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Contents:
History of credit…………………………………………………………………..3

Early beginnings………………………………………………………………….4

Plastic debuts……………………………………………………………………..6

Closed-loop system……………………………………………………………….7

Bank card associations……………………………………………………………7

Credit card processing involves…………………………………………………..8

Other issuers join the party……………………………………………….............9

The growth of credit cards has had an enormous impact on the global economy..10

The future…………………………………………………………………………11

Examples of credit cards………………………………………………………….12

Credit Card Fraud-Credit Card Scam……………………………………………..15

Security tips for merchants………………………………………………………..17

Common types of credit card fraud…………………………………………….…18

Account take-over………………………………………………………………...18

Counterfeit Credit Cards………………………………………………………….19

Credit card skimming…………………………………………………………..…19

Security Features On a Credit Card……………………………………………….20

Credit Card Embossing…………………………………………………………...22

My opinion………………………………………………………………………..24

History of credit
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To know where you are going, it is important to know where you have been. With
the increasing use and acceptance of plastic money in the form of debit, credit and
pre-paid cards, as well as the growing global movement towards a cashless society,
we investigate the history of the card and offer insights into where the industry is
heading.

Credit was first used in Assyria, Babylon and Egypt 3000 years ago. The bill of
exchange — the forerunner of banknotes — was established in the 14th century.
Debts were settled by one-third cash and two-thirds bill of exchange. Paper money
followed only in the 17th century.

Christopher Thornton, offering furniture that could be paid off on a weekly basis,
placed the first advertisement for credit in 1730. Since the 18th century until the
early part of the 20th, tallymen sold clothes in return for small weekly payments.
They were called 'tallymen' because they kept a record or tally of what people had
bought on a wooden stick. One side of the stick was marked with notches to
represent the amount of debt and the other side was a record of payments. In the
1920s, a shopper's plate — a 'buy now, pay later' system — was introduced in the
USA. It could only be used in the shops that issued it.1

As far back as the late 1800s, consumers and merchants exchanged goods through
the concept of credit, using credit coins and charge plates as currency. It wasn't
until about half a century ago that plastic payments as we know them today
became a way of life.

Early beginnings
In the early 1900s, oil companies and department stories issued their own
proprietary cards, according to Stan Sienkiewicz, in a paper for the Philadelphia
Federal Reserve entitled "Credit Cards and Payment Efficiency." Such cards were
accepted only at the business that issued the card and in limited locations. While
modern credit cards are mainly used for convenience, these predecessor cards were
1
http://pindebit.blogspot.com/2008/09/first-credit-cards-quick-
history.html#ixzz0lfGVZ9Mx

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developed as a means of creating customer loyalty and improving customer
service, Sienkiewicz says.

The first bank card, named "Charg-It," was introduced in 1946 by John Biggins, a
banker in Brooklyn, according to MasterCard. When a customer used it for a
purchase, the bill was forwarded to Biggins' bank. The bank reimbursed the
merchant and obtained payment from the customer. The catches: Purchases could
only be made locally, and Charg-It cardholders had to have an account at Biggins'
bank. In 1951, the first bank credit card appeared in New York's Franklin National
Bank for loan customers. It also could be used only by the bank's account holders.

The Diners Club Card was the next step in credit cards. According to a
representative from Diners Club, the story began in 1949 when a man named Frank
McNamara had a business dinner in New York's Major's Cabin Grill. When the bill
arrived, Frank realized he'd forgotten his wallet. He managed to find his way out of
the pickle, but he decided there should be an alternative to cash. McNamara and
his partner, Ralph Schneider, returned to Major's Cabin Grill in February of 1950
and paid the bill with a small, cardboard card. Coined the Diners Club Card
and used mainly for travel and entertainment purposes, it claims the title of the first
credit card in widespread use.

2
http://www.geckoandfly.com/tag/credit-card-history/
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Plastic debuts
By 1951, there were 20,000 Diners Club cardholders. A decade later, the card was
replaced with plastic. Diners Club Card purchases were made on credit, but it was
technically a charge card, meaning the bill had to be paid in full at the end of each
month.

According to its archivist, American Express formed in 1850. It specialized in

deliveries as a competitor to the U.S. Postal Service, money orders (1882) and
traveler's checks, which the company invented in 1891. The company discussed
creating a travel charge card as early as 1946, but it was the launch of the rival
Diners Club card that put things in motion.

In 1958 the company emerged into the credit card industry with its own product, a
purple charge card for travel and entertainment expenses. In 1959, American
Express introduced the first card made of plastic (previous cards were made of
cardboard or celluloid).

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American Express soon introduced local currency credit cards in other countries.
One million cards were being used at about 85,000 establishments within the first
five years, both in and out of the U.S. In the 1990s, the company expanded into an
all-purpose card. American Express, or Amex as it often is called, is about to
celebrate its 50th credit card anniversary.

Closed-loop system
The Diners Club and American Express cards "functioned in what is known as a
'closed-loop' system, made up of the consumer, the merchant and the issuer of the
card," Sienkiewicz writes. "In this structure, the issuer both authorizes and handles
all aspects of the transaction and settles directly with both the consumer and the
merchant."

In 1959, the option of maintaining a revolving balance was introduced, according

to MasterCard. This meant cardholders no longer had to pay off their full bills at
the end of each cycle. While this carried the risk of accumulating finance charges,
it gave customers greater flexibility in managing their money.

Bank card associations

"The general-purpose credit card was born in 1966, when the Bank of America
established the BankAmerica Service Corporation that franchised the
BankAmericard brand (later to be known as Visa) to banks nationwide,"
Sienkiewicz writes.

In 1966, a national credit card system was formed when a group of credit-issuing
banks joined together and created the InterBank Card Association, according to
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MasterCard. The ICA is now known as MasterCard Worldwide, though it was
temporarily known as MasterCharge. This organization competes directly with a
similar Visa program.

"The new bank card associations were different from their predecessors in that an
'open-loop' system was now created, requiring interbank cooperation and funds
transfers," Sienkiewicz says. Visa and MasterCard still maintain "open-loop"
systems, whereas American Express, Diners Club and Discover Card remain
"closed-loop."

Visa and MasterCard's organizations both issue credit cards through member banks
and set and maintain the rules for processing. They are both run by board members
who are mostly high-level executives from their member banking organizations.

As the bank card industry grew, banks interested in issuing cards became members
of either the Visa association or MasterCard association. Their members shared
card program costs, making the bank card program available to even small
financial institutions. Later, changes to the association bylaws allowed banks to
belong to both associations and issue both types of cards to their customers.

Credit card processing evolves

As credit card processing became more complicated, outside service companies
began to sell processing services to Visa and MasterCard association members.
This reduced the cost of programs for banks to issue cards, pay merchants and
settle accounts with cardholders, thus allowing greater expansion of the payments
industry.

Visa and MasterCard developed rules and standardized procedures for handling the
bank card paper flow in order to reduce fraud and misuse of cards. The two
associations also created international processing systems to handle the exchange
of money and information and established an arbitration procedure to settle
disputes between members.

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Master Card credit card, First & Merchants National Bank, 1984. As the use of
credit cards increased, security became more important. Early security measures
included having the bearers sign their cards and assigning individual account
numbers. During the early 1970s, credit cards began to include magnetic strips on
the back. The strips carried encoded information that could be read by special
machines. This technology became a critical component in the development of
automatic teller machines (ATMs).

Other issuers join the party

Although American Express was among the first companies to issue a charge card,
it wasn't until 1987 that it issued a credit card allowing customers to pay over time
rather than at the end of every month. Its original business model focused on the
travel and entertainment charges made by business people, which involved
significant revenue from merchants and annual membership fees from customers.
While these products are still in its tool chest, the company has developed
numerous no-annual fee credit cards offering low introductory rates and reward
programs, similar to as traditional bank cards.

Another relatively recent entry into the card business is Discover Card, originally
part of the Sears Corporation. According to Discover, its first card was unveiled at
the 1986 Super Bowl. Discover Card Services sought to create a new brand with

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its own merchant network, and the company has been successful at developing
merchant acceptance. A 2004 antitrust court ruling against Visa and MasterCard --
initiated by the U.S. government and the Department of Justice -- changed the
exclusive relationship that Visa and MasterCard enjoyed with banks. It allows
banks and other card issuers to provide customers with American Express or
Discover cards, in addition to a Visa or MasterCard.

The growth of credit cards has had an enormous impact on the

global economy

The growth of credit cards has had an enormous impact on the global economy,
changing buying habits by making it much easier for consumers to finance
purchases.

Advances in technology have facilitated the use of credit cards. Merchants are now
connected to banks electronically, so purchases are approved rapidly; online
shopping on the Internet is possible with payment cards.

An alternative to credit cards is the debit card, which deducts the price of goods
and services directly from customers' bank accounts. The design of the card itself
has become a major selling point in recent years. Since the value of the card to the
issuer is related to the customer's use of the card, there has been a rise of co-brand
and affinity cards, leading to higher card use. In most cases, a percentage of the
value of the card is returned to the affinity group.

The introduction of the latest in Visa chip card and contactless technology is
bringing about the next evolution in plastic cards. Transactions are not only easier
and more convenient, but may feature increased security as the card never leaves
the holder's hand. Editor's Note: I don't know about that statement. RFID, by some
accounts, may have a major security flaw enabling fraudsters to intercept the
wireless transmission of the radio frequency waves. Doesn't have to leave the
pocket. I've read reports that indicate the card information can, ironically, be
"swiped" while it's sitting in the consumers wallet.

This cutting edge technology has an application beyond just banking and the
functionality chip cards offer holds much potential for the card industry. The
amount of storage space and the processing power of the chip card may allow
various forms of information to be stored and used, such as biometric and personal
contact info. These advances may likely contribute to making the concept of a
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cashless society a reality and also make the idea of having a single card for
everything you need a realistic possibility.

While we still have some way to go before reaching Bellamy's vision of a cashless
society, the rise of plastic money has put payment cards in nearly everyone's hands
and it certainly looks to be a pivotal mechanism in the future of payment.3

The future
While the plastic card has been the standard for a half century, recent
developments show alternative forms of payment rising to prominence, from
online services such as PayPal to credit card keyfobs to chips that can be implanted
into cell phones or other devices.

But with the sheer volume of devices in use around America whose sole purpose is
to read a flat piece of plastic with a magnetic stripe, the "card" in "credit card" is
unlikely to pass from the scene any time soon. 4

Examples of credit cards

3
http://pindebit.blogspot.com/2008/09/first-credit-cards-quick-history.html
4
www.creditcards.com

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 5

This card was issued in 1958 by American Express and under the current definition
of a credit card, most would consider this the first credit card ever issued. Diners
Club did have a card prior to this, but it could only be used at restaurants.

Anyway, this paper credit card is a far cry from today’s titanium American Express
Centurion card!6

5
http://americanhistory.si.edu/collections/numismatics/moneyintrans/nncstory2c.htm

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Plastic American Express credit card, 1963. The first plastic credit cards appeared
in the early 1960s.7

6
http://www.techradar.com/news/world-of-tech/5-technologies-to-thank-the-1950s-for-623013?
artc_pg=2

7
http://americanhistory.si.edu/collections/numismatics/moneyintrans/nncstory2d.htm

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Credit Card Fraud – Credit Card Scam

Credit Cards are a convenient payment method, although they do carry risks. Fraud
with the use of stolen credit cards is committed for the purpose of obtaining goods
without paying, to obtain unauthorized funds from a bank account or to sell stolen
information further. Credit and charge card fraud costs cardholders and issuers
hundreds of millions of dollars each year. While theft is the most obvious form of
credit and charge card fraud, it is not the only way fraud occurs. A more subtle
form of fraud is misappropriation. The use of your card number (not the card itself)
without your permission. Misappropriation may occur in a variety of ways.
Examples are:

• A phone caller says that you need only provide your card number and its
expiration date to qualify for a special discount vacation

• A thief rifles through trash to find discarded receipts or carbons to use the
card numbers illegally

• A dishonest clerk makes an extra imprint from your credit or charge card for
his or her personal use

Fraudulent credit card information or credit cards themselves are usually obtained
through:

• Fake Web Sites

• Theft

• Pick Pocketing

• Phishing

• Credit Card Swapping at ATM Machines

• Skimming

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By being aware of the risks involved, knowing the types of credit card fraud and
by following below guidelines you can protect yourself from credit card fraud:

• Destroy your expired cards

• Immediately sign new cards

• Don’t keep your PIN in your wallet

• Treat credit cards as if they were real money

• Lost or stolen cards should be reported immediately

• Be cautious when giving information to websites or unknown individuals

• Verify transactions on your statement with your receipts

• Keep an eye on the credit card when making transactions in shops

• Don’t sign a blank credit card receipt

• Don’t borrow your cards – if a friend wants to buy something on the internet
and needs a credit card, be with him when doing a transaction or you do the
transaction for him (he might become a victim of credit card fraud, due to lack of
knowledge).

• It doesn’t matter whether or not their website is encrypted. Encryption

means that your data is secure between your computer and the merchant, not
between your computer and the credit card processor. The merchant will have your
card number regardless. If you’re buying from an unfamiliar or likely
untrustworthy store, consider using a temporary/virtual card number that card
companies like Citibank provide.

Security tips for merchants

Watch out for suspicious behavior of your customers. Some characteristics are in
common with fraudulent transactions, although none of this can be an actual proof
of fraud it still remains a good measure of identifying suspicious behavior. This
type of fraud can eat up your profits so watch out when a customer:

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• Buys a priced item on a new credit card

• Purchases large amounts of expensive items and doesn’t seem to care for
other amounts that can occur during the transaction (delivery, packaging…)

• Making small purchases to stay under the floor limit

• Asks what the floor limit is

• Making random purchases with no regard size, price or quality

• Takes the credit card out of his pocket instead of a wallet

• Awkwardly or slowly signs the receipt

• If asked, cannot provide a photo ID

• Validation date expired

• Credit card seems counterfeited or information altered

• Receipt signature differs from the one on the card

Common types of credit card fraud

What are the common types of credit card fraud? Counterfeit Credit Cards,
Account Take Over and Skimming. We are going to look at each one and describe
it.

Account Take-Over
Obtaining personal information for a thief is just about the same as if he found a
gold mine. If such occurs, the thief does not even need your credit card to empty
your bank account. He phones your credit card company and changes your address
information. Your current credit card will be reported stolen by him and he will
request a new to be issued or he will order a second credit card on his name,
pretending he is YOU, the authorized credit card holder, on the phone. This card
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will then be sent to the address which he changed before or he will obtain
instructions where to collect it. Your statements also will be sent to this new
address, making you unaware of the fraud. If you don’t get statements on a
monthly basis at about the same day, you should contact your financial institution
and check your records on file. Ask for address change or if any information has
been changed without your direct approval.

A thief can also steal your new credit card when it still is in your postal box or
anywhere on the way between the bank and you. This can be an organized crime
scenario involving assistants, such as a postman who intercepts your mail before it
is delivered to your address. A fraudster may even get a hold of information when
credit cards are issued to a particular address, waits near your mailbox and takes
your post. So if you get a notification about an important delivery, collect it as
soon as possible, because the longer you wait, the bigger the chance for a fraudster
to intercept it.

Counterfeit Credit Cards

Counterfeit or altered credit cards is in short, duplicating legitimate credit cards
which are then used for fraudulent activities. Latest technology is used in
accordance with lamination and embossing to create realistic looking credit cards.
To the untrained eye these will appear real and you will not be able to recognize
the difference, since a complete hologram as well as the magnetic strip is included
in the fake credit card. How to identify such will be explained a little bit later,
below.

Card Not Present

Obtaining credit card and personal information for unauthorized usage of such
information for fraudulent activities over the internet, phone or mail.

Credit Card Skimming

Electronic card reader, Skimmer, is used in stores legitimately when processing a
transaction. However in the hands of a thief such a tool can be used to gather

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information for later usage in criminal activities. Usually a small electronic device
is plugged into the real electronic reader and now gathering information of
everyone who purchased at the store or done a money request at the ATM
machine. Or a portable skimmer is used to quickly swipe your card through the
magnetic reader while you are not looking. Such information will be used for later
unauthorized purchases or making of a new counterfeit credit card. Usually done in
restaurants or similar institutions where you usually temporary lose sight of your
credit card.

Security Features On A Credit Card

In this example we will use a Mastercard. Visa’s security features are very similar
and those features that do differ will be explained. A Credit Card usually has 16
(some visa’s have 13) numbers embossed on their front, and every card has a BIN
code. The BIN CODE is the first 6 digits of a credit card:

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• The first 4 digits stay for the country and credit card company

• The 5th digit stays for the credit card type (debit card, gift card, credit card)

• The 6th digits reveals if the card is a partnercard, secondcard, company

card…

• The remaining digits stay for the account number, with the last character
being the check-digit

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Credit Card Embossing:
• MASTERCARD – The first of the 16 digits is a 5. VISA – the first of 13 OR
16 digits is a 4

• MASTERCARD AND VISA – First four digits will be printed below OR

above the embossed number

• MASTERCARD – Usually a MC character will be embossed next to the

expiry date. VISA – “V”,”CV”,”BV”,”PV” characters will appear next to the
expiry date

• MASTERCARD AND VISA – Embossed characters should be in

alignment, same size, height and style

If you see ghost images of other numbers behind the embossed it means that those
have been altered. If those have been altered there is a big chance that the
hologram (the shiny image which changes colors if you move it) will be damaged.
Also check if the expiry date has been altered.

Credit Card Signature:

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• MASTERCARD – A repeated colored “mastercard” name should appear on
all signature panels. VISA – Same scenario, but with the name “Visa”

• MASTERCARD AND VISA – A changed or altered signature panel can be

glued, painted, discolored, erased or covered with white tape

• MASTERCARD AND VISA – Credit card signature should compare to the

one on the sales receipt

• MASTERCARD AND VISA – Signature panel will have a partial account

number followed by a three digit validation code (CVV)8

8
http://www.bustathief.com/credit-card-fraud-how-do-they-do-it/
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My opinion
In my opinion credit cards are a great invention because it offers
customers great flexibility in managing their money, merchants are now
connected to banks electronically so purchases are approved rapidly
and using payment cards is possible online shopping on the Internet. As
I earlier presented an alternative to credit cards are debit cards which
deduct the price of goods and services directly from customers’ bank
accounts.
But like everything, also these cards have a downside they are not
completely safe and can be subject to fraud. There are invented safety
systems to eliminate this risk. It may be that in future those cards
disappear and we may have other ways to handle our money such as
chip -cards. This thing could revolutionize the world.

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Bibliography:

http://pindebit.blogspot.com/2008/09/first-credit-cards-quick-
history.html#ixzz0lfGVZ9Mx
2
http://www.geckoandfly.com/tag/credit-card-history/
3
http://pindebit.blogspot.com/2008/09/first-credit-cards-quick-history.html
4
www.creditcards.com
5
http://americanhistory.si.edu/collections/numismatics/moneyintrans/nncstory2c.ht
m
6
http://www.techradar.com/news/world-of-tech/5-technologies-to-thank-the-1950s-
for-623013?artc_pg=2
7
http://americanhistory.si.edu/collections/numismatics/moneyintrans/nncstory2d.ht
m
8
http://www.bustathief.com/credit-card-fraud-how-do-they-do-it/

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