The history of credit card payments
The history of credit cards goes way back 5,000 years ago to the Mesopotamian era, where inscriptions on clay tablets indicate an account of transactions made between Mesopotamians and their neighbouring countries. This was one of the first examples of an agreement to buy something immediately and pay later.
After thousands of years, these ancient clay tablets influenced the creation of store cards in the American Old West, where the traders would give goods to the ranchers and farmers who did not have the money to pay for them upfront. As proof of purchase, the traders would issue small plates and metal coins; when the ranchers or farmers harvested their product, they would pay.
Early store cards
The first version of store cards was known as a ‘charge plate’ and was distributed by the Charga-Plate bookkeeping system. They looked somewhat like dog tags and were used from the 1930s till the 1950s by department stores, which issued them to their customers. In 1950, Frank McNamara created the first store card to be widely used. After he accidentally left his wallet at home while eating out, McNamara created the now famous Diners Club card in partnership with Ralph Schneider. The modern credit card was born.
Members with this card could charge their purchase to the card at any establishments that were part of the Club, and the establishment would send the invoice to the Club. The Club would send the money to the establishments, keeping a small commission for itself. At the end of the month, the Club members were required to settle their debt to the Club in full. In their first year, the Club included 28 restaurants and two hotels, and boasted about 10,000 members.
First Bank Card
American Express started as a freight transport company, but decided to shift its focus to traveler’s checks and money orders, providing a safe way for their customers to carry large amounts of cash. In 1958, they created their first charge card, enabling their customers to pay their charges monthly in exchange for yearly fees. Businesses that accepted their cards would pay them a percentage of the purchase amount; this is now known as an ‘interchange fee’.
Later, Bank of America took things a step further by distributing a paper BankAmericard. Initially, it gave 60,000 customers in Fresno a limit of $300 and went state-wide in 1966. The first trial was a mistake as rampant fraud was reported and delinquency rates hit 20%. However, as America’s middle class loved the product that gave them instant loans and financial convenience, the concept of a permanent credit card, where users could carry a balance on from month to month, turned out to be a huge success. In 1976, the company changed its name to Visa.
Due to the success of BankAmericard, several Californian banks came together as the Interbank Card Association in 1966, releasing Interbank Card, which later changed its name to Master Charge and ultimately to MasterCard in 1979.
What is the credit card payment system?
The credit card payment system helps businesses accept and process credit cards to charge for goods and services. When a credit card holder makes a purchase, the credit card issuer sends payment on the holder’s behalf, and the holder has a limited time to pay for the bills incurred. This is usually on a monthly basis. The process involves the following:
- The bank issues and activates the card upon the customer’s request.
- The customer fills in the card information on the business site from which he/she wants to purchase services/products.
- The merchant verifies the identity of the customer by asking the card company for permission.
- The card company accepts the card and settles the purchase by credit. The merchant holds the sales invoice.
- The business submits the sale slip to the bank of the customer and has the service charge paid to them.
- The customer’s bank asks the credit card company to clear the credit amount and receives the money.
- The card company asks to clear the money from the customer’s bank and the amount is sent to the card company.
How to set up a credit card payment system
Here’s what you have to do to accept credit card payments:
- Determine the card processor. – Choosing the processor is crucial; choose one with reasonable rates as well as fast and reliable services.
- Consider how you want to accept cards. – Determine the method(s) of accepting credit cards: physically, over the phone, online, or across multiple channels.
- Look into the pricing (fee) structure. – Pick processors that combine great value with small transaction fees.
- Compare quotes. – Regarding the above, request contracts from two or more companies to compare their rates, speed and convenience.
- Review the offer in full. – Always make sure to check the small print for any hidden fees and rates.
Why implement credit cards at your business?
In various forms, credit cards have been one of the most convenient forms of payment practically for thousands of years. As the world evolves, the process of how to set up a credit card payment system is becoming more and more easy. Businesses that offer credit card payments tend to get more customers because credit card payments are very practical both for the customer and the merchant. To learn more about how to set up a credit card system at your store, visit us at Elly POS today.