By now, the story of the birth of the credit card has taken on the stuff of legend. The current state of that legend dates the key event to Feb. 8, 1950. That’s 75 years ago today. And here we are.
Let’s first recount the legend. A man named Frank McNamara came up with the idea for a business account service in 1949 while having a business dinner in a New York City restaurant called Major’s Cabin. Problem: He forgot his wallet. Urban legend has it that he offered to sign for his dinner, promising to pay for it later, then called his wife to bring cash. Teaming up with his lawyer Ralph Schneider, McNamara continued to develop the idea of a charge account for businesspeople. On Feb. 8, 1950, they returned to Major’s Cabin Grill to pay with a prototype of the first Diners Club card. It is a fact that McNamara created the first consumer-facing credit card company, called Diners Club. And Major’s Cabin played a historic role in accepting them.
What a ride it has been for the plastic credit card. And even though it might face a minor existential crisis these days with the rise of digital wallets, pay-by-bank technology, virtual cards for B2B and the whole “card not present” trend for eCommerce, plastic cards are still a force to be reckoned with. The history of them started to get the attention of David S. Evans as early as the mid-90s. Evans is an economist who has published more than 10 books and 200 articles, many related to entrepreneurship, platforms, and the digital economy. He is chairman of Market Platform Dynamics and managing director of Berkeley Research Group. He has taught at the University College London and the University of Chicago Law School. His focus back then came to fruition with the history and analysis of the future of cards and credit by Evans and partner Richard Schmalensee in “Paying with Plastic: The Digital Revolution in Buying and Borrowing.” The book, according to publisher MIT Press, was years in the making when it was first published in 1999.
“They show how competition works in an industry that does not neatly fit any of the standard economic models,” MIT Press said of the book. “They describe how the payment card companies such as MasterCard and Visa have developed complex systems for coordinating transactions among their thousands of bank members and millions of cardholders and accepting merchants. Evans and Schmalensee also describe recent developments in the industry and consider its likely evolution.”
Its likely evolution, Evans saw back then, would most likely center exactly where it is coalescing right now: the mobile phone. Now that the second edition of “Paying With Plastic” is celebrating 20 years in print, we caught up with Evans, who told us that if there’s a surprising development over the past 20 years, it’s not that plastic cards are still in use. It’s that the mobile phone is not yet the dominant payment method for consumers.
“I thought in 2010 that there would be a move toward the mobile device being the form factor that people mainly used at the point of sale to pay,” he told PYMNTS. “And the thing that’s surprising is that while that has happened to some degree, it hasn’t really happened to much of a degree.” He had anticipated a shift toward mobile payments, but by 2025, plastic cards still dominate in the U.S. and most developed countries. Despite his personal early adoption of mobile payment methods, he acknowledged that using a plastic card remains more convenient in most situations, which has likely hindered the widespread adoption of mobile payments.
Evans emphasizes that the fundamental innovation is not the plastic itself, but the use of a set of numbers to connect payments between people and merchants. This system allows a disassociation between when the payment is made and when the merchant receives their money.
“The innovation is that I don’t actually have the money. I just have this set of digits,” he told PYMNTS. This innovation, he believes, will likely continue regardless of whether payments shift to mobile phones or other devices. He also sees tokenization as another innovation stemming from the digitization of payments.
Among Evans’ other comments on 20 years of “Paying With Plastic” and the 75th anniversary of Diners Club:
Continued Platform Model: Evans emphasizes that payments are fundamentally a platform business, where an intermediary is always involved, even with cryptocurrency. Whether it’s a government with coins or a company like Visa or Mastercard with cards, there will always be a platform with rules standing in between the payer and the recipient. He suggests this model will persist into the future, even if the form factor of payment changes.
Decline of Physical Plastic Cards: While he had previously thought that mobile payments would take over, Evans now anticipates a decline in the use of physical plastic cards in the U.S. “I would really be surprised if there were literally plastic cards that people were using” in 25 years, he said. He suggests people might still keep a card, but not as the primary payment method. This shift is likely to come from a move of transactions to online platforms. He also predicts that physical stores will become more digital.
The Persistence of the Underlying System: While the physical form factor may change, Evans highlights that the underlying system of using digits to represent money and an intermediary to settle transactions will remain. He notes that the plastic card is simply the form factor on which the digits are recorded. There will still be entities like Visa or Mastercard providing account numbers and acting as intermediaries.
Unpredictable Disruptions: Evans acknowledges that the future is not entirely clear and that artificial intelligence (AI) could bring unpredictable changes to how people interact at the point of sale. This suggests a potential for disruptions beyond just a shift to mobile payments, possibly involving new devices or payment mechanisms that are not currently envisioned.
Slow Pace of Change: Despite the potential for disruption, Evans said payment methods are remarkably resilient, noting that older payment methods like cash, checks and plastic cards tend not to disappear quickly. New payment methods often take time to gain traction, except in situations where the existing system is very bad.
While Evans expects the use of plastic cards to decline significantly in the next 25 years, he believes that the fundamental platform model of payment systems will remain, albeit with the possibility of unpredictable changes brought by AI and perhaps a new round of momentum for the mobile form factor.