Credit card
A credit card is a payment card, usually issued by a bank, allowing its users to purchase goods or services, or withdraw cash, on credit. Using the card thus accrues debt that has to be repaid later. Credit cards are one of the most widely used forms of payment across the world.
A regular credit card differs from a charge card, which requires the balance to be repaid in full each month, or at the end of each statement cycle. In contrast, credit cards allow consumers to build a continuing balance of debt, subject to interest being charged at a specific rate. A credit card also differs from a charge card in that a credit card typically involves a third-party entity that pays the seller, and is reimbursed by the buyer, whereas a charge card simply defers payment by the buyer until a later date. A credit card also differs from a debit card, which can be used like currency by the owner of the card.
there were 7.753 billion credit cards in the world. In 2020, there were 1.09 billion credit cards in circulation in the United States, and 72.5% of adults in the country had at least one credit card.
Technical specifications
The size of most credit cards is and rounded corners with a radius of conforming to the ISO/IEC 7810 ID-1 standard, the same size as ATM cards and other payment cards, such as debit cards. Most credit cards are made of plastic, but some are made from metal.Credit cards have a printed or embossed bank card number complying with the ISO/IEC 7812 numbering standard. The card number's prefix, called the Bank Identification Number, is the sequence of digits at the beginning of the number that determine the bank to which a credit card number belongs. This is the first six digits for MasterCard and Visa cards. The next nine digits are the individual account number, and the final digit is a validity check digit.
Both of these standards are maintained and further developed by ISO/IEC JTC 1/SC 17/WG 1. Credit cards have a magnetic stripe conforming to the ISO/IEC 7813. Most modern credit cards use smart card technology: they have a computer chip embedded in them as a security feature. In addition, complex smart cards, including peripherals such as a keypad, a display or a fingerprint sensor are increasingly used for credit cards.
In addition to the main credit card number, credit cards also carry issue and expiration dates, as well as extra codes such as issue numbers and security codes. Complex smart cards allow to have a variable security code, thus increasing security for online transactions. Not all credit cards have the same sets of extra codes nor do they use the same number of digits.
Credit card numbers and cardholder names were originally embossed, to allow for easy transfer of such information to charge slips printed on carbon paper forms. With the decline of paper slips, some credit cards are no longer embossed and in fact the card number is no longer in the front. In addition, some cards are now vertical in design, rather than horizontal.
History
Early charge coins and cards
Beginning in the late 19th century, charge cards came in various shapes and sizes, made of celluloid, copper, aluminum, steel, and other types of whitish metals. Some were shaped like coins, with a little hole enabling it to be put in a key ring. These charge coins were usually given to customers who had charge accounts in hotels or department stores. Each had a charge account number, along with the merchant's name and logo.The charge coin offered a simple and fast way to copy a charge account number to the sales slip, by imprinting the coin onto the sales slip. The Charga-Plate, developed in 1928, was an early predecessor of the credit card and was used in the U.S. from the 1930s to the late 1950s. It was a rectangle of sheet metal related to addressograph and military dog tag systems. It was embossed with the customer's name, city, and state. It held a small paper card on its back for a signature. In recording a purchase, the plate was laid into a recess in the imprinter, with a paper "charge slip" positioned on top of it. The record of the transaction included an impression of the embossed information, made by the imprinter pressing an inked ribbon against the charge slip. Charga-Plate was a trademark of Farrington Manufacturing Co. Charga-Plates were issued by large-scale merchants to their regular customers, much like later department store credit cards. In some cases, the plates were kept in the issuing store rather than held by customers. When an authorized user made a purchase, a clerk retrieved the plate from the store's files and then processed the purchase. Charga-Plates sped up back-office bookkeeping and reduced manual copying errors.
Air Travel Card
In 1934, American Airlines and the Air Transport Association simplified the process even more with the advent of the Air Travel Card. They created a numbering scheme that identified the issuer of the card as well as the customer account. This is the reason the modern UATP cards still start with the number 1. With an Air Travel Card, passengers could "buy now, and pay later" for a ticket against their credit and receive a fifteen percent discount at any of the accepting airlines. By the 1940s, all of the major U.S. airlines offered Air Travel Cards that could be used on 17 different airlines. By 1941, about half of the airlines' revenues came through the Air Travel Card agreement. The airlines had also started offering installment plans to lure new travellers into the air. In 1948, the Air Travel Card became the first internationally valid charge card within all members of the International Air Transport Association.Early general purpose charge cards
The concept of customers paying different merchants using the same card was expanded in 1950 by Ralph Schneider and Frank McNamara, founders of Diners Club, to consolidate multiple cards. The Diners Club, which was created partially through a merger with Dine and Sign, produced the first "general purpose" charge card and required the entire bill to be paid with each statement. That was followed by Carte Blanche and in 1958 by American Express which created a worldwide credit card network.BankAmericard and Master Charge
Until 1958, no one had been able to successfully establish a revolving credit financial system in which a card issued by a third-party bank was being generally accepted by a large number of merchants, as opposed to merchant-issued revolving cards accepted by only a few merchants. There had been a dozen attempts by small American banks, but all were short-lived. In 1958, Bank of America launched the BankAmericard in Fresno, California, which became the first successful recognizably modern credit card. This card succeeded where others failed by breaking the chicken-and-egg cycle in which consumers did not want to use a card that few merchants would accept and merchants did not want to accept a card that few consumers used. Bank of America chose Fresno because 45% of its residents used the bank, and by sending a card to 60,000 Fresno residents at once, the bank was able to convince merchants to accept the card. It was eventually licensed to other banks around the United States and then around the world, and in 1976, all BankAmericard licensees united themselves under the common brand Visa. In 1966, the ancestor of MasterCard was born when a group of banks established Master Charge to compete with BankAmericard; it received a significant boost when Citibank merged its own Everything Card, launched in 1967, into Master Charge in 1969.Early credit cards in the U.S., of which BankAmericard was the most prominent example, were mass-produced and mass mailed unsolicited to bank customers who were thought to be low risk. According to LIFE, cards were "mailed off to unemployable people, drunks, narcotics addicts and to compulsive debtors," which Betty Furness, President Johnson's Special Assistant, compared to "giving sugar to diabetics." These mass mailings were known as "drops" in banking terminology, and were outlawed in 1970 due to the financial chaos they caused. However, by the time the law came into effect, approximately 100 million credit cards had been dropped into the U.S. population. After 1970, only credit card applications could be sent unsolicited in mass mailings.
This system was computerized in 1973 under the leadership of Dee Hock, the first CEO of Visa, allowing reduced transaction time. However, until always-connected payment terminals became ubiquitous at the beginning of the 21st century, many merchants accepted all charges, especially those below a threshold value or from known and trusted customers, without verifying them by phone. Books with lists of stolen card numbers were distributed to merchants who were expected in any case to check cards against the list before accepting them, as well as verifying the signature on the charge slip against that on the card. Merchants who failed to take the time to follow the proper verification procedures were liable for fraudulent charges, but because the procedures were cumbersome, merchants often skipped some or all of them and assumed the risk for smaller transactions.
The early credit card industry in the United States was characterized by regional monopolies. Several landmark anti-trust court cases, including the 1978 Supreme Court case Marquette National Bank of Minneapolis v. First of Omaha Service Corp., led to substantial reforms that made the credit card industry more competitive. A 2024 study estimated that these competitive reforms resulted in substantial welfare gains, in particular for the poor.
Development outside North America
The fragmented nature of the U.S. banking system regulation under the Glass–Steagall Act made credit cards an effective way for those who were travelling around the country to move their credit to places where they could not directly use their banking facilities. There are now countless variations on the basic concept of revolving credit for individuals, including organization-branded credit cards, corporate-user credit cards and store cards. In 1966, Barclaycard in the United Kingdom launched the first credit card outside the United States.Although credit cards reached very high adoption levels in the U.S., Canada, the U.K., Australia, and New Zealand during the latter 20th century, many cultures were more cash-oriented or developed alternative forms of cashless payments, such as Carte bleue or the Eurocard. In these places, the adoption of credit cards was initially much slower. Due to strict regulations regarding bank overdrafts, some countries, France in particular, were much quicker to develop and adopt chip-based credit cards which are seen as major anti-fraud credit devices. Debit cards, online banking, ATMs, mobile banking, and installment plans are used more widely than credit cards in some countries. It took until the 1990s to reach anything like the percentage market penetration levels achieved in the U.S., Canada, and U.K. In some countries, acceptance still remains low as the use of a credit card system depends on the banking system of each country; while in others, a country sometimes had to develop its own credit card network, e.g. U.K.'s Barclaycard and Australia's Bankcard. Japan remains a very cash-oriented society, with credit card adoption being limited mainly to the largest of merchants; although stored value cards are used as alternative currencies, the trend is toward RFID-based systems inside cards, cellphones, and other objects.