Electronic Value Exchange summary

Imagine it’s September 1958 and you’re living in Fresno, California. You go outside to check your mailbox and find a thick, unexpected envelope. Inside is a small plastic card adorned with the name “BankAmericard” above a series of numbers. There’s also a letter explaining that you can use the card at hundreds of stores in the Fresno area, and then receive a consolidated bill at the end of the month. If you don’t want to pay the whole bill, that’s OK. You can just send Bank of America a minimum payment and the rest becomes a personal loan you can pay back (with interest) at your convenience.

You might already know about cards like these. After all, department stores and gas stations have been issuing charge cards to their customers since the 1920s. Airlines joined them in the 1930s, and in 1936 several competing airlines came together to form the United Air Travel Plan payment system. Some cities also saw groups of retailers join forces to create payment card systems, like the Retail Service Bureau of Seattle, which included more than 1,000 retailers in 1936.

The Great Depression and World War II ended those early payment systems, but the Diners Club charge card was introduced in 1949 in New York City. Diners Club is issued by a third-party company that enlists merchants to accept the card, so you can use Diners Club at restaurants, hotels, and various businesses. Diners Club is also different because it’s designed to make a profit, as opposed to the early department store and gas station cards that were mainly intended to inspire loyalty.

Now we’ve reached 1958, when American Express copies the Diner Club model and becomes the first company to offer plastic cards – all the previous ones were paper or cardboard. Not long after, banks jump into the credit card game. Most fail because they can’t create a big enough base of cardholders to entice merchants into their system. But Bank of America has the size and resources to make it work.

You and your Fresno neighbors start using the card. It’s a novelty in an age of novelty – you all gather around checkout counters to watch others use their new BankAmericard, just like you gather around new televisions to watch the test pattern.

By 1959, Bank of America has issued 2 million BankAmericards and enlisted more than 20,000 merchants. By 1966, the BankAmericard Service Corporation has been created to enroll licensees in other states. Within two years, there are 6 million cardholders, 155,000 merchants, and nearly $460 million in annual sales volume. The card and licensing system seem like a success, but there are major problems.

Fraud is rampant and costing banks millions every year. Paper sales drafts, limited computer accounting, and organizational flaws lead to major timing issues in the clearing and settling of transactions – which leads to more financial loss.

The problems are so bad that the licensees demand a meeting with the BankAmericard Service Corporation in October of 1968. The meeting is contentious, but there is someone there with a solution: Dee Ward Hock.