The Origin of Credit Cards: The Fresno Revolution
- Peter Johnson
- Jan 8, 2024
- 5 min read
The wondrous nature of credit cards, which are made up of a combination of numbers printed on metal or plastic, can purchase almost anything in the world in a matter of moments. It's an empowering experience to keep this lightweight invention in your possession. Throughout its 65-year history, the story of credit cards has been an incredible journey, and it still stands strong today.
To get an understanding of the roots of this revolution, one must go to the San Joaquin Valley's Fresno, California. It was in this city in 1958 that a remarkable financial transformation began, altering the global view. Though it may be hard to believe that Bank of America was proponents of innovation in 2023, that was the case in 1958. As the preeminent banking hub of California, Bank of America encountered something originating from New York, called The Diners Club.
Frank McNamara’s introduction of the Diners Club “card” for businessmen to use to pay for meals in restaurants was seen as a convenient way of settling the bill. The restaurants saw an increase in customers and this was likely due to not only convenience, but an appeal to the customers and their clients. Diner Club was very successful in signing up some of New York's top restaurants, which then resulted in an expansion of services offered by the company in later years. and it is this concept that has since become the model used in the creation of credit cards.
Rather than a credit card, customers were anticipated to pay off their full balance each month, making this a "charge card" by today's definitions. Diner's Club accepted a fee for all of the proceedings they administered, and this is the initial form of the interchange fee that is still in use. This was the opening thought of a standard charge card, and this idea is what has served as the design behind credit cards since then.
When BofA and other institutions across the nation sought to expand the notion of the charge card into a general purpose credit card, it proved to be unsuccessful. In order to learn from these shortcomings as well as comprehend how to flourish with a general purpose credit card program, the BofA members studied the performance of successful credit techniques from major retailers like Sears. One of the challenges they had to confront was the "chicken and egg" issue of the general purpose credit card, which involved obtaining the essential mass of merchants or consumers to join in the endeavor. A bulk of the other programs had crashed as they could not acquire the adequate number of cardholders or retailers to make the general purpose credit card attractive on either side.
BofA conjectured that their big customer base in California had the solution. It already offered consumer loans with a set plan of payments. Not completely dissimilar to the BNPL (Buy Now, Pay Later) companies of the 2020s. The concept originated from Diner’s Club in the 1950s, but with one alteration – customers had the choice to pay as little or as much as they wanted rather than having to pay the full amount every month. After a grace period of 25 days, BofA began to charge interest on the outstanding balance, consequently inventing the idea of the “credit card with revolving credit”.
The event that started it all, now known as the 'Fresno Drop', was when BankAmericard (which still exists today) sent 60,000 of its customers in Fresno, CA credit cards on September 18, 1958. This seemingly small move quickly resolved one end of the issue and helped to build the foundation of the credit card industry, which later grew to become an international phenomenon. either they were a cash exchange, a barter, or a credit arrangement.
On September 18, 1958, Bank of America stepped out of the norm by launching "BankAmericard" credit cards to the citizens of Fresno without them knowing what they were or how to use them. This move not only demonstrated their risk-taking abilities, but also served as a groundbreaking experiment that challenged the traditional methods of financial exchanges. Before this, transactions mostly fell into three categories: cash exchange, barter, or credit arrangements.
Fresno customers were given the special capability of combining their shopping habits with a singular card, allowing them to buy goods on credit from many stores with BankAmericard. This form of plastic money was the first form of "revolving credit" which gave users a grace period of 25 days before interest would start to accumulate. Shopping customers were not forced to make trips to Bank of America and fill out lengthy forms, or negotiate payment arrangements for each and every purchase. Rather, shoppers were allowed to determine their own means of credit management.
Despite numerous obstacles, the Fresno Drop eventually triumphed, setting the stage for the widespread approval of credit cards.
The pioneering voyage of BankAmericard was far from simple. Introducing this fresh concept spawned a multitude of difficulties. The concept of a credit card was revolutionary and strange, evoking doubt among customers. Moreover, grave concerns including deception and non-payment caused financial damage.
It was discovered that Bank of America had incorrectly determined the delinquency rates on unsecured revolving credit lines (22% initially) from unknowing customers, and, unfortunately, it was significantly above their regular consumer installment loans (ordinarily about 4%). The institution sustained nearly $20 million in losses during the first year and, finally, the BankAmericard program's founder was released two months before the statewide launch was finished. Fortunately, he ended up doing well and went on to another credit card business, culminating in the sale of the program to American Express in 1965.
Despite the obstacles that were present, BofA viewed the advantages of a unified, cashless payment system and continued to put money into the program. The bank understood that the program would bring great comfort to shoppers and companies, so they made major investments to enhance security and prevent fraudulent activities.
Following the original deployment across California, the bank devoted efforts to enhance the system, and did not heavily invest in more drops until 1963. Steadily, the BankAmericard program gained traction and provided increasing revenues for BofA from 1961 onward. Finally, in 1968, it generated $12.7 million in revenue from BankAmericard, a sum no one could ignore.
BofA availed itself of the opportunity to leverage its consumer relationship base to start establishing connections with merchants and offering additional financial services as part of their payment plan with BankAmericard.
Looking back, The Fresno Drop was a game-changing event for the world of financial services. The power of innovation to make transformation possible is on full display with current practices of simply using a credit card. It is important to recall the humble roots of this groundbreaking technology as we do so.
This was BankAmericard's original logo, which was featured on the cardholders' cards and was presented by stores that accepted the card as payment. Do you know what happened to BankAmericard down the line?
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If you wish to find out additional information, check out the links below. These were really helpful when I was preparing to write this article and may be useful to you.
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