History of Credit Cards - II

Credit cards are now part of our daily lives.

• We use them to pay for goods and services quickly and conveniently virtually anywhere in the world.

• We use them to borrow money in the shortterm, taking advantage of the interest-free period offered by our credit card provider as long as we pay the bill in full every month.

We all agree that credit cards have revolutionized our spending power and transformed the way we manage our money.They really are part of our daily lives – in fact in 2005 there were 31.6 million credit cardholders in the UK with an average number of 2.4 credit cards per person. We spent £124 billion on credit cards through the 790,000 retail outlets that now accept plastic card payments.
This year we are marking the 40th anniversary of the credit card.We take a look back at the way we have paid for goods and services over the last forty years and the payment services that might be on offer in forty years time.

Past and the Future:

1966

In the year England won the World Cup, cash and cheques were the main forms of payment in the UK. We wrote 560 million cheques that year with a total value of £68 billion (the average cheque value being £121). Less than one in four of the UK population had a current account and most will have received their wages in cash. Debit cards, credit cards and guaranteed domestic cheques had not been introduced and there were no cash machines on the high street; consumers could only access their cash through high street branches.

The biggest change to the way we used money was not to come for another five years – on 15 February 1971 the UK currency went decimal and we stopped using pounds, shillings and pence. The only form of payment card in circulation at the time was the charge card, introduced by American Express in 1963 with an annual fee of £3 12s (=£49 in 2005) and a required income of £2,000 (=£27,250 in 2005) The card was usable in 3,000 UK outlets and 83,000 overseas outlets.

Therefore, the introduction of the first credit card in 1966 was a significant milestone for payments in the UK. Although initially there were only a few cards in issue which were accepted in only a handful of retail outlets, within a short period of time the credit card became an important part of our daily lives.

2006

The UK is now a plastic society, as debit and credit cards have overtaken cash as our most popular method of payment. We are used to the security and flexibility plastic offers. There are currently 141.6 million payment cards in circulation (67 million debit and 74.6 million credit and chargecards), with the average number of cards per person standing at 2.4 credit cards and 1.6 debit cards. 42 million of us have at least one card in our purse or wallet.

Today entire generations of shoppers readily delve for their plastic card instead of cash – in fact as a nation we pay by plastic both in the UK and abroad 6.2 billion times a year spending a total of £309.4 billion.

We are now presented with many payment choices which were not available to us in 1966 – and we use all those on offer. We still use cheques – much more than in 1966 but a lot less than when cheque use peaked in 1990. We write 1.6 billion cheques a year for a total value of £1.15 trillion (the average cheque value is now £175). But we also use direct debits to pay our regular payments and receive our salary electronically too. So not only do we have to choose between payment methods, we also have to choose between the thousands of products in the marketplace, and even between the way we look after our finances –
including online and telephone banking. Nowadays 16.2 million of us bank online which would have seemed very 21st century back in 1966. We remain someway away from being a cashless society, with two-thirds of all payments we make still being in cash, albeit predominantly for low-value amounts

2046

Our plastic society is set to increase, with other providers outside traditional banks and card issuers expected to offer debit and credit cards. In fact this new generation may well have never seen the more traditional forms of payment – such as a cheque. Cash will still be around, but will be used significantly less than it is currently.

Personal identity verification is likely to be biometric, using an automated method of verifying or recognising our identities by our body characteristics, such as iris scanning or fingerprints. Most likely, cards will have been replaced by these biometrics contained within chips which we will carry around, perhaps as part of any mobile phone technology we’re then using.

Predictions are that in 40 years time chip and PIN will have evolved to enable it to continue tackling plastic card fraud as it does now – whilst chips will be commonplace, they’ll be used in a contactless way. All payments will be made in real-time, so when buying something in a shop or over the internet, we will validate our identity and then be presented with a range of our subscribed payment methods.

Once this choice has been made, the funds from our account will be transferred in real-time.
2046 will present a huge step change away from our current payment systems, with yet more security, flexibility and convenience on offer to the next generation of card users. We may not be a cashless society but we will be a lot closer to it.

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