When were credit cards invented?
Credit cards have become an essential part of our daily lives, giving us the flexibility to borrow money and make purchases without physical cash.
The concept of credit cards can be traced back to the 1800s. But the modern credit card, as we know it today, began to take shape in the early 20th century. Now millions of people across the globe own a credit card and use them on a daily basis.
We’ll look at the history of credit cards, advancements in technology, and what’s coming next.
Estimated read time: 3 mins
The history of credit cards
1920s: First charge card
The first known charge card appeared in the 1920s. It was issued by a small hotel chain in New York, allowing guests to charge their meals and accommodation.
1949: First modern credit card
The concept gained momentum with businessman Frank McNamara. In 1949, Frank was dining out with clients at Major’s Cabin Grill in New York when he realised, he’d forgotten his wallet.
To stop this from happening again, he worked with his lawyer, Ralph Schneider, to create a charge account for businesspeople. And the Diners Club was born, allowing cardholders to charge meals at participating restaurants.
1966: Credit cards launched in the UK
Barclays Bank launched the first credit card in the UK in 1966. This card helped people manage their money better and quickly gained popularity.
1987: Debit cards
Debit cards arrived in the UK in 1987 when Barclays launched the Barclays Connect debit card.
2007: First contactless payment in the UK
While the first contactless payment took place in 1995 in South Korea, it wasn’t introduced to the UK until 2007.
2017: Card payments overtook cash payments
In 2017, debit card transactions surpassed cash transactions for the first time.
Advancements in credit card technology
Here are just a few of the developments that have changed credit cards over the years:
Credit reporting and scoring
A good credit score is essential for individuals looking for credit. A higher score increases your chances of approval and getting lower rates.
But where did they come from? Bill Fair, a mathematician, and Earl Isaac, an engineer, created the modern credit scoring system in the 1950s. They formed Fair, Isaac, and Company (FICO) and created the FICO Score, a three-digit number used by lenders to assess borrowers’ creditworthiness.
Industry regulations
Since the introduction of credit cards, industry regulations have made great progress. In the past, many companies denied credit cards based on a person’s background or gender.
Women couldn’t get a card until 1974. Before that, they faced many barriers and needed a male co-signer to get approved. Since their introduction, many laws have come into effect, including:
- The Consumer Credit Act 1974. This law protected consumers and set rules for credit card lenders. In 2006, this Act was updated. It strengthened consumer protections and introduced rules for transparency and dispute resolution.
- The Financial Services and Markets Act 2000. This meant firms now needed approval from the Financial Conduct Authority (FCA). It also established rules for conduct, disclosure, and consumer protection.
- The Consumer Protection from Unfair Trading Regulations 2008. This Act bans misleading or aggressive practices in credit card advertising and sales.
Magnetic strip to PIN authentication
The shift from magnetic strips to PIN authentication was a big step in card payment security. While convenient, the magnetic strip made it easier for criminals to skim and clone cards. While PIN authentication is secure, it’s important to use strong, unique PINs. Avoid using personal info and never share your PIN with others.
Skimming: Skimming is the illegal act of stealing credit and debit card info using hidden devices. These devices are often found on ATMs, point-of-sale terminals, or at petrol stations.
Cloning: This is when a criminal steals card info by copying the data from a legitimate card onto a blank card.
Suspect fraud on your account? At Vanquis, we’re always working hard to protect our customers from fraud.
Rewards schemes
These transformed the way consumers view credit cards. Many credit cards now give points, cashback, or other rewards. These perks encourage smart spending habits. Here are a few types of reward cards:
- Cashback cards offer cardholders a percentage of their spending back as cash rewards.
- Travel reward cards let users earn points or miles when they spend on travel costs.
- Points cards are loyalty cards issued by retailers and banks to encourage customer spending. Customers can earn points to spend later and enjoy exclusive offers.
- Supermarket and retail loyalty cards let shoppers earn cashback and points on what they buy.
Contactless payments
The first contactless payments took place in South Korea in 1995, and didn’t arrive in the UK until 2007. Thanks to contactless payments, customers can make quick purchases without needing their cards.
Contactless credit cards come with enhanced security as they use encryption and tokenisation. This means that sensitive info is not transmitted during transactions.
Tokenisation: Tokenisation is the process of breaking text or data into smaller units known as tokens. These tokens can be words, phrases, or characters, depending on the context.
SMS alerts
Credit card SMS alerts are real-time messages that make you aware of activity on your account. These can help you:
- Be aware of suspicious activity
- Learn about promotional offers
- Track spending
- Get reminders of upcoming bills or credit card payments – helping you avoid late fees or charges
Biometric authentication
Biometrics, like fingerprint and facial recognition, now help to verify people’s identities. This adds that extra layer of security, as you don’t have to use your physical card or share sensitive info.
Virtual cards
When you enter your card details online, you trust the site to keep them safe. Virtual cards offer a different way to do this, helping to stop unauthorised access to your real card info.
Instead of your real card info, you create a random 16-digit number for online use or your digital wallet. This gives extra security for your online credit card purchases.
Mobile wallet compatibility
Using mobile wallet apps, like Google Pay™ and Apple Pay, makes it easy for users to manage credit cards on their smartphones. These wallets encrypt payment info, enhancing security and protect users’ data.
Credit cards – what the future holds
Credit cards have moved on a lot since they first appeared many years ago. From basic charge cards to today’s complex credit options, they’ve drastically changed -and in many ways improved – how we handle our finances.
Looking ahead, credit cards will continue to adapt to meet the needs of customers.
We can expect to see even more improved security features, new biometric innovations and the decline of plastic cards as digital payment becomes the norm.
Plus, there’s likely to be greater integration with new technological advancements, like Open Banking for example. Open Banking tech already allows money-saving apps like Snoop to help users track spending, set budgets, manage and lower their bills, and more.
Innovations like this will hopefully help customers stay on top of their credit cards, as our lives and spending habits change.
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