From science fiction to high-tech The history of the credit card

It's impossible to imagine a wallet without a credit card. This is its history.

by UBS Insights 20 Mar 2019

Image: GettyImages

The credit card is as much part of our everyday gear as a pack of pocket tissues in winter or sunglasses in summer. Over the decades, the plastic card has grown only more important. Nowadays the future of cashless payment is looking different. Let’s go back to its beginnings.

The origin of the credit card

Its history begins in 1887 in the utopian science fiction novel “Looking Backward” by Edward Bellamy. The American author described his characters paying with a “credit card” made of cardboard from which a small piece was cut off each time something was purchased.

Over time, the desire to pay without cash grew more pronounced in the popular imagination. Instead of letting clients run up a tab, American hotels introduced a type of “delayed payment” toward the end of the nineteenth century. They handed their regular patrons token coins stamped with the guests’ account numbers. Rather than paying directly, regular patrons identified themselves with the token. This method of payment counts as a precursor of today's credit card. Not much later, Western Union began issuing client cards. As more and more companies decided to recognize one another’s client cards, alliances developed.

The credit card's triumphant march across the US

Image: KEYSTONE

Diners Club issued the first true credit card (universal card) in 1950. When it was introduced, it was valid in 27 New York restaurants. Holders could show their signed cards and then pay the bill with a service charge at the end of the month. After the first year, Diners Club had gained about 42,000 members. Diners Club Great Britain was founded in 1953. This meant the card could be used internationally. The founder, Frank McNamara, was able to expand in the sector rapidly before other finance companies brought out cards some years later.

The American Express card, the Mastercard and the Bank AmeriCard – known today as Visa – followed, among others. The latter two established themselves in the ‘70s through cooperation and takeovers, and to this day are the globally dominant credit card network.

The credit card spreads across Europe

Already widely accepted in America, the credit card didn't catch on in Europe until well into the ‘60s. This was when a Swedish bank brought out the Eurocard, which was taken over by Mastercard in 1968. Still, the credit card won acceptance more slowly in Europe than in the US. The EC card remained a widely popular way to pay without cash well into the first decade of the twenty-first century.
Today, the credit card is becoming increasingly popular in Switzerland. Nationally, around 6.8 million cards are in circulation. According to the current Swiss Payment Monitor, 83% of respondents use a credit card.

Technological development of the credit card

The technology used in credit cards has continued to evolve. The first giant step was the uniform magnetic strip, introduced in 1980. Thanks to it, the credit card can be used nationally and internationally wherever it is accepted.

The next step was equipping the card with a chip to EMV specifications (Europay International, Mastercard and Visa). One advantage: in contrast to the magnetic strip, is that the chip can be effectively protected against duplication or alteration by means of a technical process. “Wireless” cards are another innovation. Using Near Field Communication (NFC), they allow you to pay by simply holding your card out. And for sums up to 40 francs, you don't even have to enter your PIN. Technology is far enough advanced today to let you link your credit card with your smartphone. Thanks to payment apps, wearables like Fitbit watches or SwatchPay can be turned into wallets.

But is paying with them still secure? Experts offer reassurance. According to credit card provider Visa, the technology prevents accidental payments – while passing by a card reader, for example. For payments to be approved, a payment system registered by the credit card companies is required.

What's more, contactless payment only works if the card is held very close to the reader. Other cards or coins in your wallet also make access more difficult, even from the shortest distances. And a stolen card cannot be used to make an unlimited number of NFC payments.

Do you want to learn more about NFC security measures?

Our experts explain why security is self-evident with an NRC card.

A variety of security mechanisms are available to make credit cards secure. For example, users can confirm online purchases via the UBS Access App, preventing possible misuse.

A peek into the future of credit cards

If we’re to believe researchers, managers and experts, how we pay will change radically in the coming decade. Engineers in the innovation centers of Visa and Mastercard are experimenting with applications for virtual reality and the internet of things – an umbrella concept for technologies built into the global infrastructure of information societies that link up physical and virtual objects into a network. The latter would mean that someone driving to see a movie could buy their ticket directly in their smart car while still on route to the theater.

Researchers continue to work on biometric technologies. Paying by fingerprint is already established, thanks to mobile pay technology. Facial recognition could soon replace the PIN code. A growing number of clients in China pay in shops and cafés with their “face.”

What's become increasingly clear: Digital payment and modern payment technologies are currently a hot trend. Who knows how long plastic cards may still exist. The credit card (of the future) is high-tech.