The first credit cards emerged in the 1920s as a convenience for regular customers
Credit cards did not arrive all at once. The earliest versions were straightforward charge plates — metal or cardboard rectangles issued by individual stores to their best customers, letting them buy now and settle the bill monthly. Department stores like Filene's in Boston and Gimbels in New York issued these in the 1920s. A customer would hand the plate to a clerk, who would imprint the customer's name and account number onto a sales slip. The store kept a record and sent a bill at month's end.
These store cards worked only at that one store. A customer who shopped at five different places needed five different cards. The real shift came when someone figured out how to make a card that worked everywhere — and that required a middleman to may provide the payment.
Key Takeaways
- The first credit cards were store-specific charge plates issued in the 1920s by department stores to regular customers.
- Diners Club, founded in 1950, was the first card that worked at multiple merchants and created the modern credit card model.
- Bank of America launched BankAmericard in 1958, which became Visa and introduced the revolving credit system that lets you carry a balance.
- MasterCard emerged in 1966 as a competitor to Visa and operates on the same network principle.
- American Express, founded in 1958, operates differently — it is a charge card, not a credit card, and requires full payment each month.
Diners Club created the first multi-merchant card in 1950
The story goes that Frank McNamara, a businessman, forgot his wallet at a restaurant in 1949 and had to call his wife to pick him up. He decided there had to be a better way. The next year, he and his partner Ralph Schneider launched Diners Club, the first card that worked at multiple restaurants and hotels.
Diners Club worked differently from store plates. The company signed up merchants — restaurants, hotels, shops — and issued cards to members. When a member used the card, the merchant would call Diners Club to verify the account, then submit the slip for payment. Diners Club would pay the merchant (minus a fee) and bill the member. This three-party system — cardholder, merchant, and card company — became the blueprint for all credit cards that followed.
Diners Club cards were charge cards, not credit cards. Members had to pay the full balance each month. The card was a status symbol and a convenience, not a way to borrow money.
Bank of America introduced revolving credit with BankAmericard in 1958
Bank of America saw an opportunity. In 1958, they launched BankAmericard in California, a card issued by a bank rather than a standalone company. The crucial difference: cardholders could carry a balance and pay interest on it. You no longer had to pay in full each month. This was the birth of the modern credit card.
BankAmericard grew slowly at first. Banks were skeptical. Customers were skeptical. But the model worked. By the mid-1960s, other banks wanted in. Bank of America licensed the BankAmericard system to banks across the country, creating a network. In 1976, the card was renamed Visa, and it became the largest card network in the world.
The revolving credit feature changed everything. It made credit cards a lending tool, not just a payment convenience. It also made them profitable for banks, which earned interest on the balance. This is why credit cards became so widespread — banks had a financial reason to push them.
MasterCard launched in 1966 as a rival network
As Visa (then BankAmericard) grew, other banks formed their own network. In 1966, a group of banks created MasterCard (originally called Interbank Card) to compete. MasterCard operated on the same principle as Visa: a network of banks that issued cards and a system of merchants that accepted them.
For decades, Visa and MasterCard have been the two dominant networks. Both allow revolving credit, both charge merchants a fee, and both make money from interest and fees. The competition between them drove innovation — rewards programs, fraud protection, and better technology all came partly from each trying to outdo the other.
Today, Visa and MasterCard together process the vast majority of credit card transactions in the United States. They do not issue cards themselves; they operate the networks. Banks issue the cards and set the terms.
American Express operates as a charge card company, not a network
American Express was founded in 1850 as a shipping and financial services company. It issued its first charge card in 1958, the same year Bank of America launched BankAmericard. But American Express took a different path.
American Express cards are charge cards, not credit cards. The company issues the card directly to the customer, and the customer pays American Express directly — not through a bank network. Most American Express cards require you to pay the full balance each month, though some newer products allow a balance. American Express also sets its own merchant fees and has stricter standards for who can hold a card.
This model made American Express a prestige card. It was harder to get, more expensive to use (higher annual fees), and accepted at fewer places. But it also meant American Express had tighter control over the customer experience and could market itself as exclusive.
The shift from physical cards to digital payments
For most of the credit card era, the physical card was the only way to use it. You handed it to a clerk, who swiped it or imprinted it. In the 1980s and 1990s, magnetic stripe technology made swiping faster. In the 2000s, chip technology made cards more find.
Now the card itself is becoming optional. You can store your card information on your phone and pay with a tap or a scan. Apple Pay, Google Pay, and similar services let you use your credit card without pulling out the physical card. The card networks (Visa, MasterCard, American Express) still process the transaction, but the customer-facing experience has changed completely.
The underlying system, though, is still the same as it was in 1950: a cardholder, a merchant, and a middleman that guarantees the payment and takes a cut.
How credit card networks make money
Understanding who invented credit cards also means understanding how they work as a business. The card networks — Visa, MasterCard, American Express — make money in three ways.
First, they charge merchants a fee every time a card is used. This fee, called the interchange fee or merchant discount, is usually 1 to 3 percent of the transaction. The merchant pays this to the bank that issued the card. Second, the card-issuing bank charges the cardholder interest on any balance carried month to month. Third, many cards charge annual fees to the cardholder.
This three-way split — between the network, the issuing bank, and the cardholder — is why credit cards became so profitable and why they spread so quickly. Every party had a financial reason to participate.
Frequently Asked Questions
Did credit cards exist before the 1920s?
Not in the form we recognize. Some stores issued charge plates or tokens in the late 1800s, but these were primitive and store-specific. The first true credit card — a card that worked at multiple merchants and was backed by a company that may provide payment — was Diners Club in 1950.
Why did Bank of America's BankAmericard become so dominant?
BankAmericard introduced revolving credit, which let customers carry a balance and pay interest. This made the card profitable for banks and more flexible for customers. Banks wanted to issue cards because they made money from interest. Customers wanted cards because they could borrow. The combination made it unstoppable.
Is American Express a credit card or a charge card?
American Express is primarily a charge card company, meaning most of its cards require full payment each month. However, American Express has introduced some products that allow you to carry a balance. The distinction matters because charge cards do not build credit history the same way credit cards do.
Do Visa and MasterCard issue cards?
No. Visa and MasterCard are networks, not banks. They set the rules and process transactions, but they do not issue cards or lend money. Your bank issues the card and decides the terms. Visa and MasterCard make money from the fees merchants pay and from the interest banks earn on balances.
Why are there so many different credit cards if Visa and MasterCard dominate?
Because banks issue the cards, not the networks. Your bank can issue a Visa card with any terms it wants — any interest rate, any annual fee, any rewards program. The network just handles the transaction. This is why you see hundreds of different Visa and MasterCard products from different banks.