Credit/Debit/Travel Cards

• Author: Burton Kaliski
• Pages: 175-178

Page 175

Until the 1920s, consumer purchases in the United States were made primarily in one of two ways: cash or personal check. However, in that decade, a new means of payment was introduced—the credit account. While credit transactions had been common for a long time in business to business dealings, they were new to the consumer market. The credit account allowed a consumer to defer payment on a purchase made today to some time in the future: thus, the expression "buy now, pay later" was born. Evidence

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of the credit account typically took the form of a card—the credit card.

Since the 1920s, different types of credit cards have emerged. In addition, related types of cards have also appeared on the consumer scene: the debit card, as well as the ATM card and the smart card, and the travel card and charge card.

CREDIT CARDS

A credit card is a pocket size, plastic card that allows the holder to make a purchase on a credit account that will be repaid at some time in the future. Repayment may be in a single amount or in a series of amounts. At a minimum, the credit card will include identification of the user by name, account number, and signature.

The earliest issuance of credit cards in the United States was by gasoline companies and retail stores. Thus, it was quite common in the first half of the twentieth century to carry a credit card from Esso, Sears, and/or a local department store. These early cards were issued by the private company itself based on the credit policy of that company. Many of the accounts were expected to be paid in the month following purchase. Others were revolving charge accounts in which partial payment was expected every month, with a charge for interest on amounts not paid promptly.

If the balances of the credit accounts were not paid, the issuing firm took the loss. Thus, deciding to issue a credit card was a thoughtful process on the part of the firm. Often, the three Cs of credit were applied to a credit applicant: character, capacity, and capital. Character referred to the record of the applicant in paying previous accounts—his or her credit history. Capacity meant the earnings potential (salary) of the applicant. Capital referred to the net assets (assets minus liabilities) of the person. Obtaining a credit card was far from an automatic process.

Major changes in the nature and types of credit cards occurred in the 1950s. Two types of credit cards emerged in that decade: the charge card and the bank credit card.

The bank credit card expanded the idea of a credit card company to a much broader usage—virtually every merchant...