Credit cards emerged from department stores and oil companies, not banks

The first credit cards were not invented by a single person or institution. They grew out of two separate industries in the early 1900s. Department stores like Wanamaker's in Philadelphia and Marshall Field in Chicago issued their own cards to regular customers, letting them buy now and settle their bill monthly. Oil companies, particularly Texaco and Gulf Oil, did the same thing — they gave cards to frequent customers so they could charge fuel and pay later.

These early cards were not plastic. They were made of metal, cardboard, or paper, and each store or company issued its own. A Texaco card worked only at Texaco stations. A Marshall Field card worked only at Marshall Field. There was no network connecting them, no central processor, and no way to use one card at multiple merchants. The store or company that issued the card also bore the risk if the customer did not pay.

The shift to the modern credit card system happened in the 1950s, when banks realized they could create a card that worked across many merchants. This required building a network — a system where the card issuer, the merchant, and a central processor all communicated and settled payments. That infrastructure did not exist before.

Key Takeaways

  • Department stores and oil companies created the first credit cards in the early 1900s, each issuing their own card that worked only at their own locations.
  • Diners Club, founded in 1950, was the first card designed to work at multiple merchants across different industries, creating the modern credit card network.
  • Bank of America launched the BankAmericard in 1958, which became Visa and introduced the concept of a bank-issued card that consumers could use widely.
  • Mastercard emerged in 1966 as a competing network, and the two systems — Visa and Mastercard — still dominate the credit card industry today.
  • The technology and rules that govern credit cards today were shaped by decisions made in the 1950s and 1960s about who bears fraud risk and how merchants and banks split fees.

Diners Club created the first multi-merchant card in 1950

Diners Club is widely recognized as the first credit card that worked at more than one merchant. It was founded in 1950 by Frank McNamara, Ralph Schneider, and Matty Simmons. The story goes that McNamara forgot his wallet at a restaurant and had to call his wife to bring cash. He realized that a card accepted at many restaurants would solve that problem.

Diners Club cards were made of cardboard and worked at restaurants and hotels. The company charged merchants a percentage of each transaction — typically around 7 percent — and charged cardholders an annual fee. The cardholder paid Diners Club in full each month; there was no revolving balance or interest charge. Diners Club handled the underwriting, meaning they decided who could get a card and who could not.

Diners Club proved the concept worked. By the mid-1950s, the card was accepted at thousands of merchants. But it remained limited to travel and dining. Banks saw an opportunity to create a card that worked everywhere — grocery stores, gas stations, department stores, pharmacies. That required a different model and a much larger network.

Bank of America launched the first bank-issued card in 1958

Bank of America, based in California, created the BankAmericard in 1958. This was the first credit card issued by a bank rather than a merchant or travel company. The BankAmericard worked at any merchant who agreed to accept it, not just at Bank of America locations. The bank handled the relationship with the cardholder, set the credit limit, and bore the risk if the customer did not pay.

The BankAmericard introduced the concept of revolving credit — the ability to carry a balance from month to month and pay interest on it. This was different from Diners Club, where the full balance was due each month. Revolving credit meant the bank could make money not just from merchant fees but from interest charges on unpaid balances.

Bank of America faced a major problem: it could not process transactions fast enough on its own. It needed other banks to issue the card and other banks to accept it at their merchants. This led to the creation of a network — a system where many banks could participate. In 1966, Bank of America licensed the BankAmericard brand to other banks, and in 1976 it renamed the system Visa.

Mastercard emerged as a competing network in 1966

Mastercard was created by a group of banks that wanted an alternative to Visa. It launched in 1966 as the Interbank Card Association, later renamed Mastercard. The founding banks included Chase Manhattan, Manufacturers Hanover, and Chemical Bank — all major institutions that wanted to issue their own cards but needed a network to process them.

Mastercard and Visa operate on the same basic model: they are networks, not card issuers. Banks issue the cards to consumers. Merchants accept the cards. The network processes the transaction, routes the payment, and settles the money between the bank and the merchant. Both networks charge merchants a fee — called the interchange fee — which is typically 1 to 3 percent of the transaction amount.

The competition between Visa and Mastercard shaped the rules that still govern credit cards today. Both networks set standards for fraud protection, dispute resolution, and what merchants can and cannot do. Both allow banks to set their own interest rates and fees, which is why a Visa card from one bank can have very different terms than a Visa card from another bank.

American Express and Discover created alternative models

American Express, founded in 1850 as a shipping company, entered the credit card business in 1958 — the same year Bank of America launched the BankAmericard. American Express issued its own card and processed its own transactions. Unlike Visa and Mastercard, American Express was both the network and the issuer. It decided who could get a card, set the terms, and handled the payment processing.

American Express cards required the full balance to be paid each month, similar to Diners Club. The company charged merchants a higher fee — often 3 to 4 percent — but offered premium benefits and stronger fraud protection. American Express built a reputation for customer service and for standing behind cardholders in disputes.

Discover Card launched in 1985 as a network owned by Sears. Like Visa and Mastercard, Discover is a network that other financial institutions can use to issue cards. Discover charges lower merchant fees than American Express but higher than Visa and Mastercard, which is one reason fewer merchants accept it. Today, Discover is owned by Discover Financial Services, a publicly traded company.

The rules that govern credit cards today were set decades ago

The structure of the credit card industry — who issues cards, who processes payments, who bears fraud risk, and how fees are split — was largely determined in the 1950s and 1960s. Banks issue cards and lend money to cardholders. Networks like Visa and Mastercard process transactions and set standards. Merchants accept the cards and pay fees to the networks and banks.

One key decision made early was that the cardholder, not the merchant, bears most of the fraud risk. If someone uses your card without permission, you are protected by federal law (the Fair Credit Billing Act) and can dispute the charge. The merchant and the bank work it out between them. This protection is one reason credit cards became so widely used — consumers felt safe using them.

Another early decision was that banks could charge interest on revolving balances. This made credit cards profitable for banks and allowed them to offer cards to people with lower incomes or less established credit. It also meant that credit cards became a form of consumer debt, not just a payment convenience.

Frequently Asked Questions

Who invented the credit card?

There is no single inventor. Department stores and oil companies created the first credit cards in the early 1900s. Diners Club created the first multi-merchant card in 1950. Bank of America created the first bank-issued card in 1958. The modern credit card system evolved from decisions made by these companies and the banks that followed.

Why do Visa and Mastercard exist if they do the same thing?

Visa and Mastercard are competing networks. They both process transactions and set standards, but they are separate companies with different owners and different strategies. Banks can choose which network to use when they issue a card, and merchants can choose which networks to accept. Competition between them has driven innovation and kept fees from rising as fast as they might otherwise.

Is American Express a bank?

American Express is a financial services company, not a traditional bank. It issues its own credit cards, processes its own transactions, and lends money to cardholders. It does not take deposits the way a bank does. American Express operates its own network rather than using Visa or Mastercard.

Why do some merchants not accept all credit cards?

Merchants pay different fees to accept different cards. American Express charges the highest merchant fee, typically 3 to 4 percent. Visa and Mastercard charge lower fees, usually 1 to 3 percent. Discover charges fees between those two. Small merchants sometimes choose to accept only the cards with the lowest fees to keep their costs down.

Can a new credit card company start today?

Creating a new card network is extremely difficult and expensive. It requires building the technology to process billions of transactions, negotiating with thousands of merchants, and convincing banks to issue cards on the network. Visa and Mastercard have such large networks that new competitors face a huge barrier to entry. No major new network has launched since Discover in 1985.