Credit cards are 62. OK, Boomer.

In their excellent paper “The Ascent of Plastic Money: International Adoption of the Bank Credit Card, 1950–1975” in Business History Review (Issue 92, 2018), Bernardo Batiz-Lazo and Gustavo A. Del Angel state unequivocally what we all know to be true: that the bank-issued credit card marked a turning point in the history of retail payments and most countries saw an explosion in the number of new domestic entrants into “paying with plastic” following the spread of the American pioneer BankAmericard (eg, to Barclaycard in the UK) and its later rival Interbank.

The genesis of that pioneering BankAmericard was the “Fresno Drop”, a day that should be celebrated throughout the financial services sector and every other sector as well. On 18th September 1958, Bank of America officially launched its first 60,000 credit cards in Fresno, California, setting in motion an experiment that changed the American way of borrowing, paying and budgeting.

And, in time, changed everyone else’s way of doing those too.

Now is not the time to go over the whole story, and I am sure most of you are familiar with it anyway, but if you want a good introduction to the history of the credit card, from the Fresno Drop up to the Internet, I’d recommend Joe Nocera’s “A Piece of the Action“, which I read many years ago and still pick up from time to time. On the other hand, if you want to spend five minutes having a quick look at where the modern credit card business comes from, here’s the short version (courtesy of CNN Money)The most extraordinary episode in credit card history is the great Fresno Drop of 1958. The brainchild of a Bank of America middle manager named Joe Williams, he mailed out 60,000 credit cards, named BankAmericards, to nearly every household in Fresno [and] thousands of ordinary people suddenly found that thousands of dollars in credit had literally dropped into their laps…

No applications, no credit scoring, no approval mechanism. Almost every household got one. Each card had a credit limit of $500 (that’s around $5,000 adjusted for inflation). It was an astonishing and audacious experiment.

Windhield

with kind permission of TheOfficeMuse (CC-BY-ND 4.0)

There you go. Now you can go ahead and bore at least one person today with the story of the Fresno Drop. I know I will, because I cover the drop in my book Before Babylon, Beyond Bitcoin, where I point out that what is sometimes overlooked from our modern perspective is that the evolutionary trajectory of credit cards was not a simple, straight, onwards-and-upwards path. For the first decade or so, it was far from clear whether the credit card would continue to exist as a product at all, and as late as 1970 there were people predicting that banks would abandon the concept completely. Margins were thin and as Dee Hock, the visionary founder of the inter-bank organisation that became Visa, wrote in his history of the industry that at the end of the 1960s fraud was spiralling out of control and threatening to kill the industry stone dead. Blank cards were stolen from warehouses, personalised cards were stolen from the mail and organized crime was on the scene.

What changed everything was a combination of regulation and technology: regulation that allowed banks to charge higher interest rates and the technology of the magnetic stripe and computer networks for online authorisation systems. This changed the customer experience, transformed the risk management and cut costs dramatically while simultaneously allowing the banks to earn a profit from the business.

(I can’t resist pointing out that it was the London transit system that pioneered the use of magnetic stripes on the back cards. The first transaction was at Stamford Brook station on 5th January 1964, well before BankAmericard introduced their first bank-issued magnetic stripe card in 1972 ahead of the deployment of electronic authorisation in 1973.)

OK, Boomer

So now they are 62, where do these baby boomers go next? When cards went through middle age they bought the sports car of tokenisation and made some younger friends (Apple Pay and GooglePay). But now, as cards approach their golden years, who are the millennials set to inherit the (less profitable) Earth? Many years ago, I saw Anthony Jenkins (the former CEO of Barclays) give a terrific talk at a product launch in which he predicted that mobile phones were going to replace cards long before they replaced cash, a view echoed earlier this year by Deutsche Bank research in their future of payments study. I think they are right, of course, but what exactly will we use those mobile phones for? Instant credit transfers or digital currency? Request-to-pay and Libra transfer or WeChat message with digital Yuan inside? Bank credit transfers or AmazonAMZN credit transfers?

What seemingly failing financial technology experiment of today will change the world a decade from now because of a combination of regulatory and technological change? Click To Tweet

Remember, it took more than a decade for the Fresno drop to turn into the mass market business, integral to the economy, that we know today. So I cannot resist asking you all what seemingly failing financial technology experiment of today will have an impact of a similar magnitude a decade from now because of a combination of future regulatory and technological change? DeFi or Digital ID? FacebookPay or the Lightning Network?

My guess is that will be something to do with digital asset token trading, but I’d be curious to hear yours.

[An edited version of this piece first appeared in Forbes, 18th September 2020.]

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