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50 not out

By Dave Birch posted Sep 18 2008 at 11:23 AM

[Dave Birch] Today is a very important day for us payments nerds. It's the 50th anniversary of the "Fresno Drop". As the folks at Javelin put it...

On Sept. 18, 1958, Bank of America officially launched its first 60,000 credit cards in Fresno, Calif., setting in motion an experiment that changed the American way of borrowing, paying and budgeting.

[From Javelin Strategy and Research ยป Our Credit Card Culture Turns 50]

It certainly did that. 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 a few years ago and still pick up from time to time. If you want to spend five minutes having a quick look at where the modern credit card business comes from, there's a nice writeup over at 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, the "drop" (which is marketing-speak for "mass mailing") was an inventive tactic to give Americans their first highly addictive taste of credit card living. Keep in mind that charge cards in those days--like Diners Club or American Express--were mainly used by jet setters, businessmen on expense accounts, and ladies who lunched... Williams wanted to change that. In September 1958, he mailed out 60,000 credit cards, named BankAmericards, to nearly every household in Fresno. Mind you, these cards arrived in the mailboxes of people who had never seen--let alone applied for--a card like that. But now thousands of ordinary people suddenly found that thousands of dollars in credit had literally dropped into their laps...

[From Just One Word: Plastic How the rise of the credit card changed life for the FORTUNE 500--and for the rest of us. - February 23, 2004]

Go on, go ahead and bore at least one person today with the story of the Fresno Drop. I will.

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 was continue to exist as a product at all, and as late as 1970 there were people predicting that banks would abandon the concept completely. What changed everything was technology: the introduction of the magnetic stripe and Visa's BASE I online authorisation system. This changed the customer experience, transformed the risk management and cut costs dramatically. Everything changed. I can't resist pointing out that it was the London transit system that pioneered the use of magnetic stripes on the back of cardboard cards in a mass market product (seven years earlier, in 1964). The first transaction was at Stamford Brook station on 5th January 1964 [19], well before BankAmericard (the precursor to Visa) introduced their first bank-issued magnetic stripe card in 1972 in conjunction with the deployment of the BASE I electronic authorisation system in 1973. So by my "I have seen the future, and it is the London mass transit system" theory of payments, we should look at what they are doing to see what banks will be doing in a couple of years time.

What they have been doing is contactless. They rolled out the contactless Oyster card system in 2003. So far, 17 million cards have been issued and they are used for 7.2 million journeys every day in London. last year, the banks in the U.K. began rolling out contactless payment cards. So that's a four year lag behind the Underground. Not bad. What are London's transit planners working on right now? Well...


The results of the trial that we worked on with Barclays, TfL and O2 were very, very positive:

Having Oyster functionality on a phone was particularly popular, with 89% saying they were interested in taking this up and 87% deciding that availability of the service would be likely to influence their purchase of a new mobile phone. Around two thirds say using the phone is more convenient than a normal Oyster card and 22% believe the trial actually resulted in them using public transport more.

[From Finextra: London NFC trial shows customers want contactless m-payments]

If the past is any predictor for the future, the future of cards is very clear: there won't be any of them, and we'll be using our mobile phones as a mass market payment mechanism before 2012.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]


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