- Historic Sites
Credit Card America
How we became a nation of instant, constant borrowers
November 1991 | Volume 42, Issue 7
One of those 27 was BankAmericard. The Bank of America, in San Francisco, took its cue from department-store charge accounts and early on started offering a choice of payment plans. Consumers could pay up in full each month or pay in small monthly installments, plus interest. BankAmericard also pioneered the cash advance. The service charge was high—4 percent per transaction—but the idea of instant cash made the service immediately popular. (Most states later outlawed such high service charges as usurious.)
BankAmericard was soon accepted across California and became the first bank credit card to turn a profit. Bankers from all over the country descended on the Bank of America’s headquarters to learn the secret of its success—so many of them that in 1966 BankAmericard, which would eventually become Visa, began to form alliances with banks outside the state.
In 1966 Chicago banks dumped five million unsolicited cards into the mail. Dead people, babies, and dogs got them.
Bank One, a tiny hundred-million-dollar bank in Columbus, Ohio, was among the first to join up. First National City Bank of New York (now Citibank) had threatened to extend its new Everything Card nationwide, and Bank One feared being squeezed out of the credit-card business by the giant. According to John Fisher, a retired senior vice president, Bank One appealed for help to the Bank of America just as the Bank of America was deciding that a bank card accepted by retailers across the nation might be possible.
It turned out that the two banks used utterly incompatible computer systems. “In order to process BankAmericard charges, we had to go to the gas company in town,” Fisher remembers. “We ran the programs at night for six months when the gas company wasn’t using the equipment.”
Many banks resisted BankAmericard simply because of its name. They weren’t about to give a billboard, however small, to a fellow bank. Some of them took advantage of franchise plans offered by American Express, Diners Club, and Carte Blanche, which gave them a rebate on charges made by their own customers. A more significant challenge was spearheaded by the Wells Fargo Bank, which joined with seventy-seven others to form the Western States Bank Card Association and set up a card network specifically to compete with BankAmericard. The name they chose was Master Charge. They found the name already in use and bought it from its owner, the First National Bank of Louisville, Kentucky, which had itself bought it from a group of local merchants.
At the same time, Marine Midland Bank, in New York, was starting yet another credit-card network, named Interbank, to enable its customers to charge purchases throughout the country. Interbank merged with Master Charge to fight BankAmericard in 1968, and soon after, First National City Bank converted its 1.3 million Everything Card holders to Master Charge. Master Charge was now the biggest bank card in the country.
Not every bank joined the stampede to Master Charge or BankAmericard, at least at first. Five Chicago banks decided to go it alone, and they didn’t take long to regret their decision. Studies had shown that 40 percent of any group of people who received cards in the mail would start using them—far more people than would actually request the cards. So, just before Christmas, 1966, five million credit cards were “put on the air” in Chicago.
Five million holiday credit-card shoppers would undoubtedly have created a bonanza for the banks, but in the rush to get in on this new market, the banks had been less than cautious in assembling their lists. Some families received fifteen cards. Dead people and babies got cards. A dachshund named Alice Griffin was sent not one but four cards, one of which arrived with the promise that Alice would be welcomed as a “preferred customer” at many of Chicago’s finest restaurants.
The First National Bank of Chicago’s holiday ads for its card called it “The Nicest Thing Since Money.” At least one segment of the population wholeheartedly agreed. Hundreds of Chicagoans discovered the truth of that slogan: they could simply use or sell any cards that they “found.” To make matters easier for them, the law at the time held that the person whose name was on a card was liable for all the charges made on it—even if he or she had never requested or received the card.
Other credit-card issuers, including the Bank of America, had done similar mass mailings of cards and were to do so for several years more. Kenneth Larkin, the vice president in charge of BankAmericard’s national roll-out, argued, probably correctly, that it was the only way to initially assure merchants that there would be enough cardholders to make accepting the cards worthwhile. But the disaster in Chicago sparked a movement to regulate the industry.