SCIENCE & TECH 17
26 September 2008
50 years later, how the credit card changed the world
By Patrick May San Jose Mercury News
SAN JOSE, Calif. – They called it the Fresno Drop. Fifty years ago this month, Bank of America mass-mailed to nearly every home in Fresno, Calif., a small piece of plastic called the BankAmericard. The credit card had arrived, a shiny corkscrew for each recipient to unbottle thousands of dollars in spending money that hadn’t existed before they ripped open those envelopes. That first taste went right to Fresno’s head. By the second year, cardholders had racked up nearly US$60 million in purchases. BankAmericard morphed into the Visa powerhouse. And a half-century later, as America embraced and then exported the concept of buying things with money folks didn’t necessarily have, the whole world has gotten tipsy. And following in the wake of the subprime mortgage mess, the credit card bender could end up being uglier than ever. “Credit lubricated the economy in ways we couldn’t have conceived of before,”said Bella Berlly, a certified financial planner in California.“But as a society we became completely inebriated on it.
Being able to just ‘put it on my credit card’ fuelled the sense that you could do anything, like a Superman effect.” The world would never be the same. Diners Club, a so-called charge card that required complete payment each month, had come a few years earlier, the legendary brainchild of a wealthy New York financier caught cashless after a meal at a highclass steak joint. But the Fresno Drop would pack a much bigger wallop. Dee Hock, the credit card guru who later turned the BankAmericard into the sprawling Visa network of member banks,was really the father of“the electronification of money,”says spokesman Will Valentine at San Francisco-based Visa, whose corporate mantra is to“root out spending by cash and checks.” Along with its younger siblings like debit and prepaid cards, the revolving credit card – which charges interest and lets customers make partial payments – fundamentally changed not only the way people think about money, but western civilisation itself. Santa Clara University finance Professor Meir Statman describes credit as “interwoven into our society.”With consumers no longer tethered to cash on hand or in the bank, the financial realities of
our lives – how we save, spend, borrow and budget – went through a sort of time warp. Armed with plastic, consumers now could charge their way into glittering new lifestyles their parents could only have dreamed of. “Before credit cards, credit came in small-dollar instalment loans and people tended not to use them unless they really needed help,”said Kathleen Keest, a former assistant attorney general in Iowa who now works with the Centre for Responsible Lending.“When you had to go to your bank to get a personal note,you really thought about it.But when suddenly it’s a piece of plastic in your pocket, debt almost becomes something that happens without thinking about it.” The sea change has been extraordinary. Revolving debt in the US, most of it from credit cards, stood at US$1.5 billion in 1968, according to the Federal Reserve.This year, it has reached US$969.9 billion (Reserve Bank figures in New Zealand reveal NZ$5.1 billion – US$3.5 billion – outstanding on credit card debt alone in August this year). Those 60,000 cards dropped into Fresno 50 years ago have mushroomed to 3.67 billion payment cards today, with more than two-thirds of them in circulation outside the US. It’s a great big plastic world out there. Norm Mag-
nuson with the Washington, D.C.-based Consumer Data Industry Association recalls buying a“TV on credit in the ‘60s, and my father about had a heart attack. Today you stand in line at Starbucks and people use credit to buy a $4 cup of coffee.” Magnuson says credit“gives you the opportunity to not only have a better standard of living, but you’re also putting more money into the economy and it’s being recirculated. Since two-thirds of our economy is based on consumer spending, the more consumers purchase, the better off the economy.” Companies like Visa and MasterCard, which maintain networks of financial institutions lending the money and collecting fees every time a card is used, have become spectacularly wealthy through this easy access to credit. Visa’s recent initial public offering was the largest in U.S. history, while MasterCard’s stock has soared nearly 500 percent since it went public two years ago, their markets overseas growing like wildfire. But while most cardholders pay off their debt, there remains a very dark side to the credit card, “a deceptively simple device that has the capability of destroying you,”says Adam Levin, co-founder of San Francisco-based credit.com. Critical of the card issuers’heavy fees and aggressive marketing tactics, especially toward financenaive student and low-income communities, Levin says “people have been bludgeoned”by credit card offers, often going to consumers already struggling with debt.“It’s like taking a vampire and putting him in the middle of a blood bank.” Still, the middle-aged credit card seems destined for many happy returns.With issuers pushing prepaid cards and direct-deposit products that link your wages right to that plastic in your wallet, cash and cheques seem like endangered species in the financial jungle. “Globally, the Visa card is coin of the realm,”says David Robertson, publisher of the payment-card industry newsletter The Nilson Report.“I can’t use American currency or checks anywhere in the world like I can with Visa.” But in a delicious irony, wireless and other kinds of technology may soon free the credit card from that humble material that first brought it to life 50 years ago – plastic. “There will always be currency,”Robertson says. “But there might not always be plastic cards.”
NASA to purchase Russian rockets Google, phone home WASHINGTON – NASA’s top achievement in Congress this year boils down to a single sentence – one line in a huge spending bill that would allow NASA to circumvent an arms-control law and purchase Russian-made Soyuz spacecraft. For NASA Administrator Michael Griffin, that might be enough to enable him to retire the space shuttle in 2010 and still get U.S. astronauts to the international space station. On Thursday, the House approved a US$630 billion measure to fund the government through next year that includes a sentence allowing NASA to purchase Soyuz until July 2016. For weeks, Griffin has told lawmakers that the Soyuz is the only reliable way to send American astronauts to the space station in the gap between the shuttle’s retirement and the planned first mission of its replacement, now set for 2015. But he needed a waiver from the law banning high-tech purchases from Russia because of that country’s sale of nuclear materials to Iran. Now it’s up to the Senate, where a key panel approved the same waiver Wednesday. Passage is considered likely because it is attached to the spending bill – “must-pass” legislation before Congress adjourns for the year. The tipping point may have come earlier this week when presidential candidate Barack Obama sent a letter to Democratic leaders in Congress urging them to OK the waiver. “At the end of 2011, NASA will no longer even
have the legal authority to continue paying Russia for Soyuz flights, so unless we act immediately, the U.S. will abandon its role in supporting, and benefiting from, missions to this amazing facility, leaving it to our international partners,”he wrote.
Google offered up a new vision of computing’s future this week, and it has little to do with desktops or laptops. It’s a future that focuses on mobility, with access to the Internet – and the ability to search its vastness, of course – no matter where you are from a device that clips to your belt or sits in your purse. The Google phone has arrived. Breaking into mobile phones is a huge opportunity for Google, because the field is wide open, featuring an amalgam of carriers, software firms, handset makers and a growing cadre of third-party developers. “The mobile phone today is where the PC was 15 years ago,” said analyst Michael Gartenberg, a vice president at Jupitermedia.“The key difference is that there is no ‘Windows’ for mobile devices, a dominant player that controls everything.” Indeed, there is no single gatekeeper, the way Microsoft with its operating system has remained on the vast majority of computers. Rather, Microsoft is one of many outfits – like Palm and Blackberry to name a couple of top-end players – trying to capture mobile market share. So there is a huge opportunity for Google, like Apple showed last year, to develop a product with a set of features that appeals to an increasing need to be always connected, always
online, always at work and always entertained. Google’s first phone, called Google G1, was developed in partnership with US wireless carrier TMobile and handset maker HTC – better known downunder for the Harrier and Apache handsets retailed by Telecom. It will go on sale in the US on Oct. 22 for US$179 with a two-year contract. The phone is handsome and is operated by a touch screen and a slide-out keypad. It runs on a software platform that Google developed, called Android. The phone works with several Internet-based email clients, but it is optimized for Google’s Gmail. Other Google products prominent on the phone include Google Maps with Street View – useful for pointing out landmarks for those who are directionally challenged – and Google Talk, an instant messaging service for Gmail that can use location-based tools on the G1 to pinpoint friends. Like the iPhone, the T-Mobile G1 will provide a platform for third-party applications. Google calls it the Android Market – Google co-founder Sergey Brin referred to it as the “App Store,”the name of Apple’s software store, during his brief appearance Tuesday – where users will be able to download a host of programs.