The Future of Credit Cards

When the Franklin National Bank in New York started giving their loan customers cards to buy goods from retailers in 1951, little did they know they had started a revolution in spending. When American Express, a traveller’s cheque company, followed suit with their charge card in 1958, card holders began to enjoy the freedom such cards gave them. Retailers were happy too, as customers tended to spend more when using a card then when using cash.

Bank of America got in on the act in 1959, issuing their BankAmericard, and then licensing the product to other banks by 1966. The same year, a group of four Californian banks set up the rival MasterCharge programme. Bank Americard became Visa in 1976, MasterCharge became MasterCard in 1979 and the two giants of the credit card world have been slugging it out ever since.

The American Express card has survived, but rival competitors have had a hard time breaking the monopoly of the two giants. In the US, the Discover Card, originally part of the retailing giant Sears, has made some inroads into the marketplace, thanks to a 2004 US antitrust ruling. This opened up the market, so that banks could offer an American Express or Discover card as well as a Visa or Mastercard.

Credit cards now offer much more than just credit, from cash-back and reward points to interest free periods and balance transfer deals. Store cards offer shoppers exclusive deals, whilst charities and other institutions from universities to football clubs offer the chance to support them via exclusive cards.

Gone too are the days of dull colours and corporate designs. Today’s credit cards are works of art, decorated with images that the holder can not only choose, but in some cases, provide themselves. Cards not longer have to be rectangular, as card issuers experiment with cut-off corners and see-through segments. It’s interesting that the gold and platinum cards still glisten and gleam in executive’s hands, whilst the rest of us either flash our fancy artwork or hide the tell-tale supermarket logo.

There is no doubt that the credit card revolution has also fuelled the massive growth in internet expenditure. Despite a shaky start, where UK consumers seemed to be very wary of using cards on line because of the risk of fraud, online spending is now booming. Thanks to security initiatives such as Verified by Visa, consumers can buy online with a far higher degree of security. Indeed, one survey suggests that during Christmas 2005, online sales will snatch away 37% of traditional retail trade, costing the high street shops over £9bn.

Figures on credit card expenditure illustrate the massive growth in their use. The average monthly spend on UK credit cards in 2005 was just under £24bn, (at an average interest rate of 15.75%, 11 points higher than base rate). It’s not surprising, since an APACS annual report showed there are more credit cards than adults in the UK, with 190 million cards in circulation – that’s 4.1 cards for every adult. Multiple ownership is also popular; one in ten UK adults hold five or more credit cards. It looks as if the UK is also in denial about its use of their cards: research by Egg Money shows that UK card holders are so unaware of just how much they spend on their cards, they underestimated their expenditure by over £350 a month!

UK personal debt broke the astounding £1.1 trillion barrier in July 2005, and £56.3bn of that was credit card debt. Concerns over people getting into debt has fuelled the creation of a new hybrid card, the Cashplus prepaid MasterCard being one. The spending limit is set at a fixed-prepaid amount, so shoppers cannot overspend their budget, and the card can be topped up from a bank account at cashplus retails outlets and at the Post Office.

There is no doubt that credit card use is now part of everyday life, and with Chip and PIN, set to rise further, but cash is not dead yet! Try buying a newspaper with a credit card…