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Last Updated: Monday, 26 June 2006, 14:50 GMT 15:50 UK
The credit card is 40 this week
By Ian Pollock
BBC personal finance reporter

An old converted shoe and boot factory in Northampton was the site for a revolution in the nation's borrowing and spending habits 40 years ago.

The UK credit card is 40 years old this week

It was there that 30 new bank clerks, freshly recruited the month before, joined a team of ten or so managers from Barclays bank to launch the country's first ever credit card - the Barclaycard.

The bank stole a march on its rivals by copying an idea that had taken off in the United States in the 1950s with American Express and Diners Club.

Barclays bought a credit card system from Bank America in California, set up shop in Northampton, and got its branches to trawl through their records for more than a million of their most likely and credit-worthy customers for a mass mailing of new unsolicited cards.

One of the people who had been taken on was John Healey who, until then, had worked collecting life insurance premiums door-to-door for the Pearl Assurance company.

People didn't know what they were really
John Healey, former Barclays worker

He says not all the bank's customers liked the idea of the new bits of plastic that had arrived in the post, uninvited.

"People didn't know what they were really, they just arrived on their door mats.

"Some were quite happy, some were absolutely up in arms about it.

"We got loads of letters back saying 'what the hell are you doing, we shall never use these'."

Plastic revolution

Barclays has lost the original business plan which the bank's directors approved to launch the new venture.

John Healey
John Healey sent out more than a million credit cards in one month

But it was certainly revolutionary for the UK.

Only half the country's population had bank accounts and many people were paid weekly in cash with the average wage being 10.

For most people the only way to pay for anything was in cash or by cheque.

Borrowing was possible but it was often a tedious and sometimes tortuous affair, involving interviews with a bank manager to justify a loan, or filling in forms for hire purchase agreements for goods like fridges and TVs.

One of the first Barclaycard customers was John Wallington, who lives in Torquay.

He recalls that using the new cards in shops was not at all easy:

"You had to look for a sign and then go in.

"Not all of them were ready to accept it and even if they had a machine, if they hadn't had a customer with a card before they often couldn't find the machine.

The manager who was the only one who could use it [credit card machine] would be out to lunch
John Wallington

"Or the manager who was the only one who could use it would be out to lunch."

At first, the new cards required you to repay all your spending when you got the monthly bill.

The breakthrough for the industry came a year later in 1967 when the government allowed cards to offer extended credit.

A rival to Barclaycard called Access was launched in 1972 by the other main UK banks, the Midland, Lloyds, NatWest and the Royal Bank of Scotland.

This spawned one of the more well-known advertising campaigns of the last few decades with the card being styled as "your flexible friend" which then became a popular catchphrase.

Sucker market

Since the early 1990s, the number of credit cards available in the UK has boomed and there are now more than 1,300 of them.

John Wallington
John Wallington found the new cards were a mystery in some shops

Their growth has been stimulated in particular by the arrival of US banks in the UK market and now there are more than 75 million credit and charge cards in circulation.

Despite this apparent increase in competition, the considerable profitability of lending on plastic hardly changed at all between 1993 and 2004, according to recent studies by Shelagh Heffernan, professor of banking and finance at the Cass business school in London.

She says interest rates on credit cards also appear immune to changes in the Bank of England base rate.

What has been going on?

Professor Heffernan says this all reflects customer inertia.

"Banks are extremely good at identifying the consumers who don't tend to change banks or credit cards very frequently - most consumers don't.

"So charges paid by customers who don't repay in full each month are giving these banks a very large margin."

To all intents and purposes, these people form a self-defining, captive, sucker market.

Her advice is to switch excessive credit card borrowing to unsecured bank loans, for which banks now charge much lower rates of interest than before.

Cards and debt

Of course, credit cards are very useful and convenient. They are a very easy way to pay for things.

People are more likely to file for bankruptcy if they borrow on credit cards than if they borrow on other things
Professor Ronald Mann

Just remember when you could buy a theatre or cinema ticket only by queuing at the box office.

Now we use the phone or the internet.

And if you do pay off your spending each month they are a great way to borrow interest-free for a short period of time.

But hand-in-hand with the growth of borrowing has gone the growth of debt.

Selection of credit cards
Thousands of credit cards are now available

Tales are common of bankrupt individuals running up tens of thousand of pounds of debt on cards given to them by banks who did not check if they could repay.

Professor Ronald Mann, of the Texas University Law School, author of a new book about the growth of the credit card industry around the world, says that credit cards do appear to lure people to spend impulsively.

"As credit card borrowing increases personal bankruptcies increase.

"And people are more likely to file for bankruptcy if they borrow on credit cards than if they borrow on other things."

Outstanding borrowing on credit cards in the UK currently stands at 56bn, up sharply from just 14bn ten years ago.

But credit card debt has been falling since the start of the year because their use has been tailing off in favour of debit cards.

So maybe the 40th anniversary of the appearance of the credit card here may mark the high-water point of its popularity with the shopping public.

What are your views on the issues covered in this story?

Your comments

Credit cards were marketed as a benefit to retailers and suppliers
John, Croydon

When they were first introduced, credit cards were marketed as a benefit to retailers and suppliers because they made goods and services available to people who previously could not afford them. Spending booms as we know them hadn't existed before. How different now that we have all become 'hooked'. Card holders are now charged an annual fee for the privilege and there is frequently a surcharge for paying with plastic.
John, Croydon

As a young NatWest bank clerk from Leicester, I was one of the volunteer temporary staff drafted in to work at Mariner House, Pepys Street, London to help launch the Access Card. It was late 1972.

We sent out a colossal number of unsolicited cards, many of which came back from the 'creditworthy' addressee with rude comments! But the major factor was the avalanche of postal applications, which ran at thousands a day. The staff pool was doubled and then doubled again and eventually we caught up with the deluge.

I still have, as a souvenir, a joke application from a certain "Elizabeth Windsor" living at Buckingham Palace.
Rob Davis, Telford, Shropshire

Initially, I resisted credit cards, until I had a motorbike accident and needed to replace my ripped work suit when I had no spare cash. The bank manager wouldn't give me a short term overdraft but approved a card application on the spot.
Keith L, Chelmsford, UK

Ah the credit card!!! I can officially say it is in my opinion, the greatest and cleverest con of the 20th century and looks to keep being so right into this century. If you don't have the money don't spend it. Simple.
Fiona, Edinburgh

Credit cards can be useful if used for the right reasons. I am self-employed and use a credit card to pay for everyday items as my income is very erratic, so therefore I can budget that on the 15th of every month I know I have that bill to pay, and I do...in full. If you are employed and receive a regular similar income each month, you know exactly what money you have spare. That's when the credit card becomes a problem when you run out of cash!
Kevin, Scarborough, North Yorkshire

Credit cards are evil, they should never have been invented. My husband and I are over 95,000 in debt with them. We have actually only spent a fraction of that amount, the rest is interest built up over 10 years. We are now in the hands of a debt management company and if all our debtors stopped charging interest today, on our wages it will take us 64 years to pay it back.
Lizzy W, Nottingham, England

Credit cards have been a disaster for people trying to survive in a limited income. As it has been said, they whisper "it's not really money" and avoid people having to ask two vital questions: (1) Can I afford it (2) Do I really need it. I stopped using mine for anything but major purchases at the start of the year and am now, for the first time for years, actually solvent not panicking to pay a credit card bill each month.
Robert Wise, Doncaster, GB

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