Trade Finance

Evolution of Credit Cards and Online Banking

Since the early 19th century, businesses and consumers have made use of credit in the place of currency. But credit stretches even as far back as ancient Babylon. History has recorded individuals who set up payments in exchange for goods that they could not afford to purchase outright.

Predecessors to credit cards were charge coins or plates. Coins were issued in the mid-1800s and made of copper, aluminum, steel or other types of metal. Credit coins were most often issued by department stores of hotels with the customer's number and an image of the business displayed on the coin. Charge plates, used into the early 1960s, were made of aluminum or white metal and were inscribed with a customer's name and address. These were offered mostly by department stores in an effort to attract loyal customers. Each of these cards could only be used at the store that issued them. However, by the 1930s, some stores began to accept one another's cards and third-party payments were established, which has served as the primary method of operation for bank credit cards.

In the later 1940s, a banker in New York City developed the first bank card. A customer of the issuing bank could use the card to make purchases and the bill was then forwarded to the bank. The bank then made payment to the business for the purchase and then billed the customer for reimbursement. The bank card was only honored at local businesses. The first actual bank credit card was introduced at a bank in New York for its loan customers and was also only available to the bank's account holders.

The following evolution of the credit card came with the introduction the universal credit card. Used mainly for entertainment and dining purposes, the card could be used at a variety of businesses, unlike its predecessors. At first, payment for any purchases were required to be paid in full when billed to the customer, but this eventually gave way to a system that allowed customers to repay the bill over time. With a favorable reception from the public, the cards were held by 20,000 cardholders shortly after being introduced to the marketplace.

A decade later, the value of plastic credit cards was being recognized by banks and merchants. Businesses in particular noticed that card holders tended to do more business with them than their counterparts who paid by cash or check. The interest rate paid by a cardholder to the bank created additional revenue, as well as the loan coverage fees that were paid by the merchants.

The birth of two of today?s major credit cards came about by a group of banks in California who joined together to create an association. The two major credit cards were operated through a network of banks who were required to be a member of either of the credit cards. Eventually, changes to this requirement gave banks the ability to issue both types of cards to its customers. These associations set regulations and processing systems handling the exchange of money, as well as an arbitration procedure to settle disputes between members.

With the advent of online banking, alternative forms of payment are becoming more prominent as cardholders discover the ease with which they can pay bills, make purchases online and access cash ? all with the use of the credit card.

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