History of Credit Card Processing

Cashless payments for purchasing goods date back to the year 1914. In the US, Western Union came up with metal cards, giving free deferred payment privileges to their preferred customers as a customer service goodwill gesture. This became known as ‘Metal Money’. However this card could only be used for purchases within the stores owned by the company.

Charge cards continued to progress right up till the start of World War 2. Department stores, communication companies, travel companies and oil companies had extended this service to their customers and could only be used through the issuing company. All use of credit and charge cards were later prohibited during World War 2. After the global war, the usage of charge cards became more prominent especially in the travel industry. Banks developed interest in credit cards as it was another profitable approach in the business of lending money.

The earliest credit card was developed by John Biggins in 1946 and was called ‘Charg-It’. This card allowed customers to make purchases at their local retail stores and merchants needed to obtain authorization from the bank before they could close the sale. Biggin’s bank collected the debts from their customers and reimbursed the merchants from the sales made. Other banks nationwide were impressed with the success of the process and begun to offer similar services to their customers shortly after that.

Diners Club introduced their credit card in 1950 for Travel and Entertainment. It was designed specifically to relieve customers from having to carry a large sum of cash when travelling. This was the first card that allowed customers to make charges from a variety of retails outlets. They gave its members up to 60 days to settle payments for their purchases. Diners Club is also considered as the first Acquirer as they were the first to charge their merchants a discount rate from each accepted sale.

In 1958, American Express issued its first card. The card was marketed for Travel and Entertainment along with Diners Club. In the same year, Bank of America also launched their first card called BankAmericard. The card was only issued and accepted in the State of California. They allowed customers to pay their debts in whole or make monthly minimum payments with added interest on the remaining balances.

In 1960, bank card association began to emerge when Bank of America started to issue licensing agreements to other banks across the nation to issue BankAmericards. This was intended to capture a larger market outside of California and allowed the banks to interchange transactions. These participating banks were the first to issue and acquire the same credit card.

In 1966, Competition began to form as 14 banks met in New York to form Interbank Card Association (ICA). It was a new association of banks with the ability to exchange credit card transaction information. Member committees established rules for authorization, clearing, and settlement. They also handled marketing strategies, security and legal aspects. Unlike other organizations, they were never dominated by a single entity. The year 1966 also saw UK launched their first credit card by Barclays named ‘Barclaycard’. This card was based on BankAmericard in the USA but offered very limited international operability.

In 1967, four banks in California known as Western U.S. States Bankcard Association, opened up memberships to other financial institutions in the US. Apart from being its own association, they came up with their credit card and branded it MasterCharge. Western States Bank Card Association, previously purchased the right to use this name from First National Bank, then licensed Interbank Card Association to use the name and logo of MasterCharge in 1968. After being licensed, ICA changed its name to MasterCharge and they began forming a global network by associating with Banco Nacional in Mexico and Eurocard in Europe.

The credit card industry then had a major change in the early 1970’s where electronic authorizations allowed retail merchants to get approvals for credit card transactions 24 hours a day. This also involves streamlining transaction processing and dealing with credit card frauds. By the mid 1970’s, credit card became even more prominent as it expanded worldwide. This lead to the change of name of BankAmericard to Visa and MasterCharge too followed, changing its name to MasterCard. In 1976, National BankAmericard, Inc. changed its name again to Visa USA while the IBANCO association changed its name to Visa International. Thefollowing year, MasterCharge changed its name to MasterCard International.

Electronic processing started to improve in the late 1970’s. Electronic dial up terminals and magnetic strips on the back of credit cards allowed retailers to swipe the customer’s credit card through the dial up terminal, which accessed issuing bank card holder information. Authorizations and settlements were done in minutes.

The early 1980’s also gave birth to the first Automatic Teller Machines (ATMs), which allowed consumers access to cash and to make deposits, 24 hours a day in many countries.

In 1981, a small Hawaiian company named VeriFone made its debut with its first Point of Sale. Two years later, they introduced their ZON terminal which is widely considered the first modern point of sale terminal, setting the standard for all credit card terminals going forward. Up til today, the ZON terminals are still being used, and have created the path for their newer models, Tranz and Omni. From this, Verifone became the world’s largest manufacturer of processing terminals.

In 1982, VeriFone gained a competitor where Hypercom launched their processing terminals in printer and printer-less form. Their T7P and T7Plus terminal was one of the best-selling models in history. Hypercom also came out with their Optimum series which were suited for large customer processing applications.

In 1994, VeriFone and Hypercom got some competition when Lipman Electronics Engineering, Ltd., was established in Israel. Now established worldwide, Lipman knew they had to come up with a different product. They did this by marketing wireless processing terminals as opposed to the wired versions offered by VeriFone and Hypercom. Best known for their Nurit line, their first in this series was the Nurit 2070. Currently the Lipman models most used are the Nurit 8100 and the 8000.