The Paradox of Plastic Currency: Credit Card Nears to the End of its Reign21 minute read
BankAmeriCard: The First “Card of the People” to Fall to Its Demise
Bank of America wasn’t the first to begin issuing credit cards, but they did get the most attention. BankAmeriCard was established in 1958 as a relatively grand social and economic experiment. The bankers asked themselves, why should people have to pay off the card balance immediately on the first day of the following month? They shouldn’t have to, right? It’s better if they pay interest on the balance to the bank! Everything seemed perfect – the customers get access to a microloan market with an open payment due date and the bank earns a bunch on interest.
Since no similar cards had existed before, people didn’t know to ask for one. So it happened that on one fine day, 60,000 residents of the town of Fresno found that a credit card had landed in their mailbox. This was the first credit card not intended for the wealthy and well off but for the average American.
What the bankers hadn’t thought about was how many of those 60,000 people were actually creditworthy. Many rushed to the shops and restaurants and spent the credit without thinking twice. Then they either weren’t able to or couldn’t be bothered to pay off the balance. The result? The bank suffered massive losses and the project manager was fired.
According to Joe Nocera and his book A Peace of the Action, the project, including its direct and indirect expenses caused the bank to suffer nearly a twenty million dollar loss (in the current currency, this number should be multiplied by about seven). The media chimed in claiming that the people had been offered something they hadn’t asked for. Even the local church minister scolded the bankers for the irresponsible stunt.
The bank drew some harsh conclusions. The existing members of the team were transferred to other positions to keep them from ever coming into contact with credit cards again. Departments were created to deal with fraud and collect debts. The cards of those that refused to pay off their balances were revoked and the stores that were thought to be acting fraudulently were excluded from the programme. Loan specialists took over managing the project.
Looking back, they obviously made the right decision. The bank managed to turn the project profitable by 1961. By 1966, the card had spread across the US, becoming the first credit card that allowed the holder to pay for very different products and services. We know this card well – since 1976, it bears the name VISA.
An equally famous credit card, the American Express, was first issued in 1958. The first cards were printed on paper, but the swap to plastic was made a year later. The material was not only more durable than paper but allowed adopting a far quicker method for processing payments; the card number was pressed into the payment document using the ZipZap press. By 1964, a million American Express cards were being used the world over.
In 1971, American Express implemented another important innovation – the magnetic strip on the back of the card. The strip had been invented a couple years prior by an engineer at IBM and made it possible to use a new generation of card terminals that significantly improved the speed of processing payments at sales points (the time required to send data from the terminal to the company’s authentication centre and receive a reply was around five seconds) and was much safer.
The third big name on the credit card market, MasterCard, was created in 1966 as a joint effort of several Californian banks. The first plastic card was adopted in the UK by Barclay Bank in 1966 and was based on the card issued by the Bank of America.
The debit card was not adopted until the 1980s and was country-specific for a long time. The option of using a debit card to pay for purchases in other countries or online began to become more widespread starting from the year 2000 onward.
What Does the Number on a Card Tell You?
The most widespread credit card companies in the world, VISA and MasterCard, use a sixteen-digit card number, American Express uses a fifteen-digit one. Some credit cards even have a nineteen-digit number. These numbers are anything but random. They reveal a lot to he who knows what to look for.
The first unified standard for numbering credit cards was issued by the International Organization for Standardization in 1989. The standard helped identify the industry, the issuer of the card and the cardholder.
The first number, i.e. MII or the Major Industry Identifier, indicates the industry the issuer of the credit card is active in.
1 and 2 – aviation companies
3 – travel and entertainment industry
4 and 5 – banks and financial institutions
6 – trade and financial institutions
7 – crude oil industry
8 – healthcare and telecommunications
9 – national cards (followed by a three-digit country code)
The first six digits on the card (incl. the MII) identify the organisation that issued the card and are collectively called the Issuer Identification Number (IIN). Although the list isn’t public, Wikipedia claims that the MII on an American Express card is followed by 34**** and 37****, and by 4***** on a VISA card.
The numbers starting from the seventh number on the card up to the penultimate number identify the customer. The last number is a control based on an algorithm patented by former IBM employee Hans Luhn in 1954 that helps identify possible random errors in numbering.