By Ritika Chauhan
When New-York businessman Frank McNamara started his empire of Diner Club in the 1950s, he had equally big dreams for his idea of the credit card as he had for his business. Although various historians have various versions of how the idea of using a valueless instrument to represent value originated in the Mesopotamian civilization, Frank McNamara is the man known to first conceive this idea, by way of a general merchandise card. The first universal credit card, which could be used at a variety of establishments, was introduced by the Diners Club, Inc., in 1950. It was in 1958 that American Express Company came up with a credit card model suited to the travel and entertainment industry such that the credit card company charges its cardholders an annual fee and bills them on a periodic basisusually, monthly, 4-5 percent of the total billings became payable to the credit card issuer as service charge.
Gradual evolution
Among all the models of credit cards launched, Bank of America presented the most innovative model called the Bank Americard. Although it was limited to California first, it gained popularity among all kinds of merchants besides the travel and entertainment industry. By 1966, Bank Americard became the nations first licensed general-purpose credit card and later came to be known as Visa for its growing international presence. At the same time when Visa was growing popular, a group of banks came together to form an association in California to issue the nations second biggest credit card, what we now know as Mastercard.
The way these three mega corporates control the world today is unbelievable. In a survey in 2016, when a payment processor asked a sample of 1000 people what mode did they prefer, more than 40 percent opted for the credit card. The credit card has spread everywhere. With a swipe, any individual just taps into a network based on trust, created by banks themselves. There is no need to have uncomfortable and awkward meetings with bank managers and bank staff to obtain a loan. We can pay for anything and roll the debt over again and again until we are ready to pay at our convenience.
Implications and impact
This kind of luxury is bound to certain psychological impact on its consumers. A few years ago, two researchers from MIT ran an experiment to study this impact. Two groups of people were allowed to bid at an auction separately. The amount with each of them was not clearly mentioned but one group was given a debit card with an ATM close by whereas, the other group was given a credit card. It was found that the money bid at the auction with the group having credit cards was twice of what was bid in the other auction. They were able to conclude that credit cards have brought about a cultural shift among humans.
While credit cards are believed to have brought about the death of cash, the end of their era is not so far as well. The surprisingly high rise in hacking and data breaches experienced recently not only by individuals but larger institutions has highlighted to the consumers the cost and risk of being involved with the credit card industry. However, the card is not being replaced by cash this time. Several alternatives have emerged, offering safer and more convenient alternatives to the cards and this has become another factor responsible for the origin of a cardless society.
Alternatives on the rise
Digital peer-to-peer or P2P payments are becoming increasingly popular because they are able to eliminate high transaction fee and other costs and remain secure at the same time. PayPal has been recognised as the most widely used alternative worldwide. Other globally renowned services include Venmo, Upwork and Fiverr. In India, digital wallets like Paytm and Uber wallets have gained users rapidly. As written by CNN, “Smartphones are emerging as the most promising alternative to credit cards.” Another step towards the end of this era is the growing audience for the cryptocurrency, also known as the electronic currency. Unlike credit cards, they have low transaction fees and don’t require sales tax. They allow the users stay anonymous, providing an added security.
Although it is too early to say that credit cards have completely phased out, one can see that the digital alternatives have figured out the mantra for the same i.e. low transaction, high security and increased convenience.
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