History
Originally posted onSeptember 28, 2024 @ 10:07 pm
The Mega Brands That Built America Recap for Easy Money
-This week’s The Mega Brands That Built America talks about the credit card industry.
-It all began in 1949, when Frank McNamara realized that he was short on cash for lunch. He talked to his friend Ralph Schnieder, who thinks there should be a better way to pay for things. At the time, it was only cash, check or in store credit, which was different than the credit cards we have today. He tells Frank that there should be a way to pay for something using a card….in short, charging something.
-The men take out a loan to work on the idea, talking to high end restaurants to help them execute the idea. Unfortunately, no one was into this idea….yet.
-After a lot of persuading, they finally get eleven businesses to agree to this new concept and then go to pitch the ideas to consumers. Once they get that into play, they work on making the card.
-The first card invented was the Diners Club card, which is a piece of paper that can fit into a wallet. It soon became popular and by the end of 1950, over 42,000 people have a card.
-Despite having so many people with the cards, the men are losing money due to people not paying bills, overhead and other financial issues. Ralph wants to charge an annual fee, but Frank isn’t sold on the idea and sells his share of the company for $200,000.
-Ralph ends up at a crossroads and wonders what to do next. He decides to go with the annual fee idea and finally begins seeing a profit. The company goes international and became the first credit card accepted around the world.
-JP Williams, who is working for Bank of America, wants to get in on the credit card action. He comes out with the BankAmericard, which can be accepted anywhere in the state of California. In 1958, 60,000 bank members get credit cards worth $3000, which is a very risky move, since it is not known if people would pay them off in time.
-Howard Clark also wants to get in on the action, wanting to create a card that can be used nationwide. Enter American Express! He and his partner want to make their card more exclusive, charging a higher annual fee than Diners Club. They launch it in October 1958 and make it look sleek and exclusive.
-Since American Express was already in the traveler’s check business, they have an in with many customers, allowing thousands of people to get the card. They also add an interest fee to make them seem even more exclusive. The card can also be used for travel, giving them an edge.
-Ralph is struggling with the Diners Club due to the competition, so he takes a page from AMEX by allowing the card to be used for travel, but with a lower fee.
-JP ends up bleeding money due to people not paying their cards off in time. He gives up on the business.
-Howard notices that people are forging cards and that they are very flimsy due to being made from paper. He decides to make them plastic, launching the new card in 1959. This would transform the credit card business forever, but the company is still struggling.
-Ralph is still trying to find a way to get a leg up in the business. He tries and fails to collaborate with Howard, who wonders if not collaborating is a huge mistake.
-A man named Rudy Peterson takes over BankAmericard and not only makes a plastic card of his own, but works on ways to prevent fraud and adds late fees. The company sees a profit, but he is not sure about sharing this idea with the world.
-American Express, who is also giving business loans in the 1960s, find themselves in trouble with a fraudulent company called Allied. The company goes bankrupt, leaving AMEX holding the bag. However, since Allied was a fraudulent company, they are not required to cover the debt. Howard decides to pay it anyway, which actually ends up saving the company, making them a huge name in the credit card industry.
-In 1964, Ralph unexpectedly dies. Diners Club ends up being bought out by Discover and Capital One eventually. However, Diners Club ends up struggling before this happens.
-With all this happening, more credit cards are being released.
-BankAmericard ends up partnering with other banks in the country, but doesn’t realize that he must do background checks on people before they can get cards. This allows for fraudulent activity and company in big trouble. Ralph ends up stepping down from the company, leaving BankAmericard in trouble.
-AMEX partners with IBM to invent the magnetic stripe in order to prevent fraud. In 1971, AMEX releases these new cards, which gives people more security and confidence while using their cards. Before long, all credit card companies are using this new technology.
-AMEX goes next level by connecting their cards with famous names, making having a card seem like a status symbol.
-BankAmericard decides to go international and changes their name to Visa, which was released in 1976. They kept fees low and became the go-to for international travel, making them the number one card in the world.
-More next week, stay tuned.
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