Credit Card America

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Of course, credit cards have not only replaced cash for most purposes but also in effect created cash by making it instantly available virtually anywhere. The credit-card cash advance is now as ubiquitous as the automated teller machine. The typical American can have hundreds of dollars in hand at almost any time and place he or she wants it. And lately there have been inroads by debit cards—cards that don’t command credit but that rather write off a purchase against money the cardholder has on deposit in a bank.

The revolution now seems complete. Americans charge two hundred billion dollars a year on their credit cards.

The revolution seems complete. Americans today charge more than $200 billion a year on their credit cards, and fewer than 20 percent of households don’t have any cards. MasterCard alone issues 90 million cards; Visa has even more—138 million—on which cardholders ring up more than $37 billion a year in charges. The Nilson Report, a creditcard industry newsletter, estimates that the banks that issue the cards make a profit of 2.5 percent a year, after taxes, on all the charges.

In the 1980s, as the markets for bank credit cards approached saturation, many issuers began searching for ways to stand out. One was to offer cards bearing the names of specific “affinity groups,” such as alumni clubs, charities, and trade unions. The holder of an affinity card gets to display the logo of the organization represented and knows that the organization will get some slice of the profit each time the card is used. Some of these programs have been extremely popular; many have not. The Bank of New York signed up 1.5 million AFL-CIO members for affinity cards in eighteen months; Chase Manhattan’s Muscular Dystrophy Association card, with a color photograph of Jerry Lewis, was a flop. And this year the MBNA America Bank, of Delaware, began offering cards bearing the holder’s surname—for instance, an “Allen Visa” for people whose last name is Allen. The mailing urged Allens to “Share the Allen Heritage,” suggesting, “If you’re proud of being an Allen, you may now carry a credit card which will display your pride every time you open your wallet.” The card “tastefully showcases the Allen name and earliest coat-of-arms.”

The newest trend in the credit-card business, begun by Sears with the Discover card, is the aggressive entry of nonfinancial companies into the bank-card arena (they can do so only in conjunction with a bank). Several airlines, including United and American, have offered Visas and MasterCards that earn bonus miles with every purchase. Ford, General Electric, and Prudential have likewise issued Visas and MasterCards. American Express introduced the Optima card in 1987, with installment payments and interest charges to compete with the bank cards, and it fixed the interest rate at 16.25 percent, a notch lower than most banks.

 

AT&T joined the fray in March 1990 with its AT&T Universal MasterCard and Visa. The Universal card offered a 10 percent discount on long-distance calls (in the first year of its promotion), but its biggest attraction was that for a while it required no annual fee as long as the card was used at least once a year. AT&T received a quarter of a million inquiries about the card within hours of its introduction, and banks were soon complaining to regulators about unfair competition.

Fair or not, the competition for our credit-card dollars is far from over. A Japanese company has even been quietly test-marketing a credit card of its own in California, adding one more to the twenty-five thousand different cards available in this country. The average American already has a walletful, and with any one of them he or she can command luxuries formerly reserved for the wealthy—and pay the price later. In forty years we have almost all become casual constant borrowers. What Alfred Bloomingdale, then president of Diners Club, predicted in 1960 seems to have come true: an America where “there will be only two classes of people—those with credit cards and those who can’t get them.