Diners Club became the first credit card company in 1950, when it issued a card allowing members to charge meals at 27 New York City restaurants. In 1958, Bank of America issued the BankAmericard (now Visa), the first bank credit card. In 1965, only 5 million cards were in circulation; by 1996, U.S. consumers had nearly 1.4 billion cards, which they used to charge $991 billion in goods annually.
The growth of credit cards has had an enormous impact on the economy—changing buying habits by making it much easier for consumers to finance purchases and by lowering savings rates (because consumers do not need to save money for larger purchases). Oil companies, car makers, and retailers have also used the cards to market their goods and services, using credit as a way of encouraging consumers to buy. Concern has been voiced over widespread distribution of bank credit cards to consumers who may not be able to pay their bills; costly losses and theft of cards; inaccurate (and damaging) credit records; high interest rates on unpaid balances; and excessive encouragement of consumer debt that has cut savings in the United States. Legislation enacted in 2009 (and effective in 2010) imposed restrictions on credit card companies, including restricting how they could raise interest rates and placing limits on the issuing of cards to persons under 21 years of age, and attempted to make credit card bills clearer and more informative.
Technology advances have facilitated the use of credit cards. Recording and confirming purchases made using credit cards has progressed from taking a mechanical impression of the card on a paper slip to reading a magnetic strip and transmitting the data electronically to replacing the strip with smart card electronic chip technology which can in some cases be read using radio-frequency identification. Merchants, who once needed to telephone a bank office for approval, are now connected to banks by modem, so purchases are approved rapidly; on-line shopping on the Internet is possible with credit card payment. An alternative to credit cards is the debit card, which is used to deduct the price of goods and service directly from customers' bank balances, or a mobile payment service, which uses a smartphone app (usually linked to a bank account, debit card, or credit card) to complete a payment.
The Columbia Electronic Encyclopedia, 6th ed. Copyright © 2023, Columbia University Press. All rights reserved.
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