海角大神

When聽New York businessman Frank McNamara聽started聽Diners Club聽in 1950, he had big dreams for his new company and the credit card it would issue.

鈥溾�楽omeday,鈥� he predicted, 鈥榬estaurants all over New York will honor this card,鈥欌�� former Diners Club executive Matty Simmons recalled McNamara telling him early on. Simmons recounted the conversation in his book 鈥淭he Credit Card Catastrophe.鈥澛�

At the time, no other company had successfully issued a credit card accepted across several merchants. But聽McNamara was right about the future, and then some. As the first major multipurpose charge card issuer, Diners Club gained widespread acceptance among merchants and paved the way for other issuers. About 72% of U.S. consumers now report carrying a credit card, according to a聽2014 survey聽from the Federal Reserve Bank of Boston, the most recent data available.

An industry is born

The idea of a credit card didn鈥檛 begin with Diners Club 鈥� but McNamara鈥檚 idea was a big improvement on what already existed.

In the 1920s, department stores and oil companies started offering metal charge plates and 鈥渃ourtesy cards鈥� that customers could use to charge purchases, according to聽鈥淧aying with Plastic,鈥� by David S. Evans and Richard Schmalensee. These cards were accepted only by the merchants that issued them, similar to聽modern-day store cards. Restaurants didn鈥檛 even offer such cards.

With its cardboard credit cards, Diners Club aimed for mass acceptance. It charged merchants a 7% fee on each transaction, but assured them that cardholders would spend more than noncardholders. It promised cardholders聽convenience 鈥� only one monthly bill for dining expenses! 鈥� and a status symbol to keep in their wallet. These cards required payment in full each month, so today we鈥檇 call them 鈥渃harge cards.鈥� But at the time, they were called credit cards.

By its first anniversary, Diners Club had attracted 42,000 members and a few competitors. By 1953, it became the first internationally accepted charge card,聽according to the company.

But it wasn鈥檛 until 1958 that聽major companies joined the competition.聽These included American Express, which issued some of the first plastic cards; Bank of America; and Carte Blanche, owned by Hilton Hotels.

Competition heats up

Among the flurry of credit cards launched in 1958, Bank of America鈥檚 was the most innovative. The Diners Club and other cards were only accepted at restaurants and travel and entertainment outlets. But the new 鈥淏ankAmericard鈥� was accepted by several different types of merchants, although it was limited to California at first. It also allowed some customers to revolve balances, a novelty at the time, according to Evans and Schmalensee.

Bank of America introduced the card with an unforgettable 鈥� and incredibly expensive 鈥� publicity stunt: It mailed 60,000 already-activated BankAmericard credit cards to its customers聽in Fresno, California.

Known in the industry as聽the 鈥淔resno drop,鈥� this mass mailing resulted in widespread fraud and delinquencies that cost the bank millions. Despite the losses, the issuer offered the same card to the rest of its California customers聽the following year. In 1961, the card generated聽its first operating profit, according to Evans and Schmalensee.

Card networks spur growth

In 1966, BankAmericard began licensing its cards to banks in other states to scale its business. This allowed out-of-state banks to issue cards that were accepted by merchants that took BankAmericard.聽In the same year, a separate group of California banks started the Interbank Card Association, working together to manage issuer-merchant transactions.

In time, these organizations evolved into two nationwide networks. They now effectively act as middlemen between issuers and merchants, ensuring transactions are legitimate before they get through and working with the merchant banks to complete transactions:

• BankAmericard eventually became Visa, which then聽spun off from Bank of America. (The bank has since revived the BankAmericard name for its credit cards.)聽
• ICA gained more member banks and changed its name to MasterCharge, which聽later became聽MasterCard.

These networks competed for聽issuers鈥� attention while expanding their merchant acceptance.

In the 1970s and 鈥�80s, it made sense to choose a card based on network, since the logo on your card affected where it might be accepted. But as merchant acceptance for both networks became ubiquitous, issuers began adding new perks to their cards to compete.

In 1986, Sears introduced the Discover card, which offered consumers a small rebate on all their purchases, making it one of the first cash-back cards in the U.S. Competition exploded. Issuers that had previously relied on聽their networks鈥� brands to promote聽their cards began offering sign-up bonuses, frequent flier miles, low-interest periods and other enticements.

Regulations catch up

As the credit card industry grew from thousands of cardholders to millions, even some of the most fundamental rules of how credit worked 鈥� say, what a credit card鈥檚 interest rate actually meant 鈥� remained murky.

鈥淚n the wonderland of credit 鈥� the consumer is almost never told of the cost of debt in terms of true annual interest,鈥� author Hillel Black wrote in the 1961 book 鈥淏uy Now, Pay Later.鈥� Lenders used several different methods of calculating interest, some of which disguised exorbitant rates. Some quoted聽monthly interest rates, while others used聽annual rates.

Other problems became apparent. Many cardholders were dogged by fraudulent charges on their accounts, for example. Women generally couldn鈥檛 qualify for a credit card without a male co-signer. Credit card disclosures remained minimal.

Lawmakers stepped in, but not quickly. In 1968, the Truth in Lending Act 鈥� part of the Consumer Credit Protection Act 鈥� standardized methods of calculating annual percentage rates, or APRs. But Congress passed the law only after studying聽the issue for eight years, according to a 1971 article in The Journal of Consumer Affairs.

Throughout the 1970s, more consumer protections聽were added under the Consumer Credit Protection Act. It became illegal to discriminate against credit card applicants because of sex, marital status, race聽or other reasons. Cardholders鈥� liability for fraudulent charges was limited. Better disclosures were required.聽

As the credit card industry rapidly evolved, many of these laws were amended to keep pace with current practices. The聽Card Act of 2009, for example, added to disclosure requirements that already existed and added聽more restrictions to the Truth in Lending Act, among other improvements.

Mobile payments and beyond

Today, credit cards are becoming more about credit and less about cards.

Instead of using plastic cards, many聽consumers are using their smartphones. About 3 in聽4 consumers with a debit card or checking account and a smartphone have made a mobile payment at least once in the past 12 months, according to a 2016 study from聽First Annapolis Consulting. Many more are using credit cards to make purchases online, without ever dipping or swiping their cards.聽

Did McNamara see this coming? Probably not. Before selling his equity in Diners Club in 1952, he predicted the company would 鈥溾�檖eter out at 250,000 members, last for a while, then disappear like the zoot suit,鈥欌�� according to Simmons.

More than 60 years聽later, Diners Club 鈥� now part of聽Discover 鈥� is still around, and the industry it inspired continues to聽grow.

Claire Tsosie聽is a staff writer at NerdWallet, a personal finance website. Email:聽claire@nerdwallet.com. Twitter:聽@ideclaire7.

This story originally appeared on NerdWallet.