From cardboard cards to virtual cards The history of the credit card – and its future

It’s hard to imagine life without credit cards, even if we can now envisage a wallet or purse without one.

by UBS Insights 17 Mar 2022
Image: GettyImages

A credit card is as much an everyday item as a pack of tissues in winter or sunglasses in summer. Or that year-round companion, the smartphone. Credit cards have become increasingly important over time. We take a look at their beginnings.

The origin of the credit card

The history of the credit card begins in 1887 in the utopian science fiction novel “Looking Backward 2000–1887” by American author Edward Bellamy. He describes his characters paying with a “credit card” made of cardboard from which a small piece was cut off every time something was purchased.

After this book’s publication, it seems the desire to make cashless payments started to capture the public’s imagination. Instead of letting clients run up a tab, at the end of the nineteenth century American hotels introduced a type of “delayed payment” by giving their regular guests token coins stamped with the guests’ account numbers. Instead of paying directly, guests identified themselves using the token. This method of payment was the precursor to today's credit card. A short time 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, which was initially valid in 27 New York restaurants. Holders could show their signed cards and then pay the bill at the end of the month, plus a service charge. After just one year, Diners Club already had around 42,000 members. Diners Club Great Britain was established in 1953. This meant the card could be used internationally in restaurants. The founder, Frank McNamara, was able to expand rapidly in the sector 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 became well established in the 1970s through cooperation and takeovers, and are still the world’s main credit card networks.

The credit card becomes popular in Europe

Already widely accepted in America, the credit card didn't catch on in Europe until well into the 1960s when a Swedish bank brought out the Eurocard, which was subsequently taken over by Mastercard in 1968. Nevertheless, the credit card won acceptance more slowly in Europe than in the US. The EC card was a popular alternative to paying by cash right into the 2000s.

Today, credit cards are becoming increasingly popular in Switzerland and there are currently around 8.2 million cards in circulation (as of late October 2021, source: Swiss National Bank (SNB). That’s half as many again as 10 years earlier. At first glance, there are still more debit cards (11.3 million) than credit cards in Switzerland. But if you include the 3.4 million prepaid cards offered by the same issuers, there are no fewer than 11.6 million credit cards. Around 90% of cards are equipped with a contactless payment function, a figure which will continue to increase as old cards are replaced.

The 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. This allows credit cards to be used domestically and abroad wherever they are accepted as a payment method.

The next step was the addition of a chip according to EMV specifications (Europay International, Mastercard and Visa). The advantage of a chip is that unlike the magnetic strip it can be effectively protected against duplication or alteration by means of a technical process.

A further development is the contactless function, which makes payment possible by simply holding the card to the payment terminal using NFC (Near-Field Communication) technology. For amounts up to CHF 80, there is no need to enter a PIN code. This technology is now so advanced that the card can be added to a smartphone or smartwatch. Digital wallets like Apple Pay, Google Pay, Samsung Pay and UBS TWINT, as well as SwatchPAY, Fitbit Pay and Garmin Pay effectively turn smartphones and watches into wallets or purses.

Are our payments still secure? Experts assure us they are. According to credit card providers, accidental payments, for example, when walking past a payment terminal, are prevented by technical means. For payments to be approved, a payment system registered by the credit card companies is required.

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

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

According to the SNB, credit cards were used over 375 million times in Switzerland between November 2020 and October 2021, with a sales volume of almost CHF 28 billion. Over 80 percent of credit card transactions are contactless or digital, meaning a physical card is no longer required. This has led to the introduction of the virtual credit card, which you can order conveniently via the UBS Mobile Banking App or in UBS E-Banking. It makes your wallet or purse that much lighter.

The invisible credit card

The UBS Virtual Credit Card won’t bulk up your wallet or purse, is environmentally friendly and can be ordered in seconds. Are you ready for the future?

A look at the future of credit cards

According to researchers, managers and experts, the coming decade will see further revolutions in the way we make payments. Engineers in the innovation centers of Visa and Mastercard are experimenting with applications in connection with virtual reality and the internet of things – an umbrella concept for technologies built into the global infrastructure of information societies that link physical and virtual objects together. The latter would mean that someone driving to see a movie could buy their ticket directly from their smart car or smart bike while en route to the theater.

Biometric technologies are now very advanced. If, for example, you have added your credit card to a digital wallet, you can authorize payments via face recognition, fingerprint or iris scan. In stores and cafés, a growing number of customers are doing just that.

It’s clear that digital payment and modern payment technologies are increasingly popular. Credit cards will continue to play an important role, though less and less so in plastic form.

As for plastic, a lot has also changed here in recent years. To help the environment, UBS cards are now made from fully biodegradable cornstarch (PLA) wherever possible.