Today, businesses use credit card merchant accounts to enable them to accept credit card payments from customers by connecting with banks that are part of credit associations like Visa or MasterCard. But the system we use today has not always been in place, and has changed significantly over time.
The first Diners Club and American Express cards were part of “closed-loop” systems comprising the consumer, the participating merchant, an the credit company that issued the card. In a closed-loop system, a card issuer like American Express handled all aspects of a transaction, including authorization. The issuer would also settle directly with the merchant and the consumer, without dealing with a separate banking entity. In the cases of the Diners Club and American Express, customers were expected to pay off their accounts in full at the end of each monthly billing cycle.
The option of maintaining a revolving balance was not introduced until 1959, when cardholders first had to weigh the freedom of higher credit lines against the greater risks of accumulating high finance charges. This gave cardholders unprecedented flexibility to purchase goods and services they might otherwise never had purchased, but having the choice not to pay off credit bills each month made money management more complicated and in some cases more dangerous for some customers.
Still, it was not until 1966 that the first general-purpose credit card was introduced by Bank of America, which established the BankAmerica Service Corporation. This was a major step toward today’s system of credit card merchant accounts, as Bank of America franchised the “BankAmericard” brand (which would later become Visa) to banks all over the United States. In that same year, a group of credit-issuing banks formed a national credit card system called the InterBank Card Association, which is now known as MasterCard Worldwide.
These new card associations (Visa and MasterCard) work in an “open-loop” system, which requires cooperation and fund transfers among multiple banks, and credit card merchant accounts for businesses. American Express, Diners Club, and some other issuers such as Discover still function in closed-loop systems. To learn more about credit card merchant accounts, please visit www.intlcardservice.com.