The real credit card history

In the book I reviewed in the last blog, Matt Ridley does what many other people have done, completely screw up the history of the credit card.  Wikipedia is screwed up too.

Ridley gives due credit to Joe Williams at the Bank of America who made the first major contribution.  Until Joe got the Bank of America to issue the first BankAmericard in Fresno in 1958 the main plastic credit cards were issued for travel and entertainment, mostly for business travelers. There were Diners Club, American Express and a few others.  Credit cards were in use at the time by gasoline retailers and department stores, each having their own card. 

Joe Williams' understanding and innovation was that using a bank, especially the biggest bank in California, as the source of the credit card could expand the usage to ordinary middleclass customers and unify the many credit cards and plates into one card.  Joe made a few mistakes.  First, the imprinter was expensive and didn't work.  Second, plenty of people with bad credit got the cards in the mail.

When I got to Bank of America in 1962, I quickly started work on improving the credit screening.  The card was already profitable after the immediate bad credit actors were removed because the idea of a bank issued card and bank supported merchants was a good idea.

Working with an economist (who's name I forget) we together developed the first credit scoring system... still in use, worldwide, today.

I left Bank of America in 1966 to start a marketing research department at Bank of California.  Within the first week I set out to pay a courtesy visit to my peers in the other banks (all friends).  I started next door at Wells Fargo.  In one room were all my peers in marketing.  They were bitching about the stupidity of BankAmericard and credit cards in general.  The were together because an outsider had approached each one of them to fund a new credit card.  They knew that was nonsense. 

I explained the profitability of the BankAmericard and explained how we could have our own card open to all banks under a law that created the interbank check clearing house. 

I scheduled our next meeting at our lawyer's office and at that meeting we formed Western States Bank Corporation which became today's MasterCard.  We decided to put our executive VPs on the board to make sure that the new card happened.  We hired a New Jersey firm to do the operations and stole  away Robert Footman who was the BankAmericard ad executive. 

Jointly with Footman, at his agency (Foote Cone and Belding) we developed the idea of a real universal card aimed at women.  The white background with two overlapping circles (orange-red and gold) was chosen and tested because it appealed to women. The women didn't recognize the vagina symbolism that we consciously used.

We tested both names: Mastercharge and Mastercard. The former worked best but the latter came into use a decade later.

Before we got our card to market three things happened:  (1) BankAmericard saw what we were doing and copied us.  They changed their card name immediately to Visa and opened the card to membership by all the U.S. banks in their banking network (2) Hundreds of banks, nationwide, begged to join us and we let them and (3) A group of banks in Chicago copied our model and issued cards on two months notice... they failed in one month.

I did one thing that helped but wasn't important.  I discovered the way to get consumers to accept a card from Bank of California sent in the mail.  I wrote a letter in advance telling them they could reject the card, before they got it, or when they got it.  All the banks in MasterCard copied my approach, and usage started out higher than ever before in the credit card industry.

What really happened?  First, we did succeed with MasterCard and its imitation in Visa in making the card universal in its retail applications.  Second we created a vast and credible base because we were banks, the motherlode of credit in our society.

That is what counts in the credit card market and in credit card history.

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* A fellow named Dee Hock has been taking credit for his role in credit cards for decades.  He deserves very little.  He was hired by the rapidly growing Visa after it got the new name, after it opened membership to other banks and was already a success.