This is the equivalent of a store credit card that's not part of a larger payment network. In the late 19th century and early 20th century, companies built on the idea of revolving credit to include a physical object that could be used to easily identify their customer accounts. Some were in the form of coins or medals that included the name and logo of the merchant, as well as the customer's account number.
Just like many credit card transactions in the late 20th century, the merchant would make an imprint of the coin or medal on the customer's sales slip. In the s, these coins and medals evolved into rectangular metal cards called Charga-Plates that looked like something between a credit card and military dog tag.
With consumers carrying around rectangular metal cards that they could use to make purchases, there were just a few things missing before someone could create the modern payment card:. First, someone had to conceive of a financial instrument that could be used to make charges at multiple merchants. This was the first general purpose charge card, but it required consumers to pay each month's statement balance in full.
Later, American Express and others would offer customers to option to carry a balance on their cards. This was the final innovation required to create the financial product that we would recognize as a modern credit card. At first, credit cards worked like the previous medals, coins, and plates. Merchants would simply make an imprint of the card, which would be familiar to anyone who remembers how many credit card purchases were made up until the s. But by the s, many cards started having a magnetic stripe on the back, which could be read by specialized computer equipment that was state-of-the-art at the time.
By today's standards, a magnetic stripe is considered primitive, as the information stored on it isn't even encrypted. Just as imprinting gave way to magnetic stripe readers, credit cards with embedded computer chips are now making magnetic stripes obsolete. These embedded computer chips, called EMV smart chips, allow for encrypted, two-way authentication between a merchant's credit card terminal and the payment processing network. This technology dates back to the s, and it was widely adopted in Europe over the last 20 years.
However, it's only been in the last five years that America has undergone its migration to EMV-equipped cards and readers. The encrypted communications make it far less vulnerable to hackers, while the computer chips are much more difficult for criminals to counterfeit compared to simple magnetic stripes. However, some industry experts suggest that the era of EMV smart chips may be relatively short, as wireless payment technologies are rapidly integrated into smartphones, watches and other wearable platforms.
Finally, many foresee a day when biometric authentication allows consumers to charge purchases using a fingerprint or retinal scan, without having any object that contains their account information. We've come a long way from the days of using metal coins to make charges, and the cards in your wallet may also be obsolete in the near future. Apply for credit cards confidently with personalized offers based on your credit profile.
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If you have a question, others likely have the same question, too. By sharing your questions and our answers, we can help others as well. American Express issued the first plastic card in As a competitor to Diners' Club, the company did very well. Plastic soon became a mainstay. Also in , a new concept was introduced: the concept of the rolling balance, which was revolutionized by MasterCard.
Cardholders didn't have to pay in full each month, but allowing rollover would increase fees. While credit cards started to become common, not everyone could have one in the s. Credit cards began to really take off later on, starting in Sioux Falls, South Dakota, when conventional loans became too highly regulated. In the s, Citibank moved to South Dakota because of its looser laws in combination with what became known as the Marquette decision, which freed up regulations on how much banks could charge their cardholders in interest.
This deregulation allowed more people to get credit cards, and the industry expanded a great deal for better and for worse. While the technology for the so-called "smart card," which has an embedded chip, was developed as early as the mids, it's only now starting to become mainstream. This technology became widespread in Europe in the form of payphone cards as early as the s.
It would be renamed Visa a decade later to acknowledge its growing international presence. Present-day Mastercard competes directly with a similar Visa organization, both of which are run by boards comprised primarily of current and former high-level executives from major corporations.
While banks initially had to choose between the Visa and Mastercard association, changes to association bylaws have since allowed banks to join both associations and issue both types of cards to their customers. See related: How does a credit card transaction work?
As the popularity of bank and nonbank credit cards exploded in the s, so did legislation aimed at addressing consumer complaints against this fast-growing industry. Among the regulatory course corrections:. The six-year litigation ended in when the U.
Passage of the Credit Card Accountability, Responsibility and Disclosure Act of , aka the Credit CARD Act , provided greater transparency for consumers and eliminated or reduced a range of card issuer transgressions involving interest rate hikes, late fees and over-limit fees in the depths of the Great Recession. But some technological changes have emerged as standards. While the vast majority of credit cards still have a s-era magnetic stripe, cards that include a microchip, visible on the front of the card, are now standard.
What will credit cards look like in 25, 50 or years? In fact, many of them now offer virtual credit cards upon request if you want an extra level of security while you shop. The near future likely lies with greater adoption of payments enabled by smartphones and other contactless devices, even as no standard has emerged from all the competing technologies available.
As it has with so many other technologies, when a dominant standard emerges, it will look obvious to all in retrospect. Beyond radio frequency enabled cards, phones and wearables, the next step will be payments made using biometric authorization, such as fingerprints, iris scans and facial recognition. However, challenges still remain. See related: How to protect yourself from credit card fraud.
Judging by the changes we see around us today — from rapidly evolving online and mobile payment technologies to home appliances that monitor and digitally reorder their own contents — card payments will be increasingly integrated into our lives in new and creative ways. But what continues to remain largely the same is your credit card account, regardless of which physical device, if any, is attached to it.
Credit card accounts continue to provide the most secure and convenient method of payment possible. These accounts also offer us unmatched benefits, with many featuring the chance to earn rewards for spending. And of course, credit card users continue to have the option of financing their purchases over time or avoiding interest charges by paying their balances in full.
The laws pertaining to these accounts have undergone legal reform approximately once in every generation, such as the Fair Credit Billing Act of and the CARD Act of The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars.
It has not been provided or commissioned by the credit card issuers.
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