Credit Card Prototype — Financial History

Prototype for Magnetic Striped Financial Transaction Card. IBM: [Poughkeepsie, NY?], ca. 1960. (3 x 5 in.; 8.5 x 5.4 mm). Cardboard, half-inch magnetic tape along horizontal bottom edges, cellotape; housed in plastic case.

The present example has been carried in the developer Mr. Svigal’s wallet since its conception in the late 1960s, while the other prototype is housed at the Computer History Museum in California.

Jerome Svigals, "The Long Life and Imminent Death of the Mag-Stripe Card," IEEE Spectrum, June 2012.

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One of only two prototypes of a cornerstone of the modern economy.

While credit cards for individual companies had been in use in the U.S. since the 1920s, it was only with the invention of the first Diners Club card, then the American Express and Bank of America (VISA) cards in the 1950s, that the idea of a universal credit card came into general use and acceptance. However, these raised letter cards required extensive customer service and substantial time to process. As the postwar American economy boomed, a new process was on the horizon—one that would transform everything from retail sales to personal banking and the very idea of personal consumer credit.

Seeking to create an application that would increase computer sales, IBM set about transforming the raised letter credit card. IBM had experience with magnetic recording technology for audio since WWII, and the Advanced Systems Team, headed by Jerome Svigals and Forrest Parry, settled on magnetic tape as the only convenient data storage method capable of easily accessing the necessary alphanumeric information. Once the engineers decided on magnetic tape, the biggest challenge was designing a durable, inexpensive card.  The earliest trials were done on cardboard, although the acceleration of the invention meant that only two such prototypes were made before the plastic card was developed.

As Svigals explains, “IBM did the work for free and didn’t even patent the machine-readable card it came up with. Rather, it offered its solution gratis to all, assuming that the more transactions conducted using machine-readable media, the more computers would be sold to process them.  The strategy worked beyond anyone’s dreams.”  

The magnetic card makes possible the trillion dollar consumer credit industry. 

"Do you take plastic?"  In 1970, American Express was the first to embrace the new design, issuing 250,000 plastic magnetic strip cards, for the first time enabling customers to transact directly with airport kiosks and banks. Consumers quickly adopted the idea, with credit cards becoming not just a convenience, but a necessity. In 2011, more than 20 billion credit card transactions were recorded in the United States alone. 

The age of "paying with plastic"  heralded in a new financial era of transactional independence through open compatibility models and the parallel increase of credit card issuers. Introducing the availability of easy consumer credit, the financial services industry encouraged levels of  personal debt unheard of in previous generations, incurred simply by "swiping your card." Yet, it proved transformative to the buying power of the average citizen and is now seemingly such a fundamental instrument of modern life that the Federal Reserve estimated $972 billion in outstanding revolving debt from credit cards in the U.S. economy.

Just as the death of writing checks and even basic printed currency was predicted, many speculate that physical credit and debit cards will soon be obsolete in favor of smart devices.  Yet the way modern consumers transact daily business continues to be defined by the principles introduced by the present invention.