ABA Banking Journal - September/October 2017 - 66

> FROM THE VAULT

How Credit Cards Fueled
Global Economic Growth
BY JOHN STEELE GORDON

THE FRANKLIN NATIONAL BANK, founded in 1926 on New York's Long
Island, had a well-earned reputation for banking innovation. It had introduced
junior savings accounts in 1947 and drive-up teller windows in 1950. It later
introduced the ATM and certificates of deposit. (In 1974, this innovation came
to an end when Franklin National Bank collapsed in one of the most spectacular
cases of bank fraud in American history. That, however, is another story.)
But while drive-up windows and CDs
were both great ideas, they didn't
change the world. In 1951, however,
William Boyle, a Franklin employee,
had an idea that did. The credit card
revolutionized the world of retail
commerce and beyond.
Large department stores had long
offered their preferred customers
charge accounts, but these needed
to be paid in full every month. And
small retailers could not afford
the clerical staff needed to handle
charge accounts. Moreover, they
had little expertise in determining
creditworthiness and thus
risked default.
The ordinary family, with few
financial assets, had always had very
limited access to credit. But in the
years after World War II that began
to change. The G.I. Bill guaranteed
mortgages for veterans. Men like
William Levitt were meeting the new
demand for houses by producing
them on an industrial scale,
turning renters into homeowners.
Franklin was headquartered in
Hempstead, New York, not far from
the first Levittown, in the heart of
the burgeoning suburbs surrounding
New York City.
66

ABA BANKING JOURNAL | SEPTEMBER/OCTOBER 2017

Boyle thought of a way to increase
the bank's business that would, at
the same time, help out both local
merchants and their customers.
The Franklin Charge Card, as it
was originally called, would relieve
merchants of the expense and risks
of maintaining their own charge
accounts and allow customers to
charge at many different places.
At the same time, by providing the
card holders with a line of credit, it
allowed them to make only partial
payments each month. The bank, in
turn, would charge the merchants a
small fee for each transaction and
charge the customers interest on the
unpaid balances.
At first, the new credit card was
used only as a means of handling
the credit and collection needs of
local fuel oil companies. But by
the next year 750 local merchants
and 28,000 customers, had signed
up for the program and charged
$2.5 million the first year. In 1952,
the National Bank of Kalamazoo,
Michigan, licensed the program
from Franklin and signed up 30
merchants and 18,000 customers in
three weeks. Other local banks also
began offering credit cards.

In 1958, Bank of America "dropped"
60,000 of its new BankAmericards on
its customers in Fresno, Calif., making
local merchants eager to sign up as
well. The practice of simply sending,
or dropping, unsolicited credit cards
was outlawed in 1970, after too many
cards ended up in the hands of
the uncreditworthy.
Bank of America soon began
licensing BankAmericard to other
banks, and in 1970, these banks
created the independent issuer
network that would become Visa. In
1966, a group of banks launched
Master Charge, which merged with
Citibank's Everything Card in 1969. It
soon became known as MasterCard.
Now credit card holders were able to
charge at retail stores and restaurants
across the whole country and soon
the whole globe.
An economy is nothing more than
the sum of all transactions that
take place in a certain place in a
certain time. By greatly facilitating
transactions, William Boyle's credit
card helped the global economy
to grow, and benefited bankers,
merchants and customers alike.
It was, in other words, the sort of
win-win-win innovation that makes
capitalism so dynamic and so
wealth-producing.
JOHN STEELE GORDON is an
acclaimed economic historian.
His books include An Empire
of Wealth, Hamilton's Blessing
and The Great Game.



Table of Contents for the Digital Edition of ABA Banking Journal - September/October 2017

CHAIRMAN’S VIEW
UPFRONT
PICTURE THIS
LEGAL BRIEFS
POWER UP PROFILE
THE TOP FINTECH TRENDS DRIVING THE NEXT DECADE
PLUG AND PLAY: FOUR WAYS TO LEVEL UP YOUR MOBILE BANKING APP
MAKING FRIENDS WITH FINTECH
LOOKING AT FINTECH THROUGH THE LEGISLATIVE LENS
LET’S TALK PAYMENTS
IS OUTSOURCING IT SECURITY RIGHT FOR YOUR BANK?
THE CECL RIPPLE EFFECT
FROM YOUNG AMERICANS TO ENTREPRENEURIAL CITIZENS
FINDING THE PERFECT NICHE
THREE ELEMENTS OF BANK LEADERSHIP
REAL ESTATE LENDING
ABA COMPLIANCE CENTER INBOX
WEALTH MANAGEMENT
FROM THE STATES
CORPORATE SOCIAL RESPONSIBILITY
INDEX OF ADVERTISERS
FROM THE VAULT
ABA Banking Journal - September/October 2017 - Intro
ABA Banking Journal - September/October 2017 - bellyband1
ABA Banking Journal - September/October 2017 - bellyband2
ABA Banking Journal - September/October 2017 - cover1
ABA Banking Journal - September/October 2017 - cover2
ABA Banking Journal - September/October 2017 - 3
ABA Banking Journal - September/October 2017 - 4
ABA Banking Journal - September/October 2017 - 5
ABA Banking Journal - September/October 2017 - 6
ABA Banking Journal - September/October 2017 - 7
ABA Banking Journal - September/October 2017 - CHAIRMAN’S VIEW
ABA Banking Journal - September/October 2017 - 9
ABA Banking Journal - September/October 2017 - 10
ABA Banking Journal - September/October 2017 - UPFRONT
ABA Banking Journal - September/October 2017 - 12
ABA Banking Journal - September/October 2017 - 13
ABA Banking Journal - September/October 2017 - 14
ABA Banking Journal - September/October 2017 - 15
ABA Banking Journal - September/October 2017 - PICTURE THIS
ABA Banking Journal - September/October 2017 - 17
ABA Banking Journal - September/October 2017 - LEGAL BRIEFS
ABA Banking Journal - September/October 2017 - 19
ABA Banking Journal - September/October 2017 - POWER UP PROFILE
ABA Banking Journal - September/October 2017 - 21
ABA Banking Journal - September/October 2017 - THE TOP FINTECH TRENDS DRIVING THE NEXT DECADE
ABA Banking Journal - September/October 2017 - 23
ABA Banking Journal - September/October 2017 - 24
ABA Banking Journal - September/October 2017 - 25
ABA Banking Journal - September/October 2017 - 26
ABA Banking Journal - September/October 2017 - 27
ABA Banking Journal - September/October 2017 - PLUG AND PLAY: FOUR WAYS TO LEVEL UP YOUR MOBILE BANKING APP
ABA Banking Journal - September/October 2017 - 29
ABA Banking Journal - September/October 2017 - 30
ABA Banking Journal - September/October 2017 - 31
ABA Banking Journal - September/October 2017 - MAKING FRIENDS WITH FINTECH
ABA Banking Journal - September/October 2017 - 33
ABA Banking Journal - September/October 2017 - LOOKING AT FINTECH THROUGH THE LEGISLATIVE LENS
ABA Banking Journal - September/October 2017 - 35
ABA Banking Journal - September/October 2017 - LET’S TALK PAYMENTS
ABA Banking Journal - September/October 2017 - 37
ABA Banking Journal - September/October 2017 - 38
ABA Banking Journal - September/October 2017 - IS OUTSOURCING IT SECURITY RIGHT FOR YOUR BANK?
ABA Banking Journal - September/October 2017 - THE CECL RIPPLE EFFECT
ABA Banking Journal - September/October 2017 - 41
ABA Banking Journal - September/October 2017 - 42
ABA Banking Journal - September/October 2017 - FROM YOUNG AMERICANS TO ENTREPRENEURIAL CITIZENS
ABA Banking Journal - September/October 2017 - 44
ABA Banking Journal - September/October 2017 - 45
ABA Banking Journal - September/October 2017 - 46
ABA Banking Journal - September/October 2017 - FINDING THE PERFECT NICHE
ABA Banking Journal - September/October 2017 - 48
ABA Banking Journal - September/October 2017 - 49
ABA Banking Journal - September/October 2017 - 50
ABA Banking Journal - September/October 2017 - THREE ELEMENTS OF BANK LEADERSHIP
ABA Banking Journal - September/October 2017 - 52
ABA Banking Journal - September/October 2017 - 53
ABA Banking Journal - September/October 2017 - REAL ESTATE LENDING
ABA Banking Journal - September/October 2017 - 55
ABA Banking Journal - September/October 2017 - 56
ABA Banking Journal - September/October 2017 - 57
ABA Banking Journal - September/October 2017 - 58
ABA Banking Journal - September/October 2017 - 59
ABA Banking Journal - September/October 2017 - ABA COMPLIANCE CENTER INBOX
ABA Banking Journal - September/October 2017 - 61
ABA Banking Journal - September/October 2017 - WEALTH MANAGEMENT
ABA Banking Journal - September/October 2017 - FROM THE STATES
ABA Banking Journal - September/October 2017 - CORPORATE SOCIAL RESPONSIBILITY
ABA Banking Journal - September/October 2017 - INDEX OF ADVERTISERS
ABA Banking Journal - September/October 2017 - FROM THE VAULT
ABA Banking Journal - September/October 2017 - cover3
ABA Banking Journal - September/October 2017 - cover4
ABA Banking Journal - September/October 2017 - outsert1
ABA Banking Journal - September/October 2017 - outsert2
ABA Banking Journal - September/October 2017 - outsert3
ABA Banking Journal - September/October 2017 - outsert4
ABA Banking Journal - September/October 2017 - outsert5
ABA Banking Journal - September/October 2017 - outsert6
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