The credit card has become a hugely popular way of borrowing money thanks to its flexibility and convenience. But when were credit cards first introduced and how did they work? Let’s take a look.
Early forms of credit
Some of the earliest forms of credit were loans from shopkeepers. In America, consumers could run tabs to buy anything from groceries to furniture so that they could pay for them later.
Then, in 1914, Western Union introduced “Metal Money”. These metal plates or cards were issued to select customers and allowed them to defer payments for certain transactions until a later date. During the 1930s through to the 1950s, more and more stores used metal plates or “Charga-Plates”, which allowed customers to pay for purchases in their store in instalments.
The 1930s also saw American Airlines starting to accept payment for flights using the Air Travel Card. This was conceived by the airline and the Air Transport Association as a more convenient way to pay for flights than using cash. The customer also got a 15% discount when they purchased one-way fares.
The Air Travel Card quickly became popular and 17 other airlines soon adopted it. Customers would hand over their card with a mental imprint plate, which contained their account information, and then they signed the receipt for their flights and received their bill later on.
How credit cards first started
Metal plates started to disappear from the market after Brooklyn banker John Biggins invented a new payment method in 1946. Known as the “Charg-It” card, only customers of the bank he was working for (Flatbush National Bank) could use it. As the card was experimental, it could only be used at participating local stores.
When a customer used the card to make a purchase, the merchant would give the customer the items without receiving payment. The merchant would then deposit sales slips at the bank and the bank would reimburse the merchant. A bill would then be sent to the customer to make a payment.
In 1950, a man named Frank McNamara and his business partner Ralph Schneider created the Diners Club card, which became the first universal charge card. The story goes that he came up with the idea after forgetting his wallet when he went out to dinner with friends. The new cardboard card required consumers to pay each month’s statement balance in full.
The first UK credit card
The first UK credit card was introduced by Barclays on 29 June 1966. After seeing the need to make it easier for consumers to buy products and for shopkeepers to sell them, Barclays launched the very first Barclaycard. The idea was to make payments faster, more secure and convenient. Initially, Barclays sent out 1.25 million credit cards to its customers, but after that, credit cards became available by application.
In 1972, the Access credit card was launched onto the UK market, giving Barclays some competition. Having a credit card soon became a status symbol, with young professionals being the first people to really start using them.
How did early credit cards work?
Charga-Plates looked a little like military dog tags and were embossed with the customer’s name and address, and they held a small paper card for a signature. When a purchase was made, the plate was placed on an imprinter containing an inked ribbon and an impression of the embossed plate was recorded onto a paper charge slip. Many stores actually kept the charge plates in a filing cabinet and this would be brought out whenever a customer came in to make their purchase.
This process was not dissimilar to that of the first Barclaycard. The card had the account number embossed on the front and when a payment was made, the number was stamped onto a slip of paper that was then signed by the account holder. The bank would then make 3 copies of this slip – 1 for the bank, 1 for the shop and 1 for the customer.
Growth of credit card transactions
Over the decades, the number of people using credit cards has jumped enormously. But more recently, over the past 5 years, figures show that while the number of credit card transactions has increased in the UK, the number of credit cards being issued has actually started to fall, suggesting that fewer people are now applying for credit cards. You can view the full figures in the table below:
Credit cards today are used by millions of consumers across the world and are used for a range of different purposes. As well as enabling you to spread the cost of an expensive purchase over several months, some credit cards also come with rewards or benefits such as cashback, loyalty points and air miles. Credit limits are often much higher too.
For this reason, consumers today also tend to use credit cards as a long term borrowing solution, rather than a short term one as they originally were designed to be. But borrowing over the long term can become expensive with a credit card. Perhaps this is why the rise of buy now, pay later (BNPL) and credit cards offering instalment plans are posing as a fresh challenge to the credit card market, with more people shunning credit cards in favour of these short term payment solutions.
You can read more about what might happen to credit cards in the future in our recently published white paper.
Ages of UK shoppers that would typically use a credit card for purchases over £100
Response
% of shoppers
55+
50.27%
45-54
17.77%
35-44
14.36%
25-34
9.16%
18-24
8.44%
Source: Finder survey by Censuswide of 2,000 UK shoppers
Frequently asked questions
Credit cards became more widely accepted in the 1960s after Bank of America introduced the first consumer credit card for middle-class consumers and small to medium-sized merchants in the US in 1958.
The modern credit card can be traced back to the founding of Diners Club in 1950. This was the first charge card that could be used to make purchases at a range of retailers.
Visa began its journey first in 1958. Mastercard was formed in 1979, but was originally known as Interbank from 1966 to 1969 and then Master Charge from 1969 to 1979.
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Rachel Wait is a freelance journalist and has been writing about personal finance for more than a decade, covering everything from insurance to mortgages. She has written for a range of personal finance websites and national newspapers, including The Observer, The Mail on Sunday, The Sun and the Evening Standard. Rachel is a keen baker in her spare time. See full bio
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