History of credit card development

History of credit card development

The development of credit cards can be traced back to the mid-eighteenth century. As early as more than 100 years ago, in the birthplace of credit cards – the United States, Mr. Auther Morris invented the credit card that advertised as “enjoy first, pay later”. However, the cards at that time were made of metal and were issued to a limited number of places. For example, in 1924, the General Petroleum Company of the United States launched an oil credit card for company employees and specific customers, which was regarded as a VIP card and given to customers. As a means of promoting oil, it was later issued to the general public. Due to its good effect, it attracted oil, telephone, aviation, railway, and other companies to join in, and the credit card market began to sprout.

The development of credit cards has suffered two major setbacks. First, during the great economic panic in the United States, many companies suffered losses due to bad debts and credit card fraud. Second, during the Second World War, the Federal Reserve ordered the use of credit cards to be banned during the war. However, these could not stop the development of credit cards later. In 1951, the Diners Card came out, and the prototype of the modern credit card gradually took shape. The card company advances money for cardholders and charges merchants for a handling fee (merchant discount), and then charges cardholders monthly; its business scope has gradually expanded from restaurants to hotels, airlines, and other tourism-related industries and general retail. shop. American Express, with its rich travel experience, began issuing cards in 1959 and expanded its business beyond the United States.

In the 1950s, nearly 100 banks joined the ranks of issuing cards. However, due to their limited business volume, limited to local banks, no annual fee, and high rate of bad debts, many banks were unable to suffer losses and quit one after another. Only small and medium-sized financial institutions survive on the margins of profit. And these surviving banks began to innovate. For example, Bank of America in Los Angeles began to roll out credit cards throughout California in 1959; during this period, the banks offered revolving credit payment methods, allowing cardholders to pay less. With flexibility, banks have more interest income; since then, cardholders have gradually become accustomed to using revolving credit, and credit cards have flourished since then.

The history of chip card development

In the early 1990s, Cartes Bancaires, representing the 11 largest credit card issuing banks in France, was committed to reducing the fraud rate of credit card counterfeit cards and took the lead in opening the world’s first chip card application because magnetic stripe credit cards are easy to be counterfeited, counterfeit cards are rampant, and the industry cannot bear huge losses. For the first time, all magnetic stripe credit cards were converted into chip cards that were difficult to counterfeit, which greatly reduced the credit card fraud rate from 0.3% in 1995 to 0.03% in 1999, and then dropped to 0.02% in 1999, which is much lower than that of foreign magnetic stripe cards. The 0.5% fraud rate in French transactions proves the security features and advantages of chip cards; in addition to France, the United Kingdom, Germany, Italy, Spain, and other countries have followed suit.

In November 1994, the three major international card organizations, VISA International Organization, MasterCard International Organization, and Europay European Payment Company, officially announced the joint development of the international unified standard specification for EMV chip cards, and planned to fully convert them; in December 2004, JCB International Organization also joined EMVCo Inc. In the Asia-Pacific region, Japan issued the first chip card by Sumitomo Mitsui Card in April 2001; Singapore’s first EMV chip card was launched in the second quarter of 2002; Taiwan began to switch since 2001, and the cumulative chip credit card circulation card has been accumulated so far. The number is about 14 million, and the conversion ratio is about 45%; the civilization ratio of the acquiring POS terminal is nearly 100%.

In the early stage of global chip card development, the application scope includes telecommunications, transportation, financial services, etc., but 99% of them are single-function chip cards, such as stored-value electronic cash; only 1% have multi-application functions, and most of them are issued in Europe. Today, the application of chip cards is more expanded and diversified, such as credit cards with bonus points reward function, prepaid stored-value cards as gift cards, contactless chip credit cards – used in convenience stores, fast-food restaurants, gas stations, movie theaters, etc. Small-value transaction venues, as well as built-in payment functions in mobile phones, mobile payment functions that use mobile phones as credit cards or electronic wallets, etc. Among them, contactless chip cards that combine traffic tickets with micro-payment functions are the most popular, such as the Octopus card in Hong Kong, Cardholders can use it to take public transportation and make purchases in stores, successfully bringing convenience to daily life.

By Master James

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