The Evolution of Card Payments

We thought it would be interesting to look back at the evolution of cards and payment technologies to understand how we got here, and have a peak into the future.

A Little History of Card Payments

Card payments have become an integral part of our lives, with their convenience and speed, settilng transactions in seconds or less, seemingly like magic. There were approximately 50 billion retail transactions in the EU area alone last year making payments of nearly 40 trillion euro. Sometimes it seems cash is becoming a thing of the past.

We thought it would be interesting to look back at the evolution of cards and payment technologies to understand how we got here, and have a peak into the future.

The Mesopotamians used clay tablets in trade thousands of years ago, and can probably lay claim to be among the first card users! And around the 1800s, merchants used credit coins for credit exchange from local farmers until they collected the profits from their harvests in an early kind of futures exchange.

But the first real step into physical cards came in 1964, when John Biggins launched “Charge Cards” in New York. When a customer made a purchase, money was sent to the bank and merchants were reimbursed afterwards.

    

Then in 1950, Frank McNamara came up with a small cardboard card to pay the bill every month when he forgot his wallet to pay for a business dinner (that old chestnut!)

The Diners club charged customers an annual fee of $3 and restaurants paid a 7% transaction fee. By 1953 this club card became internationally accepted in Canada and the United Kingdom, along with Mexico and Cuba which probably reflects the vacation habits of card holders.

1958: American Express Joined the Competition

In 1958, American Express joined the fray and then launched the first cardboard credit card. With this boom in credit card issuing, legislation came fast. The Truth in Lending Act was enabled to form certain regulations to protect consumers (and lenders to some extent).

(Photo Source: The Cooper Collection of American Transportation History)

1986: The Plastic Card from Sears

In 1960, Forrest Parry invented the first magnetic stripe credit card, and this technology had became standard in the U.S. by 1969.  In 1966, regional banks generated an association called “The Interbank Card Association” to compete with Bank America. It was later renamed ‘MasterCard’.

Magnetic stripe cards had become standardised worldwide by 1971, and further innovations followed, particularly around customer loyalty with American Express creating its credit card loyalty program called “Membership Rewards”.

The Competitive 2000s

The naughties saw fierce competition in the credit card issuing market, and banks made their credit cards increaslingly attractive with many benefits and rewards for cardholders. Customers were introduced to new reward programs, unique card benefits, high welcome incentives, and earning bonuses for spending.

Some programs focussed on high net worth individuals in particular and the Platinum Card, or Black Amex card, became a desirable status symbol.

Interestingly, the travel and card industries realised how closely connected their customers were, and many airline rewards programs were developed with airmiles rewards, something which still happens today.

The Sparkling Era of Credit Cards: 2010s

Chase Sapphire Reserve launched in 2016, consumers were welcomed with 100.000 points as a sign-up bonus and offered $300 worth of flexible annual travel credit. Demand was so high that Chase ran out of the metal cards.

Looking Forward

Card and payment technologies have been evolving since the internet era, and cards themselves have been adapted to facilitate credit transfer online. In the early naughties it was very difficult for online merchants to accept payments, and companies like Paypal arrived to make value transfer easier and more trustworthy. Square, Stripe, Sumup and others have increased the pace of development.

Now we see other technologies particularly blockchain-based services, beginning to offer alternatives. The big issue to solve is that of trust and centralisation. This is something that technology seems to have found a solution to, and only time will tell if it proliferates. Either way, NoFrixion will be working hard to make online and offline payments as ‘friction-free’ as possible.

 

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