Mar 30, 2006

1979: Year of the last major payment card innovation?

Have there been no other major innovations in credit and debit cards since electronic dialup terminals were introduced in 1979?

Here is how The History of Credit Cards describes the event: “In 1979, with the improvement of electronic processing, electronic dialup terminals and magnetic stripes on the back of credit cards allowed retailers to swipe the customer’s credit card through the dial-up terminal, which accessed issuing bank cardholder information. The advantage of this system, besides saving paper, was the increased speed of processing authorizations – one to two minutes. It also decreased credit card fraud.”

The article provides a list of major credit card innovations from their origin up to the introduction of electronic dialup terminals in 1979. It stops there. The article is recent; it appears to be written in 2004.

Technology that freed clerks from having to manually call for credit authorization was clearly a major innovation, especially for merchants. Can you think of another one since then? Transactions have become faster, from around a minute in 1979 down to a few seconds today. But all of the incremental improvements over the past 27 years still add up to less than that single jump in 1979. From the merchant’s perspective, there really has not been another major innovation since then.

If we had continued to provide substantial new benefits to merchants over the years, merchants would probably not be as upset as they are today and interchange fees would probably not be in jeopardy all over the world. Instead, most banks lost interest in merchants and focused their efforts entirely on cardholders. Just recently, Citibank's European card acquiring business, approximately 100,000 merchant locations in more than 31 countries, was sold to Nova.

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