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A brief history of credit cards
- divenorth 9y agoThere has to be a better way.
- marcv81 9y agoI'm 35. I felt old talking about floppies and cassettes a few days ago. But I'm still young enough to not have known swipe cards :)
- stedaniels 9y agoI'm mildly curious as to where you live? I thought the UK was one of the first countries to get EMV/Chip and Pin. I'm 32 and I had a swipe before a Chip and Pin card. The earliest worldwide public trials and rollouts look to be ~ 2003, that would mean you didn't have a bank account with a card until you were ~21? Is that normal where you come from? I think I had my first swipe ~16, second swipe ~18, the bank switched me to Chip and Pin roughly a year later if my memory serves... which it often doesn't ;-)
- smcl 9y agoMaybe Australia or NZ - they're a bit quicker to roll out new-ish card tech than UK I think
- ajdlinux 9y agoI'm a 24 year old Australian and I certainly knew swipe cards when I got my first bank account...
- seszett 9y agoNot OP, but I'm 32, French, and I never even saw my parents use a swipe card. My earliest memories of credit cards are chip and pin (and I still remember their code). Apparently this started in 1992 here, though I guess it wasn't technically "credit cards" but the national debit cards system.
- roel_v 9y ago"though I guess it wasn't technically "credit cards" but the national debit cards system" Well yeah sure, but we're talking credit cards here. Either way, many parts of Europe used swipe-style debit cards (with pin) until a few years ago; I'm pretty sure I used them in France too, < 10 years ago (although I can't remember for sure).
- dzhiurgis 9y agoI don't think credit cards are widely used outside US - most use debit.
- marcv81 9y agoI was not trying to talk other countries down. For what it's worth you can't survive in France without a checkbook: it's the only way to pay for some transactions. Sad. Also the debit cards we're talking about do both credit and debit. Not sure they disqualify.
- Nursie 9y agoIIRC France had an earlier chip system called something like "B0 Prime" or "B Zero Prime". It predates the EMV cards that came in mid-late 90s.
- marcv81 9y agoLike a few others who replied, I grew up in France. Technically debit cards indeed. Not sure card which do exclusively credit are a thing there.
- denisehilton 9y agoI have never been in favor of credits cards myself and I tell everyone to avoid getting one as much as I can. It's just a well that keeps going deeper and pull you into more debt.
- wfunction 9y agoDo you think your advice generalizes though? Do you really think most people who have a credit card go into debt because of it?
- pimmen 9y agoThe whole idea of a credit card is that you buy something by borrowing money, because you don't have the money right now. If you do have the money, use a debit card. However, I'm not completely against debt. I think debt can be managed and healthy under the right circumstances, and as long as it's used for stuff that you need and not stuff you want. If you truly need the stuff, the time and other purchases the debt gave you (such as a student loan to get a degree for your job, or a mortgage to live close your job) will pay for themselves.
- wfunction 9y agoI don't think you answered my question. I'm trying to say that people use credit cards even when they have the money and aren't going into any kind of debt.
- deleted 9y ago[deleted]
- sjwright 9y agoFor me, credit cards — as opposed to debit cards in their various forms — are exceptionally useful for their benefits (e.g. transaction liability, insurances, rewards schemes) which don't require you to ever pay a cent of interest. I have various credit cards and all of them are set up to automatically pay themselves off on the statement due date. I've not paid a cent in credit card interest in my life.
- azag0 9y agoIt’s really more about payment cards (debit, credit) in general, not credit per se. Where exactly does Apple Pay fit in this chain? Do they replace the card issuer or are they a new link between the acquiring bank and the issuer?
- connorcpu 9y agoWouldn't Apple Pay just be more of a 6th intermediary that just obfuscates the actual payment card from certain parties in that chain?
- Artemis2 9y agoApple Pay operates using network tokenization, which is part of the EMV standard. This works in two parts. When you add a card to Apple Pay, your device checks if the bank can use Apple Pay, and gets a device token from your bank, along with some cryptographic data. The original card number your typed in is discarded; it is replaced by the device token, which looks like a credit card number. All this data is stored in the device’s Secure Enclave. It’s important to note that Apple does not store card data, and doesn’t even take part in the transaction flow. When you pay with Apple Pay, your device generates a network token. In practice, this network token is your device token, which is sent along with a cryptographic signature, the cryptogram (generated using the data previously stored into the Secure Enclave). This data fits into traditional card fields (name/number/expiration date/cvv), plus an additional field for the cryptogram. The token is transmitted through the merchant to their gateway/acquirer, which sends passes it to the payment network (Visa/Mastercard). The network checks the cryptogram, does a reverse lookup of the device token and associates it with the real card number. The transaction proceeds like a normal transaction using the real card number. https://www.emvco.com/wp-content/uploads/documents/EMVCo_Payment_Tokenisation_Specification_Technical_Framework_v1.0.pdf https://www.emvco.com/wp-content/uploads/documents/EMVCo_Pay... : The official tokenization specification. Page 71 has a good diagram of the flow (the Token Service Providers are usually the networks themselves). https://www.apple.com/business/docs/iOS_Security_Guide.pdf https://www.apple.com/business/docs/iOS_Security_Guide.pdf : The iOS Security Guide, which has interesting information in the Apple Pay section (page 34). IIRC, Android Pay works using the same standard, with Google storing the device tokens in the cloud and generating network tokens on the behalf of the user (not all Android devices have secure elements). May be inaccurate, I haven’t had the opportunity to implement it at the payment provider level (yet!).
- Artemis2 9y agoThere is a great 99% Invisible episode on the early days of credit cards: http://99percentinvisible.org/episode/the-fresno-drop/ http://99percentinvisible.org/episode/the-fresno-drop/
- mr_turtle 9y agoIs there anytime similar about the 1-2.5% fee merchants have to pay to utilize this service? I'd bet Visa, MasterCard, and AMEX are making a fortune off all these transactions.
- thesimon 9y agoMost of the fee goes to the issuer, the part Visa/MasterCard earn is quite small. AMEX of course earns a bit more due to the nature of a three party scheme. Edit: 0.02% - 0.05% of the transaction is usually the scheme fee that goes to Visa/MasterCard.
- gst 9y ago> Is there anytime similar about the 1-2.5% fee merchants have to pay to utilize this service? I'd bet Visa, MasterCard, and AMEX are making a fortune off all these transactions. My current primary credit card (Alliant's CashBack card) gives me 2.5% cashback on each credit card transaction (3% cashback in the first year). I'd assume that Alliant makes money from customers who aren't paying the complete balance off each month, but with 2.5% cashback there's not a lot of room to make money from transaction fees.
- shawnee_ 9y agoThis comment shows how little people really understand about the business model of credit card companies and their relationships with merchant banks. > but with 2.5% cashback there's not a lot of room to make money from transaction fees. The cash back is not instantaneous. It does not happen in the cycle in which the consumer buys something; it is pushed out as a short-term liability by the banks, contingent upon Visa/MC doing all the math and allocating the pieces from the top-down. In the short term, all these microaccounts of customers "cashback savings" are accumulated as points or whatever to the consumer, but they are real cash assets for the holders. Taken in aggregate they equal huge long-term cash assets (for Visa/MC). Just like everything else in the credit card world, it adds up quickly across hundreds of millions of customers. That leverage is why Visa has been untouchable and why MC has virtually no incentive to make it compete. Merchant banks are already so fragmented (and in many instances actually competing with each other) that the lockin is something they just accept. This is why the collusion to set fees at 2.9 percent (or whatever) among payments processors is so evil: Visa and MC ransom the full fees for the short term to make the banks/merchants beholden to their terms in perpetuity. Cash back rewards are not a necessary part of a credit transaction, but they're being baked in to hike the "commissions" of the middlemen. This industry is just like the Realtor industry: full of corrupt and exploitative groups of individuals implicitly colluding with each other to maximize their collective rapaciousness.
- uiri 9y agoAmerican Express and Diner's Club still issue charge cards which have to be paid off in full at the end of each billing cycle. American Express is often also the issuing bank for a lot of its cards which is why it charges more to merchants who accept its cards than Visa and MasterCard do.
- ksec 9y agoAfter watching the Video, What is the purpose of Chase in the example? Me ( Clients ) > BoA ( Issuers ) > Visa > Chase ( Acquiring Bank ) > Merchant. And how does Apply Pay / Samsung Pay / WePay / AliPay fits into this?
- ian0 9y agoThe acquiring bank provides merchants with an API to process payments, both their own cards and other banks, the latter of which are processed through the networks of schemes like Visa. They also settle with the merchants. WePay/Alipay if they are processing card payments on behalf of users could be considered merchants (or merchant aggregators). However Wepay/Alipay stored-value wallets are different. They are technically issuers (ie your bank), but typically not connected to this particular type of system - though they could be quite easily. Apple-pay & Samsung-pay are a little more complicated. They act as pseduo-issuers through a partner thats connected to the above system but outside the scope of the video. When you make a payment with apple-pay, they issue you a custom card number which passes through the terminal at POS and the system in the video to the partner, who then matches it with the actual issuer of your bank, and passes it on through for processing.
- patio11 9y agoMost prosaically, Chase moves money to the merchant, so that BoA doesn't have to move money to someone who is not their customer and who they have no direct relationship with. They just pay Chase a mindbogglingly large amount of money every day and trust Chase to sort out the logistics. (Back in the day, this would be easy for Chase to do because the merchant banked at Chase, but this is very not guaranteed anymore.) Chase (or a party related to Chase) also had the job of making sure this merchant got signed up to accept Visa cards. They had the boots-on-the-ground salesforce to make it happen. Chase also performed underwriting of the burrito shop to determine whether they are creditworthy, because the purchaser is not the only person being extended credit here -- Chase has a more-than-notional exposure to the merchant's health as a business as well. Why? If you call BoA and say you didn't get your burrito, you will get your money back. BoA is willing to give you your money back, very quickly, because Chase is always good for it. Chase will generally attempt to recoup your money from the burrito shop, but in the case where you are dissatisfied with your burrito because you didn't receive it because the burrito shop went out of business, Chase (and not BoA or Visa, importantly) takes that loss on the chin. (This is less relevant for burritos sold in person, because proprietors very rarely drop dead after swiping cards but before handing over the burrito, but is far more relevant for more complicated business models.)
- programmer_dude 9y agoCredit cards are totally unnecessary in the age of online banking. Why does it not die already?
- shishy 9y agoPerhaps part of it is because it's such a heavily regulated industry that change takes a while/is hard to initiate.
- programmer_dude 9y agoCorrect me if I am wrong but I thought the US already had (creditcardless) internet banking. It seems credit card inertia is hard to overcome. What is more frustrating is "trends" from the US keep washing up on our shores like a bad dream and upset any advances we have made. Case in point: Netflix India does not accept anything else other than credit cards. A similar phenomena can be observed in the healthcare industry. India is already moving towards the way (IMO) the broken US healthcare system works. It gives me nightmares. I hope the Indian government clamps down heavily on this unscrupulousness.
- stevesimmons 9y agoCredit cards provide protection that you don't get with debit payments: - Fraud protection and limited liability - Ability to charge back a transaction if the product is not delivered, if you have a dispute with the seller, or if the seller goes bankrupt. - For the seller, guaranteed payment even if the customer is a bad credit risk. Plus of course flexible payment options: - Delay repayment interest-free up to typically 45 days - Delay repayment over longer periods, with interest charged And potentially additional benefits: - Rewards and air miles - Extended purchase warranties - etc All these 'value added' services have a cost to deliver (e.g. fraud losses ~20bp). They are funded by a complex combination of upfront product/rewards fees, interchange fees paid by the merchant to their bank (the acquiring bank) and passed back to the customer's bank (issuing bank), penalty fees for late payments and going overlimit, and the customer. A slice also goes back to the card scheme, Visa/MasterCard. Customers may have to pay their bank for the product. The size of these cash flows varies greatly by country and product, influenced by marketing, competition and regulatory arbitrage considerations. (Disclosure: I used to run Operations/Portfolio Management/Strategy for credit card businesses, was involved in many product launches, introduction of EMV chip cards, commercial negotiations with card schemes, etc)