From a forgotten wallet to contactless payment: how did the plastic card come about?

How many times a day do we hear "card or cash?" at the checkout? The history of this question is only about 75 years old. Before that, a promise of "I'll pay later" usually worked only with a shopkeeper who knew you personally.

The businessman who forgot his wallet

According to the Diners Club company's own history page, in 1949 the businessman Frank McNamara realised, after finishing dinner with his clients at a restaurant in New York, that he had forgotten his wallet. This awkward situation sparked a new idea: a "membership card" that works at several restaurants at once. (The details of this story differ somewhat between sources, but this is how the company tells its own history.)

According to the same page, in February 1950 McNamara returned to the same restaurant and paid with the first prototype Diners Club card. The company calls itself the world's first multipurpose charge card.

How did a charge card work? According to the description by the Smithsonian museum, at the end of the month Diners' Club sent members a bill, and paid the restaurant after withholding a 5–7% service fee. The customer had to pay the debt in full at the end of the month. According to the company, in 1953 businesses in the United Kingdom, Canada, Cuba and Mexico also began accepting the card.

A bank issues its own card

The next step was taken by a bank. Bank of America mass-distributed its BankAmericard in 1958 in Fresno, California (Banker & Tradesman). Historians regard it as one of the first bank cards to offer revolving credit: the debt no longer had to be paid off in full within a month; the remainder was carried over to the next month (with interest, of course).

In the mid-1970s the BankAmericard name was changed to Visa (Encyclopedia.com). In this way one bank's project turned into a payment system used jointly by many banks.

The magnetic stripe: the card became "readable"

The early cards carried no machine-readable data. IBM's history page says that the first attachment of a data-storing magnetic stripe to a plastic card is associated with the name of Forrest Parry, an engineer who joined the company in 1957. The task in the early 1960s was to create a more secure ID badge for CIA staff. IBM writes that the magnetic stripe approach developed with the company's participation was adopted as a US standard in 1969.

Now a terminal could "read" the card, and transactions became faster. But data on a magnetic stripe was easy to copy, and this opened the way to fraud.

The chip and the EMV standard

Mastercard writes that the chip card first appeared in France, but because different chip cards did not work at every terminal, its wide adoption dragged on for a long time. The problem was solved by a common standard.

According to EMVCo, the EMV '96 specification for chip cards was published, and in February 1999 Europay, MasterCard and Visa formed the EMVCo organisation to maintain the standard. The name "EMV" comes from the initials of these three companies. According to Mastercard's 2021 data, 86% of the world's face-to-face card transactions were carried out via an EMV chip.

Contactless payment and the token

EMVCo writes that in 2007 contactless and mobile payments were also brought into the organisation's work, and in 2014 work began on payment tokenisation. A token is a special number used instead of the real card number: the "card" on your phone actually works with such a token.

Then and now

Aspect	The 1950s	Today
What the card is like	A card without a magnetic stripe or chip	Chip plastic, a token on a phone or watch
Who reads the data	No machine-readable data, checking done by a person	The terminal reads the chip or the contactless signal
Where it is accepted	Partner restaurants and businesses	Shops, the internet, transport, ATMs
How the debt is paid	With a charge card, in full at the end of the month	With a debit card, immediately from the account; with a credit card, on the bank's terms
Main risk	Loss of the card, a forged signature	Cyber fraud, phishing, theft of card data

Example: the charge card model in figures

Suppose a hypothetical restaurant called "Lagan" works with a system similar to the 1950s charge card model (compiled by the author, hypothetical figures).

Indicator	Amount
Meals eaten by cardholders during the month	40 000 000 soum
The card company's service fee (7%)	2 800 000 soum
Amount transferred to the restaurant	37 200 000 soum

For the restaurant owner Nodir the calculation is simple: the 2.8 million soum is not a "loss" but a payment for new customers. If, thanks to the card, an additional 60 guests come to the restaurant each month and each places an order worth 150 000 soum on average, the additional revenue will be 9 million soum. This is exactly the logic of the charge card model for a restaurant: the commission is paid in exchange for a flow of new customers.

Link with the previous and next stages: the ATM (1967) took cash out of the bank's teller window and onto the street, while the plastic card began to replace cash itself. The next stage, digital payments and mobile apps, "hid" the card inside the phone as well.