Background of the Payments Industry

Payment processing is very confusing for most merchants as the involvement of so many different players makes it a somewhat complex industry to understand. Many think the industry is fairly new beginning in the 1950’s when credit cards were first issued. It actually began in the early 1800’s with merchants extending credit to their customers for the goods and services they needed immediately but couldn’t pay for at the time.

Following is a brief overview of the timeline: 

• Early 1900’s department stores and hotels began issuing paper credit cards to valued customers.
• In 1949 Diners Club issued the first merchandise credit card for travel and entertainment expenses for wealthy consumers. They soon after expanded across the nation, charging merchants a 7% per transaction fee, rather large for that time period.
• In the 1950’s, Bank of America (now known as Visa) issued the first general credit card. As banking regulations limited nationwide reach of individual banks, Bank of America began licensing the card to other banks in order to compete with Diners Club nationwide reach.
• In 1958, American Express entered the market and began issuing credit cards.
• In 1966, a network of banks formed together to get in on this successful money maker and initiated a third network (evolving into MasterCard).
• Last but not least, Sears Roebuck and Company launched the Discover Card network in 1986.

Since its infancy, the issuing of credit has been an extremely proftable business. The issuing bank makes its profits through various ways including annual fees, late payment fees, over balance fees and of course the interest rate charged.