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The concept of credit cards began just before World War I,

in 1914, when Western Union provided a deferred-payment service to its most sound customers. It wasn't until 1950 that Diners Club issued the first real "card". This card could be used in a number of different locations.

Quickly the idea caught on and within about a year, banks began providing cards to their customers, and merchants began accepting them for payment. These early cards required payment in full within a short period of time, usually less than 90 days. The income possibilities soon became apparent to the bankers. The financial institutions could simply extend the repayment time, attach an interest rate and over night, a new profit center for New York's Franklin National Bank, in 1951, had introduced the first modern credit card to its customers.

Before 1970, the concept was being quickly accepted. Consumers and the issuing banks were feeling that one bank; one card was not enough. Bank of America solved this by entering into licensing agreements with banks outside California allowing them to issue BankAmericard and interchange transactions among the licensees.

In order to increase usage, a bank card association was started which would change the name to one which was not linked with any one bank. In 1977, the Visa name was adopted, a membership corporation was formed, and Visa, USA was started. At the same time, three different groups of banks that were not franchisees of Bank of America began activities that would later merge to become today's MasterCard International.

Both organizations originally set out signing up member banks to issue cards, enroll merchants, and/or both. Competition was fierce. Banks that offered one card could not handle the other, thus losing money. More importantly, the merchants themselves were being forced to turn down sales from customers who did not carry the same card the merchant accepted.

In 1978 the MasterCard and Visa organizations agreed to a concept of duality, in other words, banks could honor and issue both credit cards.

Distribution of Credit Cards

The initial distribution of credit cards to the consumer verged on a fanatical frenzy. The common theory was that the one who issued more cards wins. As they found out, this was not true. Fraud was extremely high and while technology was not where it is today to prevent fraud, many banks suffered tremendous losses. Consumer groups claimed that the banks unfairly issued cards to non-credit worthy consumers, that is the reason they charged merchandises and did not pay. The banks then took a hard look at what the criterion for approving a consumer and amended the program; this kept the consumer groups happy and lowered the bank losses at the same time.

Travel and Entertainment Cards

Direct competition to bank credit cards was provided by Travel & Entertainment Cards. Of these, American Express is today the strongest. In addition, Diners Club and Carte Blanche, former competitors, were recently purchased by Citicorp and became one. American Express has targeted the marketplace with a "prestige" image, never having a "hard" credit limit. Most banks initially imposed relatively low credit limits to their cardholders in an effort to limit the Card and Visa have since concentrated on increasing credit limits for their credit worthy customers, responding to the AMEX offering. In 1981, MasterCard introduced the Preferred Card, or Gold Card, for preferred bank customers. These credit cards carry a minimum credit limit of $5,000 with the maximum determined by the issuing bank. Visa has a similar card called Visa Gold or Premium Visa. Just as the retailer responds to customer needs to survive and thrive, so does the card Issuers. New card types are being offered and will continue to be offered as the Issuers see fit.

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