About Credit Card Machines

The history of credit transactions is almost as old as the history of currency, but the small, plastic plate commonly referred to as a credit card didn't make its debut until the early part of the 20th century. Even then most charge plates or credit cards were issued by local businesses to only those considered to be exceptionally credit worthy. As the advent of the credit card authorization machine has made it easier for merchants and banks to track consumer spending, the use of credit cards has exploded. As of 2006 there were more than 1 billion Visa credit cards worldwide, and nearly half of that number were carried by U.S. consumers.

History

Diner's Club has the distinction of being the first nationally recognized charge card, but rival American Express entered the travel and entertainment card market in 1958. BankAmericard entered the arena in 1959, providing consumers with the first national card that allowed consumers to carry a revolving balance, but changed its name to Visa in 1977. The Interbank Card Association formed in 1966, bought the name Master Charge in 1969, and rechristened its credit card MasterCard in 1979. Before credit card authorization machines were available each credit card company had its own method for authorizing charges.

Significance

Before the advent of credit card authorization machines the process of a merchant accepting a credit card could be quite cumbersome. Different types of merchants had different floor limits, an amount that could be charged on the card without requiring the merchant to call the credit card issuer on the telephone for authorization. The floor limit was typically $50 to $75. Credit card companies provided the merchant with a monthly bulletin that listed card numbers that they could not accept. The process was time consuming and awkward; losses from fraud mounted.

Development

In 1965 innovative business machine manufacturer OMRON Corporation developed a vending machine that had the capability of accepting credit cards. In 1969 the company introduced an automated teller machine that made use of a magnetic card, ushering the popularity of the magnetic strip on the back of contemporary credit cards.

Benefits

In 1981, Visa and MasterCard began encouraging merchants to use credit card machines to authorize large transactions electronically as a means of reducing fraud losses. Merchants were offered a lower discount rate (the rate they paid to the credit card companies for processing) in exchange for using the new technology. Early credit card machines were quite pricey for the ordinary merchant, averaging more than $900. The new technology helped reduce fraud losses for the credit card companies, reduced operating costs and charge-backs for merchants, and protected consumers from unauthorized use of lost or stolen credit cards.

Size

Verifone Inc. entered the credit card authorization market in 1982 and gained considerable market share by selling their authorization terminal for less than $500. Within two years the company introduced its ZON line of credit card machines at around $125. Today the company controls more than 60 percent of the United States credit card machine market and nearly half of the market worldwide.

References

• Credit card history
• Credit card survey
• OMRON Corporation

Resources

• VeriFone history