An early history of transaction processing services. The credit card has become a simple and convenient way of buying products and services worldwide, yet most of us rarely consider the “behind the scenes” aspects of transaction processing services and how it has evolved over time.
As far back as the early 1900’s, department stores began issuing credit to certain customers in order to extend an additional level of customer service and gain loyalty from these valued customers.
The debut of the “Charg-It” card in 1946 was the first bank-sponsored card, issued by Biggins Bank in Brooklyn, New York. The customer would use the card for purchases, the merchant would bill the bank, and the bank would intern bill the customer. This type of transaction processing service, known as a “closed loop system”, was convenient, yet had drawbacks such as only being available to Biggins Bank account holders and only able to be used locally.
After an embarrassing situation in which he forget to bring his wallet to a business dinner he was hosting, Frank McNamera decided there should be an alternative to paying by cash and a better solution to local bank issued credit. In 1949, McNamera created the 1st “members club” card and called it the Diners Club Card. Though technically a credit card, the balance had to be paid in full every month. The Diners Club grew in popularity throughout the 50’s, and in the early 60’s the Diners Club Card became the 1st actual plastic card on the market.
In 1966, Bank of America first introduced the BankAmericard, later to become Visa. About the same time, the Interbank Association (ICA) was created through a cooperative of other credit issuing banks. The ICA was the predecessor to MasterCard Worldwide. These two services became the first “open system” credit card processing services, requiring interbank cooperation and fund transfers.
Throughout the 70’s, Visa and MasterCard standardized the rules and procedures for credit card transaction processing, and were successful in handling exchanges of funds while also keeping fraud to a minimum. Together, they simplified the system, reduced the cost for financial institutions to issue their own cards, and greatly expanded the card payment industry internationally. Both remained the dominant force until the Sears Corporation launched the Discover Card Services brand in 1986 in to compete in the credit services marketplace.
Today, transaction processing services are more sophisticated than ever. Advances in technology ensure protection of both merchants and consumers, yet the simple plastic card with the magnetic strip has changed little in half a century. Although the plastic card is not likely to go away any time soon, there is a lot of time and money being spent on developing the next generation of transaction processing services via the use of a smart phone chip or application. Sooner or later this type of transaction processing will come to fruition. After all, it all began by simply being a convenience to the customer.