Plastic Cards
Credit cards are a huge phenomenon: there are nearly a billion such cards in the hands of consumers, which are used for nearly a trillion dollars in consumer purchases each year, and it has grown rapidly in the past few decades. Until the 1970's, vey few individuals had credit cards at all; and in the present day, most consumers have at least three cards, and use them extensively.
The evolution of credit cards required a monumental effort. Individual consumers had to be convinced to use credit cards rather than cash or checks for purchase. Merchants had to be convinced to invest in the necessary infrastructure to accept them. Banks had to be convinced to invest in issuing them. And all had to be willing to do so in significant enough numbers, all at once, or the introduction of the credit card would have failed.
The nature of the transaction, which now seems very straightforward, is very complex when compared to cash transactions (value is transferred immediately) or even to a check transaction (value is transferred through one intermediary): there are many intermediaries, and a breakdown at any point fouls the entire chain of events.
In addition to providing a means of tender, credit cards enable the consumer to finance a transaction: to obtain a good or service immediately and pay for it later, often over time, and to accumulate large amounts of debt in small increments.
And on top of all of that is the regulatory layer: legislative and law enforcement bodies that regulate the use of credit, for better and for worse.
In all, the phenomenon of consumer credit is highly complex and seemingly very fragile, and the author seems to marvel at its ability to come into existence at all in the face of such adversity.
The Credit Card
The credit card is physical artifact that contains information pertaining to a credit account: the accountholder's name, and expiry date, and a sixteen-digit number. Presently, this information is embossed on the card and stored in a magnetic strip on the back.
There is some experimentation with using an embedded computer chip to store this data, or additional information about you, your purchases, or the account.
What's more, the physical card is not important at all: it is merely stores information. This is evident with mail-order or online purchases in which a consumer provides the key information (name, number, card type, and expiry date) and does not need to present the physical artifact at all.
Trivia: a MasterCard number uses the first six digits to identify the company that issued the card, the next for for the region and branch information, the next five identify the customer, and the last is just for security.
How Payment Cards Work
For most in-store transactions: the customer presents a card to a clerk, who "swipes" it or keys in the relevant information. This information is sent to the card service (Visa, for example), which in turn communicates with the card issuer (a bank), the returns an authorization to the merchant to accept the card. All of this takes place in a few seconds.
Afterward, the card service requests payment from the card issuer, which generally takes two to three days to fulfill (hence the lag in consumers' credit card bills between transaction date and the actual charge date). Upon receiving this payment, the card service pays the merchant (less a fee, usually 2% of purchase amount, which is split 25% to card service and 75% to card issuer).
If it is a credit card, the issuer sends a bill to the customer (adding interest and fees); or if it is a debit card, the amount is automatically deducted from a cash account.
The Main Characters
The four major credit card companies are:
American Express: the oldest of the companies, which began in 1841 as a service to travelers (out-of-state and out-of-country checks were seldom acceptable, so AMEX began a bank that issued travelers' checks that were good in a wide range of locations). Its first charge card was launched in 1958.
Visa: the largest of the players, visa accounts for more than half of all general-purpose cards in the US and virtually all merchants who accept credit cards accept Visa.
MasterCard: a competitor of Visa that began at the same time, but lost market share to Visa due to its inability to establish relationships with as wide an array of merchants.
Discover: is the youngest card, started by Sears Roebuck as an extension of their store credit card, and eventually spun off as a separate business. The card has gained wide acceptance quickly, but still flounders behind the others in gaining acceptance by merchants.
Other Members of the Cast
Credit cards are issued by a wide range of companies, mostly banks. It is noted that the top ten issuers (Citibank, MBNA, Chase, etc.) account for nearly two-thirds of all cards in circulation, with the remaining third split among all other issuers (smaller local banks).
Also, the major credit card services originally attended to the task of getting merchants to sign up to accept their cards and providing the equipment and ongoing support - but this task is now largely delegated to independent companies, called "third-party processing services" (such as First Data Corporation, Nabanco, and Card Establishment Services)
International Appeal
Card payment has become a form of common currency the world over: you can use a Visa card in over 240 countries and 14 million merchants. However, there are some marked differences in consumer behavior.
Americans use credit cards extensively, but Europeans tend to use debit cards instead. In many developing countries, credit cards are virtually unheard of - they are not a part of consumer behavior, though merchants in cities and tourist areas accept them from foreign visitors.
Additionally, there are foreign brands of credit cards, such as JCB International (Japan and China Bankcard), which is popular in the far east but very rare in America (some businesses that serve foreign tourists accept it).