Why was the cashless economy introduced?

Did you know? The story behind your credit card

Shopping in the supermarket, paying in a restaurant or withdrawing cash from ATMs - all these processes are possible with a small plastic card on which some information is stored.

Especially when it comes to larger amounts, a card payment is convenient and if there is no cash at hand, the card reader helps.

As self-evident as card payment has become, its history is so unknown. Cashless payments were made hundreds of years ago, for example in the 14th century through debt overwriting over long distances.

In the 15th century, the Europe-wide establishment of securities began.

Payment by check possible for the first time in 1876

The first cashless payment in Germany can be dated back to 1876. At that time, the Reichsbank, which was founded that year, introduced payment in the form of transfer forms and checks for the first time.

Since every credit institute had an account or deposit with the Reichsbank, its representatives met regularly to process the checks or transfers received and to book the values.

The introduction of accounts and the associated “book money” enabled a further step in the direction of cashless payment, but at that time it was still reserved for the rich. Workers' wages were paid in cash until the middle of the 20th century.

The first credit card was tied to dining establishments

The invention of the credit card and the associated card payment goes back to the American Frank McNamara. The first Diner’s Club card came on the market in February 1950 and could initially only be used in bars and restaurants.

The principle was simple: the customer uses his card to write to all participating restaurants and at the end of the month he receives the total invoice plus a service fee.

What initially only included 27 dining establishments, developed into a profitable business with the entry of New York millionaire Alfred Bloomingdale in 1952.

The initial 200 cardholders turned into billions in sales within a very short time and the principle of card payment was invented.

Card payment: The story continues despite problems with payment behavior

Although the Diner’s Club card initially remained elitist, in parallel with this movement, Bank of America developed the first credit card for the masses in 1958.

The first bank card was sent to over 60,000 customers in the city of Fresno, California, and could then process their purchases and other transactions without cash.

The movement continued to expand and from 1959 over 2 million cards were in circulation, which quickly turned into a catastrophe. Many customers failed to pay their debts and Bank of America suffered heavy losses.

Nevertheless, the business model remained successful and various finance companies began to issue their own cards. In 1966, a card independent of the credit institution was developed for the first time and expanded to Mexico, Japan and Europe.

The Mastercard was born and with it also offshoots like the "Eurocash", the first EC card. In 1980 the number of ATMs increased rapidly.

Credit card companies: Exciting investment opportunity for private investors?

Nowadays, card payment has become indispensable and the credit institutions are already working on new options such as contactless payment, paying by fingerprint or by smartphone.

The chips in the cards, which originally worked via magnetic strips, can now also store small amounts of money that can be used to pay or be used in cigarette machines for age identification.

Almost every bank offers its own credit card and some institutes are even listed global corporations (e.g. Visa or Mastercard) that can offer private investors exciting investment opportunities.

This US share remains a top investment mastercard for you and continues to grow steadily. The credit card company's share remains a top investment for long-term investors. > read more

© Verlag für die Deutsche Wirtschaft AG, all rights reserved