bring dozens of these cards with them if they were to do a day
of shopping. McNamara had the idea of needing only one credit card.
McNamara
discussed the idea with Bloomingdale and Sneider and the three pooled some
money and started a new company in 1950 which they called the Diners Club. The
Diners Club was going to be a middleman. Instead of individual companies
offering credit to their own customers (whom they would bill later), the Diners
Club was going to offer credit to individuals for many companies (then bill the
customers and pay the companies).
Previously,
stores would make money with their credit cards by keeping customers loyal to
their particular store, thus maintaining a high level of sales. However, the
Diners Club needed a different way to make money since they weren't actually
selling anything. To make a profit without charging interest (interest bearing
credit cards came much later), the companies who accepted the Diners Club
credit card were charged 7 percent for each transaction while the subscribers
to the credit card were charged a $3 annual fee (begun in 1951).
McNamara's
new credit company focused on salesmen. Since salesmen often need to dine
(hence the new company's name) at multiple restaurants to entertain their
clients, the Diners Club needed both to convince a large number of restaurants
to accept the new card and to get salesmen to subscribe.
The first
Diners Club credit cards were given out in 1950 to 200 people (most were
friends and acquaintances of McNamara) and accepted by 14 restaurants in New
York. The cards were not made of plastic; instead, the first Diners Club credit
cards were made of a paper stock with the accepting locations printed on the
back.
In the
beginning, progress was difficult. Merchants didn't want to pay the Diners
Club's fee and didn't want competition for their own store cards; while
customers didn't want to sign up unless there were a large number of merchants
that accepted the card.
However,
the concept of the card grew and by the end of 1950, 20,000 people were using
the Diners Club credit card.
The Future
Though
the Diners Club continued to grow and by the second year was making a profit
($60,000), McNamara thought the concept was just a fad. In 1952, he sold his
shares in the company for more than $200,000 to his two partners.
The
Diners Club credit card continued to grow more popular and didn't receive
competition until 1958. In that year, both American Express and the Bank
Americard (later called VISA) arrived.
The
concept of a universal credit card had taken root and quickly spread across the
world.
Clancy's comment: The first time I ever saw a plastic card was in Washington DC at 2am in the morning at a whopping supermarket in 1973. Now, they are an accepted part of life. I guess the secret is to use them, not abuse them.
I'm ...
Think about this!
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