How Did Credit Cards Work Before Computers: Exploring the Pre-Digital Era of Credit Cards

Shamima

Career Consultant & Blog Writer

Published: July 1, 2023

Before computers, credit cards worked through manual processes. Merchants would use mechanical devices called imprinters to transfer the customer’s card information onto a paper sales slip. The merchant would then send the sales slips to the credit card company for authorization and settlement, which involved manual verification and processing. The credit card company would review the sales slips, authorize the transactions, and reimburse the merchant for the approved amounts.

In this comprehensive article, we will delve into the fascinating history of credit cards and explore how did credit cards work before computers. Join us on this journey to uncover the evolution of credit card transactions and understand how they worked before the age of computers.

Early Beginnings of Credit

In the earliest forms of credit, individuals relied on informal arrangements with local merchants and businesses. People could make purchases on credit and settle the dues at a later date. This system facilitated trade and commerce but lacked a standardized method for credit transactions.

The emergence of Charge Plates

In the late 19th and early 20th centuries, charge plates made their appearance as precursors to modern credit cards. These metal plates, typically issued by individual merchants, featured the customer’s name, account number, and other relevant details. Customers would leave their charge plates at the store, and the merchant would record the purchases on the plate itself.

Paper-Based Credit Cards

In the 1920s, paper-based credit cards began to gain popularity. Hotels and oil companies were among the first to issue these cards to their frequent customers. These cards allowed customers to charge expenses directly to their accounts and settle them later.

Diners Club and the Birth of Modern Credit Cards

The concept of a universal credit card emerged with the establishment of the Diners Club in 1950. Frank McNamara, the founder, aimed to create a card that could be used in multiple restaurants. While the initial network was limited, it laid the foundation for the modern credit card industry.

Manual Credit Card Imprints

Before computers, credit card transactions were processed manually. When a customer made a purchase, the merchant used a manual credit card imprinter, often referred to as a “zip-zap” machine. This device had a paper roll and a sliding mechanism that imprinted the customer’s credit card information onto the paper. The merchant would then tear off the imprinted portion and provide it to the customer as a receipt.

Sales Slips and Signatures

To ensure security and verify the authenticity of a credit card transaction, sales slips, and signatures played a crucial role. After imprinting the customer’s credit card information, the merchant would fill out a sales slip, which included details such as the date, merchant name, purchase amount, and cardholder’s name. The customer would then sign the sales slip as a form of authorization.

Batch Processing and Authorization

In the pre-digital era, credit card transactions were processed in batches. Merchants would collect sales slips throughout the day and submit them to the credit card company for processing. The credit card company would manually review and authorize the transactions, ensuring that the customer had sufficient credit available.

Settlement and Reconciliation

Once the credit card company authorized the transactions, the settlement and reconciliation process took place. The merchant would receive payment from the credit card company for the approved transactions, typically through a check or bank transfer. At the end of the day or a specific period, the merchant would reconcile their sales records with the credit card company’s statement to ensure accuracy and identify any discrepancies.

Advancements in Telecommunications

As technology progressed, advancements in telecommunications had a significant impact on credit card transactions. Telephone lines enabled merchants to communicate directly with credit card companies for transaction authorization. This improved the efficiency and speed of processing credit card transactions.

Introduction of Computer Networks

In the 1960s and 1970s, the introduction of computer networks revolutionized credit card transactions. Large-scale mainframe computers were used to process transactions in real time, allowing for faster authorization and settlement. This advancement laid the foundation for the digitalization of credit card transactions.

The Rise of Magnetic Stripes

During the 1970s, magnetic stripes were introduced on credit cards. These magnetic stripes contained encoded information about the cardholder and their account. Merchants used electronic card readers to extract and process this information, further streamlining the transaction process.

The Birth of Online Transactions

With the proliferation of the internet in the 1990s, online transactions became a reality. Customers could now use their credit cards to make purchases on various e-commerce platforms securely. Encryption and secure protocols ensured the confidentiality of cardholder information during online transactions.

Chip-Enabled Credit Cards

To enhance security and reduce fraud, chip-enabled credit cards were introduced in the early 2000s. These cards embedded a microchip that generated a unique transaction code for each purchase, making it more difficult for criminals to clone or counterfeit the card.

Mobile Payments and Contactless Technology

In recent years, mobile payment technologies and contactless payments have gained popularity. Mobile payment apps and digital wallets allow users to make payments using their smartphones or other wearable devices. Contactless payment methods, such as near-field communication (NFC) technology, enable users to simply tap their card or device on a payment terminal to complete a transaction.

Conclusion

The evolution of credit card transactions before computers showcases the ingenuity and adaptability of the financial industry. From the early days of charge plates and paper-based credit cards to the introduction of manual imprints, batch processing, and computer networks, credit card transactions have come a long way. The advancements in technology have made transactions faster, more secure, and accessible to a broader population. Today, credit cards are an essential tool for everyday purchases, and the journey from their pre-digital origins to the present has revolutionized the way we conduct financial transactions.

how did credit cards work before computers: FAQs with Answers

Q: How did they check credit before computers?

A: Before computers, credit checks were typically done manually through reference checks and credit references. Merchants would contact other businesses or individuals who had previous financial dealings with the customer to gather information about their creditworthiness. This involved making phone calls, sending letters, or even visiting in person to verify the customer’s reputation and financial standing.

Q: What is the old way of processing credit cards?

A: The old way of processing credit cards involved manual imprinting of the card onto a paper sales slip using a mechanical device called an imprinter. The merchant would fill out the necessary details on the sales slip, including the customer’s name, card number, and transaction amount. The customer would then sign the slip as a form of authorization. At the end of the day, the merchant would batch-process the sales slips and submit them to the credit card company for authorization and settlement.

Q: How did people pay off credit cards before the Internet?

A: Before the Internet, people primarily paid off their credit cards by mailing checks or money orders to the credit card company. The credit card statement would include a payment stub, which the cardholder would fill out and enclose with the payment. The cardholder would then send the payment via regular mail to the address provided by the credit card company. Alternatively, cardholders could also make payments in person at the credit card company’s local office or authorized payment locations.

Q: How did credit cards work in the 80s?

A: In the 1980s, credit cards worked similarly to how they work today in terms of the payment process. Cardholders would present their credit card to a merchant who would manually imprint the card details onto a sales slip. The transaction would then be authorized through a phone call to the credit card company. The merchant would send the sales slip and other necessary documents to the credit card company for settlement. However, technology advancements during the 80s led to the introduction of electronic authorization terminals, allowing for faster authorization and processing of credit card transactions.