Credit Cards - History

Banking has evolved a long way from the days of the medieval moneylenders counting coins on the bench to the present scenario, where it is hard to trace the trail of money from the beginning to the end. 

The trail starts right from the small saver leaving a few rupees in his local bank to the billions of rupee loans raised by a syndicate banks and financial institutions, capable of financing projects in any country in the world. Still, these banking majors are heavily dependent upon their retail home base of savers and borrowers. Most of the bankers began focusing on this retail market segment as global competition intensified in late seventies and early eighties. 

Credit cards, one of the banking products that cater to the needs of retail segment has seen its number grow in geometric progression in recent years. This growth has been strongly supported by the development in the field of technology, without which this could not have been possible. 

The history of phenomenal growth in the credit card segment traces way back to in 1950, the time when ‘Diners Club’ was established. The card provided select members with credit at 22 restaurants in New York and collected a commission for paying the bills promptly. The credit card industry got a further boost with the arrival of American Express in the arena in 1958. American Express began selling their card as a prestige to hotels, restaurants, shops or airlines in America and slowly expanded the network across the world. 

The success of these two players attracted many other banks to join the credit card business. The entire breed of new players saw a fresh opportunity of granting unsecured loans at high interest rates to those credit cardholders who did not pay their bills on time. These banks were not so concerned with collecting commissions from shops but were thriving on high interest income from those who did not pay their bills on time. 

Starting from ‘Diners Club’, some 50 years ago, the card industry has been growing with a rapid pace world over and so has been the growth in the domestic card industry. With only two players in domestic card industry, HSBC and Citibank in the early 80s, the number swelled to over 25 in the year 2001. 


There is immense growth potential in the domestic card industry. A glance at the Indian population reveals that India’s middle/upper middle class (target segment) represents a population of over 10 m. There are only 2 to 3 m cardholders, each possessing an average of 2 cards. This is a very low figure given India’s huge middle to upper class population. There is no doubt that the domestic card industry has to yet to mature and offers significant long-term growth potential. 

Given the lack of maturity of the domestic card industry, its growth will depend upon building core retail business, with more sophisticated products. In the expansion of domestic credit card market, the existing foreign players, SBI, other nationalized banks and the new domestic private sector banks are expected to play important role with complementary strategies. 

Foreign banks with the advantage of technology and industry experience are expected to concentrate on increasing card spending and customer loyalty in the major cities. SBI, on the other hand is expected to capitalize its superior distribution network to expand card acceptance in the smaller towns. The new private sector banks would have the opportunity to capture significant market share by combining the strengths of foreign banks and nationalized bank like SBI. 

Although at present the card market is mainly limited to India’s relatively bigger cities and tourist locations only, there is also a potential in smaller cities. Domestic banks, owing to their vast network and reach to smaller cities, can easily tap this potential. They would be better off, penetrating into smaller cities and bringing credit card to the masses rather than cannibalizing other foreign banks’ existing cardholder base. 

The efforts of these banks to increase the card base is going to be wholeheartedly supported by the residents of these smaller cities with their higher disposable income, changing lifestyle, increasing travel and the growth in the entertainment sector.