Ridiculous HistoryWhen you think about it, credit cards are a pretty fascinating idea -- they're convenient, ubiquitous and, often, predatory. In today's episode, Ben, Noel and Max explore the strange origin story of the credit card.
Ridiculous History is a production of iHeartRadio. Welcome back to the show Ridiculous Historians. Thank you, as always so much for tuning in. Credit on the production goes to our super producer, mister Max Williams.
Swipe my credit cards. I don't know if it is.
Get to the magnetic stripe. There's a story behind that.
It was that come hithertone, Max, I dig it very very sylvia of you, sir.
I am Ben Bullen, joined as always with the man, the myth, the legend, mister Noel Brown does mister Brown.
Yes, sir, I've got to ask you. Do you have credit cards? You know I do?
And it's funny. It's funny you should ask. Not really, it's actually very in character that you had asked.
Podcast.
It's totally cool, man, we see through your ruse. Ben Bowlin, you'll reindeer games.
Well, give me some credit. I will.
I'll give you all the credit. I'll give you more credit than you deserve. No, untrue, you deserve every scrap of credit.
Though. Thank you very much.
Is heaps I heap it upon you, but no to answer your question, I I remember a time where I felt so scared about my financial future. And then I was like, oh, I haven't done any of the things. I'm not going to have any credit established. And you know, at this point, I think I was in my teens. Looking back on it now, though, I realized I kind of did everything at the exact appropriate time. I got my first you know, debit card and stuff when I was a teenager, and then I didn't get a credit card until I was probably you know, twenty, maybe eighteen nineteen, something like that. But for any kids out there, you young people out there, it is a good idea to get and utilize a credit card very responsibly early in life, because you're establishing a credit history and you can't just build that out a whole cloth.
It's a history, and you want to kind of build on that.
So yeah, I think I do remember having a period though where I was in not crippling credit card debt, but more than I.
Would have been comfortable with.
And thankfully, through the magic of podcasting, I've pulled myself out of that. And now I do have two credit cards that I earn points with, so I try to use them and then pay them off and reap those points.
Maybe children also make your parents and authority figures get you a prepaid credit card. The rat race has begun, says America.
It's time to run and scamp or Max, You're not like it, but we're in it. You know, there's nothing we can do about Yeah, give.
It to us. I mean, so, as I've joked on here before, I am the fiscal education business and Greek guy. I have actually five credit cards at this point, now I have I don't carry any bounce on any of them. But I have one card that I only use for travel, has great travel points, and it's got like benefits of unredewing, and so I'm playing this trip. And it's then kind of a hellish process of booking, like some state in New York.
And last night finally.
Got confirmation ten thirty pm, super tired, barely awake, I went, I booked the stuff, and then I realized after I booked it that my debit card and my credit card looked very similar. And I booked it on the worst possible of all of my cards, so meaning a higher interest rate, lower points, just a waste of time or is it one of.
Those ones where you have to pay in blood at the end of the month, the blood price I mean I get to quarterly quarterly, Yeah.
Because you chased the blood, how about you? Man, oh man, thank you so much for asking. Well, Yeah, so I have I have several cards in a specific arrangement.
I don't And by that I mean, I bet you mean in your wallet even an order you know of operation, that you've got them stored in.
Order of operations fits for sure. I definitely I don't use them to the point where the credit card or the credit rating system here in the US is a bag of badgers all its own. It's a future episode. But I recently got news, and this happens every so often. I'll get news from one of the credit card companies that they're going to deactivate my account because I have not used the card, but in activity, they're going to hold my credit card or my credit score ransom unless I mess with them a little.
And so then I'll go to a.
Place and buy something gum, right whatever, right and uh And just for the record, Noel did say gum like chewing gum, not a gum.
I said a gum. Yeah, don't come after us, and then we'll uh.
And then what I'll do is immediately go and pay that pay that off, usually before it even posts beat the interest rate, and uh, it's always kind of a haha moment. But that's because credit cards and the credit system, I think, became their own sort of fascinating, at times scary and certainly ridiculous game. I mean, how would we explain a credit card to someone from nine hundred BCED.
I promise to pay you for this later, uh, and am legally bound to do so by contract.
I got to jump in here.
No, I know you've playing fall At four more recently have you run into It's not a random encounter, it's an actual plan accounter. The guy trying to pitch you on a CAP's credit card. I have not, so it's an I don't I don't want to spill too much of it. But it's an eastern Boston by the by the coast. You can run into a guy who is like, for one hundred and twenty five caps, I'll give you this car that's worth one hundred caps.
You can use anywhere, but the convenience, it's obviously a griff. Sounds like a Magic Beans kind of scenario. Bro, I promise you, if we run into it, buy it.
Because twenty five caps isn't worth that much, because it's just like the jokes they build into the game behind that card is more than worth.
It for the ready. But when they're when they're fired, they're fire.
And honestly, some things they've done to sort of fix Fallout for have really made it a much more playable game. I'm a little annoyed by all the reminders that my villages are being sacked because I really don't freaking care about.
That aspect of the game.
Yeah, find those notifications to be a little they take me out of it. But I'm looking forward to playing Nuca Cola World and I'm about to start the far hardware deals.
Yeah, I mean the whole settlement thing. It's like the Scarrim Civil War. It's the part of the game that I wish I could just take out.
But I mentioned the magic Beans scenario because I think that's actually a pretty cool, you know, sort of allegorical stand in for a credit card.
It's sort of like this promise of future prosperity.
It's a way of buying in to being one of the swells, even if you can't actually afford it. Right now, that's at its worst, right the way we've described it at the top of the show. We're trying to pitch it as more of a financially responsible tool that you can use to build your credit and then become one of those swells. But when people use it to reach an economic status that they actually can't afford, that's when things get real nasty, and therein kind of lies the grift.
Right. Here's how it works. These credit cards are extremely common throughout the world, in the United States in particular. The u United States is the home of the modern credit card, as we'll see, But the basic idea is simple. Think of Popeye. We'll have an episode on Popeye coming along too. Wimpy will gladly pay you on Wednesday or whatever for a Hamburger earlier in the week. That is the heart of the credit card. A company provides you with a certain amount of credit, a floating IOU opportunity, and with this account you can pay for things without spending cash on hand at the time of purchase. In theory, when everything works well and is not predatory, you pay back what you owe at the end of each cycle, which is usually a monthly billion cycle for the company, and the company makes a bit of a profit, a bit of a vigorous by charging interest on the money that you have borrowed for the amount of time that you borrowed it. There are also other fees, like maybe annual fees, maybe you know, any other kind of.
For the privilege of a certain type of card, like I believe American Express is an annual fee, but you're also supposed to pay your ballance off every single month, that's the idea, and if you don't, that interest rate can be rapacious.
So the idea then is that these other fees could be what we would call financial accoutrement. It's simple enough in theory, but it gets much more complicated in credit an incredibly quick rate. Interest rates speaking, rates can vary widely. Some can be profoundly dangerous, predatory, usurious. A lot of cards have countless perks, like we mentioned Skymiles. You might get annual gifts, discounts on other financial products which improve with the perceived eliteness of the card. Some cards are only for specific demographics of income or credit or profession. Some cards are invitation only. In short, it's a messy, messy bowl, a very expensive, very profitable spaghetti.
So how do we get here?
Well, it turns out, like most things, we go into our ridiculous history, the origins of credit gods are more ancient than one might think, you know, as is the origin story of currency itself. The moment currency became a thing, someone kind of probably figured out, probably several people in parallel that, you know, I could lend the currency to people and make money on that alone, because I have more than they do. They need what I have, therefore I can capitalize on them.
Yeah. In the ridiculous cinematic universe, I like to picture sort of a Space Odyssey two thousand and one moment, but instead of a monolith, there was the idea of invisible value. Someone came up with the idea of cash, someone else wanting to borrow it. This third guy, who might be an alien shows up and says, hey, I have an idea, and then you know, off to the races ticket in teams.
Let's check out the Point Sky, which is a great resource, by the way, for the kind of stuf we're talking about.
In terms of which card you might want to get, what kind of works.
You might be seeking. It's good stuff, he says. It's not really one single company. There is one single points guy but I like to think of it that way, so we'll go with this, he said. The Mesopotamian and harpen civilizations use clay tablets to track their trade and transactions, much like modern day credit cards, according al Gosha, And by the way, think about the flintstones. We've ever seen a credit card depicted on the flintstones. It's a big, giant piece of stone, a piece of slate, probably, so much like modern day credit cards.
These the clay tablets.
According to Jonathan Mark Kinoyer, an archaeologist and professor of anthropology at the University of Wisconsin Madison, earthen tablets bore seals from the two civilizations and were used out of necessity.
What does that sound like, Ben, The seals almost like a.
Bank insignia or the particular whoever issues your credit card. The volume of goods being traded between them was so large that paying with physical money would have been too cumbersome.
Yeah, it's part of why currency is a thing, right, even gold backed currency. You can't give people.
Really difficult to part it around ten thousand bucks worth of gold.
So if we fast forward later in the Babylonian age or in the Babylonian Empire. We see that the Code of Hamerabi, which is fascinating one of the earliest examples of modern law, or the predecessor thereof. The Code of Hamarabi has a lot of rules and it mentions the concept of credit, and it talks about credit in terms that we would associate today with things like loans. They had rules around what happens when you don't make good on a loan you owe, or which you are fraudulent.
The rules were strict.
They're mirrored in a bit diluted, more civilized form in n credit card protections and regulations, and as we know, you know, consumer credit. The concept of it made agriculture possible.
Totally in a very real way.
Well, I mean to think about it in general, like you know, in order to start a business, Let's think of agriculture as like one of the earliest forms of like setting up shop. You need capital, and you can't make capital if you don't have the business. It's sort of a chicken or the egg kind of scenario. So you need someone to be an investor in you, aka loan you some money. And if that's done at a reasonable rate and you're good at agriculturing, you can pay that back lickety split, and then before you know it, you're raking in the corns or whatever it might be and reaping the benefit, reaping the harvest, et cetera.
Right, Yeah, let's go to Lewis Mandel, financial economist and author of a book called the Credit Card Industry, a history which we read for this show. Consumer credit, he says, is characteristic of agrarian societies. Quote, they very often have to finance agricultural operations by borrowing money for seeds and other things to keep them going until harvest. Just like a credit card interest rate. As long as the weather is okay, then you're gonna make good at the end of the year. So the idea is ancient, but the application changes in step with technology. I love that you mentioned American Express on the way there. We got to mention our Knights Templar episode from Stuff they Don't want.
You to know, absolutely the creators of the very first bank.
I also believe we all agreed a pretty surefire inspiration for the Iron Bank in the Songs of Ice and Fire novels by George R. M.
Martin.
So yeah, the Knights Templar, creators of that very first Bank made to help safely, I guess, guarantee the safe transit of money during the Crusades. That was a whole, big part of it, and it was very, very interesting. They took a little cut from those transactions. And because once again they were kind of first to market. Wasn't the deal that they amassed so much freaking wealth that they rivaled the powers that be and therefore became a giant threat.
Yeah.
Yeah, King Philip in particular did not dig these guys. I think the main reason they fell, yeah, was King Philip the fourth of France, because.
That's the deal with the Iron Bank too. And then in the books is that they are basically the power behind the throne. They are so wealthy they command isn't it the Golden Company, or they're in charge of like this entire private army that could topple the entire the whatever the realm.
Yes, yeah, they're having kingdoms. Also, King Philip owed the Templars money, which is where things started to go wrong. But anyway that happened, learn more about it and stuff they don't want you to know. We mentioned America, American Express, I should say at the top, So let's head to America. American Express specifically, and learn a little bit about them because they're a big player in.
These early days.
Very interesting because a lot of the companies that we're going to mention that were part of this merger are to this day their own thing, or at least a couple of them separately.
Yeah, exactly.
So American Express was the product of a merger of three companies, Wells and Company, Livingstone Fargo and Company, h and Wells Butterfield. How Wells gets to be in two of these operations. These are the same Wells. It's got to be and could be awkward names, very true, but we certainly know I am currently not really, I'm honestly out of laziness due to several acquisitions.
Am a member of Wells Fargo, which is they had some issues.
Right Ben, remember with the secret fees and the inflation of those fees in order to make quotas and all of that.
Didn't work right with me. But in the buttet twitch banks.
Yeah, and not to keep referencing stuff there on what you know, but check out the Wells Fargo episode up there wherein it's proven that they non consensually created accounts for holders.
Imagine that.
Yeah, well for acount, real people, real accounts that have an account made exactly dummy accounts that allowed them to inflate those numbers so that they could meet their sales quotas.
And I still have Wells Fargo as well. I mentioned that episode. So okay, good to know that I'm not the only rube out here. You shook a finger. Yeah, yeah, yeah, jump in there.
I just know of they talk about that fake account thing on last Week Tonight in one of the couple of seasons ago. So there's good information about that last Week tonight. And yeah, I mean I bank with Truest, which is a weird conglomerate with a terrible name.
Yeah, and it's uh, it's keep it over interest.
Also shout out to the writers of Last Week Tonight for following stuff they'll want you to know.
Yeah, true, no, no, no, they have very parallel stories that haven't write around the same time.
But good information in both of those resources.
And so American Express was quite successful. By eighteen sixty five, they had nine hundred offices in a total of ten states. This was extraordinary and awesome for any financial company. At this point. There were big things on the horizon. This is where we start to see the early signs of the modern credit card. By eighteen sixty five, they still are not called American Express yet, But by eighteen sixty five they introduced something called the charge coin, a literal token. We'll get to it in a second. But it wasn't until let's see, eighteen sixty eight they merged again and they became the American Merchants Union Express Company. Five years after that, eighteen seventy three, they become the American Express Company. Also around this time they start creating their first money orders and travelers checks.
Well you know what it is, too, Ben.
In a lot of ways, the history of credit is a history of virtual payment, a history of payment without actually forking over the cash.
Right, it's all backed by cash.
You're paying with a promise or a promisory note or whatever it might be. But no one ever, really, I don't think, even in these days, gets paid. The counts are settled and they're balanced, but I don't know, like, was somebody at one point or another, if you were buying something on credit, delivering the loot or was it just kind of like you now have credit through this creditor, Like it does seem to be if it's not exactly virtual money at this point, it's tending toward that direction because it is a practical problem that needs to be solved. To your point about carting all this gold and specie.
Around, also check out our earlier Ridiculous History episode.
What do we call it?
Weird things that have been used as currency?
I think that's right.
Peppercorns, coscos, the conks, yes, conk shells. So we do to your point, No, we see a trend, a slow trend toward the idea of money or value over the physical representation thereof, and between nineteen hundred and nineteen forty we see an increase in credit as a form of payment. This is where we see those charge coins, and then something called shoppers plates. So department stores issue these little metal plates, and they've got a customer's specific number, their ID number, and then a little mark a seal again of the merchant.
But you can't really take those with you.
You can take the charge going with you, but the shopper plate kind of stays at the store.
And just to go back to the whole idea of money, orders and traveler checks once again, that is like a way of virtually transmitting payments, and it saves you back to that whole Knight's Templar thing. It ensures the safe passage of those funds and the Knight's templar. It was in a lot of ways about protecting people from being robbed physically. In this case, it's more like, well, you don't even have We'll keep the money here and we'll issue you this piece of paper, this document that is a stand in for the money that you can then pay it on the other side of wherever you're going and then will balance the accounts with them after the facts.
Yeah, exactly, and for a little bit of a transaction fee. And if we happen to loan out some of your money to other people for this part of the game, right, well that's fine.
You'll get what you need and it's time.
Western Union also introduced what they were calling metal money in nineteen fourteen, and this was a kind of kind of elite thing, also a plate kind of situation, right exactly, as a metal plate. It would give to the customers they liked. And then ten years later, it's like nineteen twenty four, gas companies start doing this. General Petroleum Corporation issues metal cards and you could take this card to your gas or your mechanic service, and you can't just pay later. And these companies took this idea. This is important because they took the idea of a single store credit token and they let you take it to multiple branches of the same business, which is.
A big deal because you know, prior, you know, even with like company credit or like a company store script or whatever, you can only use it in very specific places. And the idea, yeah, what this is heading towards is a more universal system of credit acceptance. And nowadays, you know, if a place has you know, it's funny, isn't it funny? Ben, Pretty much anywhere we'll take Visa MasterCard, but not everyone will take American Express.
You got to check on that one, right, Yeah, part of it.
American Express, perhaps due to their age, still has some different rules, right, like higher fees in many cases for the business owner. And then additionally the idea which doesn't apply in every case, but the idea that one must pay the entirety of the balance at the conclusion of each monthly billion cycle.
Yeah, and jump in here real quick, as you know, I managed restaurants for a number of years and at the end of at the end of a shift of every employee of the restaurant order, you print up the entire sheet of all the transactions and you would have a breakdown. Is cash, demit, credit card AMEX Alex is not a separate one. And the reason why is because AMES generally passes a lot more of the cost the fees onto the vendor and not the consumer. That's why Amex generally gives you much better rewards than a lot of cards. Another one is that way is Discover and the two cards I use for my day to day is Amex and Discover for that reason because I get great points on them.
Oh and we should say no credit card company nor financial institution reached out to us to ask about this episode. Absolutely, so we are being objective here. Those metal plates, those precursions of the modern credit card, they were about two and a half by one in a fourth inches. They add your name as a customer, you're billing address, and in department stores like your Macy's and what have you, that shopper plate would be kept in the store. You would go there, you would tell them who you were, and they would make sure you were there by checking your plate. It's simpler in some ways to like old school beer gardens that might keep a specific stying for regular customers.
Oh fun, Yeah, I never thought about that. Yeah, it makes sense.
And let's you know, yeah that you're that you're a It's almost like loyalty programs or something like yeah, sorry, as a.
Loyalty program, like going to Lyndall calder a history professor at Augustana College out in Illinois. Different stores like Macy's again might also issue brass tokens or paper certificates to their their very best customers, and you would walk in, you would show the customer the token, you would walk out of the store with whatever you want, and it was assumed you would pay the thing by the end of the month. If you did not, you would have other additional fees. You would be in trouble and you would be embarrassed at the Macy's.
Are we kind of been still in boom times here? We haven't hit depression times quite yet. Right, We've survived depress You've survived depression times.
We've had it now.
Credit now is back to being pretty cheap, pretty attainable, right, I don't know that we have yet necessarily those kind of usurious predatory practices. I'm sure they exist. But you know, as long as there have been people slinging credit, we have things that we talked about this on, stuff that I want you to know too, like these rent to own rent to centers, the predatory practice of that once again capitalizing on this notion of you too can live the American dream, you too can have the sectional sofa and the and the color television. But then there's all of these hidden interest rates that are absolutely backbreaking.
Yes, and absolutely on purpose in some ways. In the early system, it was kind of like the old practice of layaway in your Walmart or your kmart.
You know, I guess that's what I'm saying, right, It doesn't seem like people are as nasty. It seems like it is a little more beneficial to the consumer early on. It doesn't quite devolve into some of the nasty things we know until a little later.
Yeah, predatory rates were not as normalized at this point. I think that's right, school, and maybe maybe people have better financial home training, so you would be less likely to agree to anything that would charge you twenty five percent of a purchase, you know what I mean, Because it's terrible stuff. But in nineteen forty six things were still often geographically based. This is where we see folks like John C. Biggins from Flatbush National Bank in Brooklyn create a system called charge it charge.
Without an E.
So, you know, what's cool. Apps do the same thing today.
A Z and there's got to be a spot for a Z in there somewhere. Yeah. Yeah.
And this this card came from the Flatbush National Bank, and if you were a Flatbush National Bank customer, you could charge purchases directly to the bank in a two block radius.
Wow. So like in the neighborhood. It was great, very localized. That's wild, isn't it funny?
Though, been the way the term the word charge right, It used to me and I the merchant charge you a price for this thing. But then it kind of got flipped where the term charge came to represent more of like pay later, charge it charging it must be from this, Honestly, the whole expression of charge it, you know, musta although if you look at it on paper, it really says charget.
Man.
Let's just be honest, it says charget.
Yeah.
It's American English, which sounds like a god dang it gotten target. Big Jungus and everything.
Changes in nineteen fifty post in a New York minute, post World War two American man the diners Club. You know, for a lot of us listening today, you may have memories of your predecessors having diners Club, or you may have still around.
I think it is I checked very very rarely. Is it accepted though, I believe if it's sort of almost a running.
Gag in a way.
I'm sure they've done things to try to modernize a little bit, but it accepts diners Club.
It's very unique.
And to finish what I was saying, like the the idea is that you might associate with older relatives, or you might associate it with sketch comedy, right, because there is something humorous at this point. But it turns out the diners club concept is really the heart of the modern credit card.
That makes a lot of sense. Ben founded by Frank X. I knew we could drop a Zer and X in there somewhere McNamara and Ralph Schneider. Diner's Club was the first independent car company, soon joined by Bloomingdale's Alfred Bloomingdale had a very similar idea, and we also associate even to this day credit cards with department stores, the idea of having a charge accounts, you know, with Bloemy's. So, as the story goes, Frank McNamara, he already was a very successful businessman. He had an absolutely horrifically embarrassing experience at a restaurant New York called Major's Cabin Grill.
So it's the Major's Cabin. I got it.
You're in the Major's cabin. You're being grilled for He had a fine meal at Major's Cabin. Then, oh, heaven's to Betsy, I've forgotten me wallet. I left it in me other pants. I don't know why he's talking like a pirate, but he is.
And luckily, according to the story, and this is from the Diner's Club website, his wife came to bail him out and pay the tab. He had one other recourse, because this was the day wherein you couldn't you know, you've seen it before, folks. Somebody might try a card of some sort and for one reason or another, it doesn't work. They usually have another card. His embarrassment is like being herded on the precipice of a cliff, and his wife saves him from the chasm. But according to the Good Folks Diners Club. This social trauma transformed Frank.
They say. A year later, in February of.
Nineteen fifty, he returned to Major's Cabin Grill with his partner Ralph Schneider. When the bill arrived, McNamara paid with a small cardboard card known today as a Diner's Club card. This event was hailed as the first Supper, paving the way for the world's first multipurpose charge card.
Not to be confused with the Last Supper, but equally as historically profound.
Everybody's eaten. We've got a little vintage picture of the Major's cabin grill. By the way, there were a steakhouse.
Oh you know, they were dropping some steaks.
I saw this, I saw another, so I got a little deep in this one. Apparently there is a different narrative from locals and contemporaries of the neighborhood, and the story is that mc namara may have kind of created his own myth because he was already friends with the dude Major, the restauranteur.
Who oh, Major's cabin grill. You think he could have given him a pass and not made a big scene.
He just created this scene as an apocryphal sort of story, right.
Even weirder, it sounds like it sounds like Majors and his buddy mc namara, where they were just pals, such that Majors was the only restaurant in town who would be the pilot, the pilot program for this dynasye because then it could be like, oh, it could be great for my restaurant too. And later they made up the forgotten wallet story.
That's what I'm saying, though. Man, if they were pals, he would have let him go fetch his wallets.
He would have given him come back tomorrow. I mean, and io you was.
Absolutely a thing, you know, because the credit card didn't exist.
Oh heavens, what a story. So what are you see up? Do you? What do you think the Is there a myth here or is it totally there?
Always is Most of these about us on these legacy companies, they all feel kind of fifty may I'm not going to say fifty percent, twenty percent bullshnitt, thirty percent maybe yeah, yeah.
And so a lot of other credit card companies tried to do the same thing, and just like the early days of Soda Pop, a lot of these other companies failed diners Club was successful explosively, so they started with two hundred people and just fourteen restaurants in the entirety of New York, and by one year that number had drastically changed.
Forty two thousand card holders with around five hundred half a million dollars in transactions, three hundred and thirty businesses agreeing to accept this within a single month. Five years into this whole scheme, approaching half a million members, three hundred thousand members.
Quick inflation calculator. Those great numbers store aboo beep five hundred thousand dollars per month in nineteen fifty one. Is a dude a boo beat about six million, twenty nine thou seven hundred and sixty nine dollars and twenty three cents per month.
Sounds like he's rocking and a rolling into what we might consider the modern day of credit and credit card companies, because he you know this, this is like absolutely a smash, and when that happens, you start seeing people looking at it. How can we improve upon this? How can we add features that benefit us, the card issuers, while also selling it as features that benefit the card holders.
Somewhere in the middle is the truth.
Because you know, again, with all these points and stuff, you got to kind of do your homework. Just because the thing offers you points, you got to balance it with what the annual fee might be, with how much you have to spend to get the points. Are the points actually of value or is it just kind of pixie dust?
You know? Right? And this thing to be clear, the Diners Club was kind of more of a charge card at this point. They would let you get away with it for a little bit, but you had to pay everything off at the end of the month. You couldn't carry the revolving balance, which is the real difference between oh yeah, a modern credit card and a charge card.
That is kind of where the nastiness comes in is with revolving credit and not to say there can't be you know, I mean, I think most all modern credit cards, well no, not all. In fact, it's odd. It's more unusual for them not to be so the majority are revolving. But you got to be really careful and know how to calculate that. APR. We'll talk about that again. Hey, it's kind of cool to have a ridiculous history episode that also offers a little bit of meager financial advice, because this is not stuff that's taught in schools, and we always talk about how that's kind of jacked up that there's not Maybe there are today, But when I came up, they didn't talk about APR with us.
They didn't talk about how to get a good mortgage rate or what that even entailed, or I have check back in and say, hey, can you lower this exactly? Yeah, you got to ask. And I will always fondly remember.
When I paid off credit card debt, because like a lot of people, I had some credit card debt for a little bit, and when I was paying it off in full, I became an absolute revenge oriented monster. I practiced something called malicious compliance. So I buy something that was like five dollars, and then I would pay the credit card company ten dollars immediately, and then I would just never touch the card because eventually, at some point they would send me a check for five dollars for something like, yeah, five or four dollars, and I just wanted to nickel and dime them on postage because I took it absolutely.
I took it personally. Man, No, I get it.
But again, you know, there's a lot of positive stuff to be said about a credit card system if you use it correctly. And I think we've all been in periods of our lives where maybe we were carrying more a deva debt than we would like, or a balance that we would like. So if you're anyone's out there and they have that, or you have a really desperate situation, there are resources out there for that too. You can consolidate these things onto lower interest cards as long as your credit rating isn't shot, which sometimes that comes with it. You carry these balances and you don't pay, it really tanks your credit. Honestly, the credit rating system might be an episode undo itself. The history of that and the different agencies. Yes, it's a very you know, but I do recommend getting a free credit Karma account through buying a car.
I did really that. It's not exactly perfect, but it's real close.
It's close enough to know roughly where your credit score is, and based on what the salesperson told me, it was real close. And it doesn't put a hard hit on your credit score every time you check your score, whereas if you apply for a new credit card is something called a hard inquiry that actually can lower your score and those stay on your account for a handful of years before they drop off, But checking your score with credit Karma doesn't do that.
And we'll tell you also, folks about the internal system that financial institutions use, which is sometimes referred to as the real credit score, not the consumer facing one.
Yeah.
Yeah, I think it's a beautiful idea. Let's get on the docket.
Well, let's also note the Franklin National Bank put out something in nineteen fifty two, a card that's sometimes called the first true credit card because that's the one where you could buy now you could keep a revolving balance and just pay with interest. They're the ones who figured out that if we get people to make a minimum payment, then we will keep making money off of them at least twelve times a year or actually compound interest, so they're making way more than that.
Well, I mean, what the modern credit card system sort of became. It's just a much simpler route to a loan that you always have a revolving.
Loan, you know.
I mean, we've we've known about loans as far back as this Again, there was money, and that was something you had to organize with an individual or an organization or a bank or whatever. A credit card is a one time thumbs up that gives you an amount that you can you can't over you know, overcharge past that amount, and as long as you're paying it back, you've got this revolving line of credit that is essentially a running loan, right, a running loan that.
Is advantageous to the person's supply in the initial capital. And this is why a lot of Americans were skeptical about this new and I dare say ridiculously American invention. Again, let's not forget this is the country that tried cocaine and said needs a.
Little more pep. So they did.
They weren't familiar with the concept of loans, and they said, now let's make it spicy. So Time magazine talked about this at length. They had an article in nineteen fifty eight where they said the following credit, which was once the sign that a person had troubled meeting his bills, has taken on a glamorous new meaning in recent years. Now a man with a credit card can rent a plane or boat or car, live it up in nightclubs, take a safari to Africa, and even get to Kelly Girl for temporary office help why because of the credit card game.
But isn't that describing living above one's means? Like, that's what that is.
It's like selling that BS American dream that is all based in gross capitalism.
You too, What the heck is a Kelly girl? Is that like a girl Friday? It's like you're freaking like a like a like an office assistant.
So in nineteen forty six, this was a hot new thing. It was an agency perhaps it was like, yeah, it was founded by William Russell Kelly, and you could hire temporary workers to do office admin got it, secretarial where we might now use a task rabbit for right, Right, Because they started calling them Kelly girls because the vast majority of the temporary workers were female, and because because Kelly was a big company, they would accept credit cards.
I wonder if that's where Peggy Olsen originally came from in the Mad Men series. It was a temp originally like a typist, and then she, of course, you know, graduated up the ranks and became a marketer or a seller.
But that makes sense, yeah, And they.
Would have been the lowest of the low in terms of the office hierarchy.
Right.
It was a rough one.
You know, we've seen how temporary workers get treated sometimes because not the best and once the idea of credit cards was out there, the competition, of course begins. American Express. They're already known for their travelers checks. It was even within our lifetimes. It was even a pro travel tip to get some MX travelers or cashier's checks because they couldn't be used.
By people who might rob you.
So anyway, American Express starts their credit card program in nineteen fifty eight, the Hilton hotel chain says, all right, we've already got a loyalty card, we'll make it a credit card as well. That same year, in fifty eight, Bank of amer America, which later became Visa, they tested out something they called they test out credit cards by doing their own weirdly militaresque campaign. They called it the Fresno Drop. So they mailed sixty thousand Bank America cards credit cards to people in Fresno, California. And this was not perfect, to be honest. There was a lot of fraud because people felt like they were getting free money. But it was still successful enough that Bank of America said we're going to expand this program. We're going to do a Fresno drop across the world and now boom, boom boom, we have visa and odds are a lot of people listening to the show today have a visa card or account somewhere attached to their identity.
Yeah, maybe we could talk a little bit about that, But I mean, what makes visa so pervasive?
Do you have any insight into that bend.
Might be outside of the scope of this conversation. That one seems to be the catch all, the biggest one, the one that is accepted everywhere.
Well, I guess part of it is it's slightly more skewed toward debit cards, right as well, Like a visa is a debit cards, So already have people in the door with a bank account that's a baby going down or a checking the account so they can get what they feels an advantageous rate on a credit card like MasterCard, for instance, is much more associated with credit cards. And it also says here I just did a quick search that they have the lowest fees in terms of that. That's really what it comes down to.
American Express can charge two point five to three percent and merchant costs, whereas Visa and MasterCard just charge way less than that.
Okay.
Yeah, and we're talking at this point about a trillion dollar industry.
It is nuts. It might not even be real money. But nobody blow on the house of cards too hard or it'll all topple. Yes, that is a drug ball thinko mix.
So there's this other thing that happens, a feedback loop. Right as credit card companies grow, more and more merchants.
Want to be riding the wave. They accept these things.
They don't want to just be cash only because now they're losing customers. It's like Apple pay today, you know what I mean, Like more and more places take Apple Pay because more and more people have iPhones. You meet folks where they are and that's where you take their money.
Yeah, and it's just so convenient. People are just whipping out the phones to do a tap pay. If you're not able to accept that, you're losing out on sales, you know, it's just as simple as that. Also, more and more people and vendors online are taking things like Venmo and cash app, and I think there's probably going to become there's going to come something of a reckoning with all of this stuff. Right where Venmo, you know you're transferring money without paying any fees. At what point is the government going to be like, that's not how this works. You can't keep doing that. It feels like we've been on the edge of this wild west of payment the payment wars for quite a while.
Now.
Yeah, and above a certain amount for a single transfer, the taxman comes.
That's right.
And I'm wondering when that happens, because I just transferred somebody via Venmo a substantial amount of money for my part of a vacation rental home and there were no fees charged that were visible. It was just my my amount that I put in in on my end out the same amount on the other end. So you gotta wonder, at what point is the taxman going to come?
You know, knocking guys are going to space Jesus. So, yeah, it is a good question.
We know the legislation will inevitably be reactive towards the technological innovation. That's something that keeps happening still, right, which might in some way explain predatory usurious credit card rates. We did promise that we would talked about the magnetic stripe. So nineteen fifty nine, right until nineteen fifty nine, a lot of these cards are paper right or their actual metal. American Express introduces the plastic charge card. Diners Club follows up a few years later in sixty one, and in the nineteen sixties, IBM develops the magnetic stripe. Our stuff A genius how stuff works is coming out here. The story is like this, So designers knew magnetic tape. They were all very hot about computers at IBM. What no way. They knew that magnetic tape could be a great information medium or conveyor of info. But they couldn't figure out how to KEYP bit on the friggin card. They were baffled. And then, speaking of women not getting a lot of credit, an engineer's wife at IBM, uh said.
Why don't you just try to iron it on the card? And they did.
They literally ironed the stripe onto a card.
No way, Yeah, the iron like for shirts. Yeah. And that's the.
Story and this function for a long long time. A lot of us listening tonight still have credit cards with stripes, right, But more and more, I would say chips. People are moving toward chips.
Yeah, you know what I found though, The chips wear out way faster, faster. Yeah, I don't know about you.
I have to do that thing where it's like third times the charm, try the chip several times, and you have to swipe.
Yeah, it's weird. There's some you know, it's sort of a mystery.
But it's like you got to try the chip a certain number of times before it will allow you to swipe as a secondary attempt. And it's all in the programming. Yeah, I'm sure, I'm sure, but I think it's different. It probably varies depending on the point of sale, you know.
Yeah, I've had a number of like, you know, gas stations, and I remember my first chip card. The chip like died so quickly, and it was like this gas if I went to all the time and I put in one time and the guy's like, uh huh, all right, second time.
Third time, all right, and then swipe.
And then also you've got to check for the fraud, right, just very quickly. You need to check whenever you're going to swipe something, especially at a gas station, any point of sale like that, even the chip. Now, what you need to do is take your hand. Make sure to clean your hands later, but take your hand and give that little bad boy a jing jiggle because if it jiggles too much. It might be a skimmer.
Oh yeah, that's absolutely thing.
And we've talked again, how do we keep this just very much in the wheelhouse of stuff that I want you to know.
I have talked recently about these.
New long range skimmers that can be a thing and that can actually grab data off of those RFID chips. So you might even consider having one of those wallets that shields electromagnetically shields that thing.
Again, we're not suggesting that anybody live in.
Fear of being ripped off all the time, but it's just good to have your wits about you and know you know what's going on out there.
Don't live in fear, but live informed and be prepared not to sound too much of an eagle scout about it.
I think that's a good expression. Don't live in fear, live informed. That's really that's a T shirt right there.
Oh okay, we'll write it out. Hang on, I'm actually in our research brief putting this in. Okay, that's very good, all right, living forward, All right, we got that, folks, NOL thank you so much for the shout out on that. So we didn't want to leave you without a dope beat the step two step two, step two, step two. Wi Wick, did you ever want a black card?
You guys? Well, my face card is black and quite heavy.
It is not an official black car, which I know is the invite only amx I believe, but I meant to mention this earlier.
You know, the whole history of the plates.
And all of that, like, that's why amx is are all about the gold and the platinum and they look like But I do believe that some of the real exclusive ones are printed on metal. There are ones that actually have some kind of metal content. If I'm not mistaken, you're.
One hundred percent correct.
I have a hefty well, I have one of those hefty amxes, and that that's like a psychological hack.
They want you to feel the weight of it. That's right, and you yailed it.
With the invitation only cards, one of the most famous is the Black card, friending fans of hip hop. It's technically called the Centurion card from American Express. And then there's the other invite cards are like the JP Morgan Reserve card. Dubai has one, City Group has one. The main difference is you are expected to spend a lot of money with those cards, and in return they give you bonkers perks, you know.
Damn. I think even our meager American Express Platinum cards have some metal content in them. They do have a bit of hef to them. I didn't think about I thought I didn't think we were Dang, we're with the swells already.
Man.
Nice, Not quite but no, you're right that idea of a limit. But again, you know, there have to be some serious perks to a card like that. Otherwise what's the point. Is it just about the prestige? Like what does it get you? We can mere mortals like us even google that stuff.
Yeah, private planes, VIP services, you can call. You can call a twenty four to seven line.
Concier type of stuff.
According to the Great Repository Knowledge Wikipedia, is ten thousand dollars to join, with a five thousand dollars per year annual fee for the Black Card.
Five thousand year per er.
Yes, as you are sold the amount of money you have to spend a thing because granted, you're gonna get incredible points back on it, but you have to be spending a ridiculous amount of money.
Because it takes wealth to make wealth.
Well, I'm not super proud of this, but it's something that I'd like to change in my behavior. But I buy a lot of stuff on Amazon, a lot a lot of stuff, and I have an Amazon Rewards Chase card, and I rack up some serious points from all the stuff that I buy, and I actually use that to pay the card.
You can even use it.
It gives you monetary value points that you can go back and use it to pay your credit card if you want to. So you know, I have done the math on that one. The interest rate's pretty low in general, and it gives you those perks. And like I've I've gotten to a place where I have like three or four hundred dollars in points that I can use to buy something for my kids, you know, or whatever. Again, this is not this is having the opposite effect of what I intended. I do think Amazon is a problematic company, but god damn it's so convenience.
Especially with their new medical services. Whoe betide. Folks be well aware for statistics to end in the modern day. At the end of twenty twenty three, per Forbes, the average credit card debt per borrower was six three hundred and sixty bucks. That's about ten percent higher than twenty twenty two. This is ushering in an all time high collectively, and part of this is due to all the financial stress of the pandemic and the inflation involved tech. Right now, we are estimating that there is fifty billion dollars in new debt in a single quarter of the year, which leads us to a total of one point one three trillion in overall US card debt. Not super great. Don't live in fear, live informed. We'll get the t shir. Yes, that is a good slogan, ben. I hope it doesn't already exist in my but I bet it doesn't, you know.
And one way too to think about credits is you are paying for a service, and there are times where if the interest rate is low enough, sometimes carrying that balance is in the end of the world if it allows you to free up your cash. If I don't have to pay for this now, and I've committed to paying a slightly higher price for the privilege of paying for it over time, that's cool. I also have a line of credit through PayPal. There are a lot of opportunities if you have a good credit score. PayPal credit lets you buy things with zero percent interest for six months, So if you pay the thing off in six months, you don't pay any interest at all. So it's basically like free money or free you know, free credits, and that's pretty cool too, so and it accumulates or accrues that per purchase, so that's something to look into as well.
If the rate of interest that you're paying is less than the rate of inflation, which is difficult to imagine these days, but if that occurs, then you're in a good spot, sort of like if you are investing in stocks or indexes and so on, then you want that return rate to be ideally higher than the rate of inflation. It's an internal battle, just like our battle on whether or not we wanted to make this a two parter. I think our consensus is beefy one parter BF one Pete.
We're beefed up with this, folks.
Thanks so much for tuning in. We're going to have an episode on credit scores coming out. We're returning to micro nations, wal also answer the question about micro state versus micronation.
All that to come and more our ridiculous history.
Thanks so much to our super producer, mister Max Williams.
Eves, Jeff codes here and Spira aj Mohammas, Jacobs the Quizler, Jonathan.
Mad Dog, Strickland the Puzzler. Wait a minute, flip that reverse? It wonk of those bad boys, you know what I mean. Ben.
Thanks to you for being the research associated extraordinariy on this episode.
I learned a lot, and I hope y'all at home did too. Thanks folks, We'll see you next time.
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