Credit cards turn 50
This week is the 50th anniversary of the first credit card launch in the UK - Barclaycard, which first launched from a boot factory in Northampton on 29 June 1966.
Despite plastic's humble beginnings, launched by a team of just 30 people, more than one million people signed up for the card in the first year, which had just a £25 credit limit.
The rapid early growth was fueled by Barclaycard sending unsolicited credit cards to 1.25 million Barclays customers, though many went unused.
In the 50 years since, spending on plastic has rocketed. In 2015 60% of UK adults used a credit card, collectively spending £146 billion, according to the UK Cards Association (UKCA).
“Back in the sixties, cash was the most popular form of payment and the idea of ‘paying by plastic’ was completely alien to most people,” says Amer Sajed, chief executive of Barclaycard.
“But the introduction of credit cards led to a ‘democratisation of credit’ in the UK and kick-started fifty years of great British shopping, creating a material shift in how we pay for goods and services.”
Though Barclaycard was first to launch the credit card, it wasn’t the first to pioneer a plastic alternative to cash.
Three years earlier, in 1963, American Express launched the UK’s first charge card. These work similarly to credit cards but must be repaid in full each month. The Amex card had a £3, 12 shilling annual fee (around £60 in today’s money), and a £2,000 minimum income requirement, or £38,600 after adjusting for inflation.
History of credit cards in the UK
- 1966 – Barclaycard launches the first UK credit card in Northampton.
- 1967 – Credit card holders surpass 1,000,000
- 1977 – First business credit card launches
- 1986 – launch of first electronic payment machine at Miss Selfridge, London
- 1995 – first online credit card services launch
- 2003 – chip and pin first arrives in the UK
What have credit cards ever done for us?
The introduction of contactless payments, online shopping and additional ‘section 75’ consumer protections, which effectively insure most purchases between £100 and £30,000, have fueled plastics’ popularity.
Credit cards can provide versatile credit line for people who want to borrow flexibly, and when used properly are considerably cheaper than other types of short term borrowing, like overdrafts.
Advocates point to them as a cash management tool, effectively offering interest free credit to people who pay off their balances each month, or opt for a card with a 0% purchase offer. By using cards responsibly, UK consumers pay no interest on 42% of credit card debt, says the UKCA.
Moreover, some cards reward shoppers further through loyalty schemes or cashback programs that literally pay people to spend. These schemes aren’t as generous as they used to be, but it’s still possible to get 1% cashback on general spending, or much more with specialist cards, like the AA fuel card, which pays frequent drivers up to 4% cashback on diesel and petrol.
However, critics say credit card debt has rapidly outpaced earnings over the last 50 years, and the rise in consumer debt is major factor for the UK’s savings shortfall.
Additionally, while most people who use 0% balance transfer deals pay off their debts in the interest free period, around 20% don’t, and this, alongside excessive card debt generally can cause problems. Read Moneywise’s 10 steps to getting rid of debt.
More than 200,000 people contacted debt charity StepChange in 2015 looking for help to get £1.7 billion debt under control.
These people have average debts of £8,403, equivalent to six months’ net wages, and two thirds of them have multiple cards.
Mike O’Connor, StepChange’s chief executive says: “Credit cards have changed the way we spend. More than half of us now hold at least one and we rely on them more than our European neighbours.
“In the half century since their introduction, credit cards themselves have also changed. Conceived as a short term cash advance to save people carrying so much cash, they have now become a near-universal way to borrow."
Credit card facts
- Every second, 10,000 credit card transactions are processed globally
- If you put the world’s cards end-to-end, they’d span the planet more than three and a half times
- Every card in the world is exactly the same size - 85.60 mm x 53.98 mm
- They weren’t always plastic: Bank of America’s first credit cards were made of paper, had $300 credit lines, and offered no protection against fraudulent use
- There were 1.3 million reports of fraudulent credit card use in the UK in 2014, a 5% increase on the year before
- The average credit card debt is 2.5 times the average monthly wage in the UK
- As of October 2015, consumers put about 1.5 billion transactions on plastic every six months – spending £91.1 billion in the process
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
Much like credit cards, charge cards allow you to pay for goods and services but with a charge card you must pay off your balance in full at the end of the month. They tend to be issued to high-net-worth individuals, charge an annual fee and have a reward programme for holders. They are not, however, universally accepted as credit cards.
Moving money from one account to another, whether switching bank accounts or more likely transferring the outstanding balance on your credit card to another card that charges a lower – or 0% – rate of interest. Some card providers may charge a transfer fee that can be a percentage of the balance transferred.