Timeline: The History of the Credit Card
Have you ever asked yourself, “How do credit card payments work – and from where did this technology come?”
In fact, what exactly is a credit card? Below is a visual credit card history that highlights some of the milestones over the years.
Initially, credit cards only featured logos of the issuing bank and card network, plus each user’s:
- Cardholder name
- Account number
- Card expiration date
Over the years, however, additional features have been created to improve the transaction process, help combat fraud, and streamline how credit card payments work.
1969 Magnetic Strip Embedded with cardholder information, magnetic stripes enabled merchants to swipe customers’ cards and increase the speed of each transaction.16
1997 CVV Code (Card verification value) Three- or four-digit codes were added to the back of cards (or front of American Express) to combat Card-Not-Present (CNP) fraud resulting from the growing popularity of online shopping.17
2004 EMV Chip As fraudsters found avenues to steal payment data and create counterfeit cards, Europay®, Visa, and Mastercard joined forces to introduce the EMV chip as an additional security feature. Today, almost every credit and debit card in America is embedded with an EMV chip.18 (Learn more about EMV.)
How Do Credit Card Payments Work?
Below is a brief overview of how credit card payments work – step by step.
A cardholder swipes or inserts his or her credit card into a payment terminal to transfer payment information into the merchant’s in-store POS system.
For eCommerce transactions, the cardholder either:
- Enters this data manually at checkout
- Confirms a stored payment option
The cardholder’s information is sent electronically to the merchant’s acquiring bank or payment processor (such as First Data). This payment information is then routed to one of the card networks below:
- American Express
eCommerce payments also require a “gateway” provider whose role is to connect the merchant’s website to the acquirer.
The card network forwards the transaction to the issuing bank to confirm the card’s validity and ensure it hasn’t been reported lost or stolen. The bank also verifies whether the cardholder has sufficient credit to cover the transaction.
If the transaction is approved, the issuing bank generates an authorization number and routes it back to the card network. This confirmation signifies the bank is willing to fund the purchase on behalf of the cardholder.
The card network forwards the authorization number back to the acquiring bank or payments processor. This number is then forwarded to the merchant, which finalizes the transaction with the customer.
1 “The History of the Credit Card,” NerdWallet, 10 February 2017
2 “Charga-Plate in Red Leather Case, United States, 1950's,” National Museum of American History
3 “Who Invented the First Bank-Issued Credit Card?” CardRates.com, 24 May 2018
4 “History,” Diners Club International
5 “Introducing the Modern Credit Card from Bank of America,” About Bank of America, 13 August 2014
6 “The Evolution of the Credit Card: From Paper to Plastic to Virtual,” Relatively Interesting
7 “American Express Company,” The Columbia Encyclopedia, 6th Ed, 2018
8 “We've Been Making History for 50 Years,” Mastercard History & Key Milestones
9 “Visa: A Short History,” CreditCards.com, 30 March 2007
10, 11, 12 “History,” First Data
13 “Apple Announces Apple Pay,” Apple, 31 August 2018
14 “EMV Arrived on October 1, 2015. But It's Not Too Late to Adopt EMV Technology,” First Data
15 “Credit Card Ownership Statistics,” CreditCards.com, 26 April 2018
16 “Magnetic Stripe Technology,” IBM Corporation
17 “Can Credit Card Security Codes Sufficiently Protect Against Fraud?” Chargebacks911, 23 May 2018
18 “EMV Roots Go Deep in Europe,” Bank Information Security, 7 March 2011