https://fraser.stlouisfed.org/files/docs/historical/brimmerpapers/bak00290c03128.pdf?utm_source=chatgpt.com
Pet project of Farrington Mfg. Co originators of the Charga-plate systen of supplying department store charg customers with metal tokens for credit identification, has long been “United Chargaccount Service’’—its name fo: central billing.
Recently, although central billing appeared no closer than ever, Farrington’s present Charga-plate plan received a not unfavorable appraisal from department stores in a survey by the National Retail Dry Goods Assn. Actually, the company is busily engaged in tn ing to catch up with the demand for installations, which were stymied dur ing the war.
Of the 122 stores surveyed which do not use Charga-plate, only 36% had considered it and decided unfavorably Their principal reasons were that the cost was high for advantages gained, that the store in question was not large enough, or that it already had a satisfactory credit card system. Of the other 64%, 21 stores were considering the possibility of installation; five had favorably made up their minds; one metropolitan store wanted to participate ina group Charga-plate plan.
But under United Chargaccount Service, charge slips would be sent to a central billing office where they would be recorded, then returned to the store. The customer would be sent one monthly bill, by the central office, itemizing merchandise charged, and the stores from which it was purchased. Her payments would apply on her total debt, each payment being divided among the stores she Owes in proportion to their oldest outstanding daily total charge sales.
Participating stores would pay for this central billing service by contributing a small percentage of their sales. Farrington’s chief selling point is that this fee for each store would be less than the cost of maintaining its own credit department. So far it has had a tough time convincing the department store trade.
96 Say “No”?—Out of 100 stores which N.R.D.G.A. surveyed last June— on the question, “Do you believe your store would profit by using central billing?” —96 said “No.” Seventeen conceded that there might be a saving, some thought the mo would bring better collection results, some that it would help maintain community credit policies.
But such advantages were drowned out by fears that under central billing stores would lose some of their close relationship with customers, and hence lose sales to nonparticipating competitors. Other objections were the anticipated difficulty of handling customers’ complaints, and the gamble of breaking up a well-established credit office for an untried plan.
Because they can’t afford a full-fledged credit department, small specialty stores usually operate on a cash-and-carry basis. That puts them at a disadvantage with their competitors—local department stores and the ever-increasing number of big-city department store branches—who are in a position to extend credit to their customers.
In 1946, John C. Biggins, a consumer credit specialist at the Flatbush National Bank in Brooklyn, began thinking about this. He decided that banks could come to the rescue of the small merchant and pick up a nice line of business doing it.
Early this month, in Paterson, N. J., the plan went into effect under the sponsorship of the Paterson Savings & Trust Co., where Biggins is now a vice-president. Already 30 small merchants have signed up for the plan, and the number is still growing. Merchants who have come in so far include operators of shoe, sporting goods, apparel, furniture and other small stores.
Charg-It works pretty much the way any other credit plan does. A customer applies at any one of the participating stores for either a regular monthly charge account, billed and payable in full every month, or a revolving account. Credit limits for both plans are set by the customer on the basis of what he thinks he can afford, plus what the bank’s investigation finds about his ability and willingness to pay.
When a customer charges merchandise, he presents both the credit plate and book of scrip and signs a sales slip —as in any other charge transaction. (Sales slips supplied by the bank carry all information the bank and merchant need for their records.) The clerk removes enough scrip from the book to cover the cost of the merchandise and attaches it to the sales slip.
At the end of the day, the store turns the sales slips and scrip over to the bank. The bank checks them and immediately credits the merchant’s deposit account with the full amount. (To simplify bookkeeping, all Charg-It merchants carry an account with Paterson Savings.) From then on, it’s up to the bank to collect from the customer. Bills are mailed monthly, one bill covering all purchases made in Charg-It stores.
There are problems with scrip, though. It’s issued in denominations of $1 and up; often it won’t equal the amount of the purchase. Sales clerks are instructed either to collect the difference in cash (up to 99¢) or to take scrip to the next full dollar amount. Either way, the customer is only billed for the amount due on the purchase.
For the present, merchants pay an 8% fee on each Charg-It sales dollar. That’s high, compared with the 4% to 6% it costs to run a big department store credit department. But the bank maintains the merchant gets a lot for his 8%.
In the first place, he doesn’t have to investigate accounts or collect bills. He doesn’t have to hire additional help to run the credit system, and little bookkeeping is involved. At the same time, he’s building sales volume by being able to compete on equal footing with bigger stores that have their own credit plans.
Biggins has organized Retail Charge Account Service, Inc., as owner of Charg-It. RCAS in turn permits the Paterson bank to operate Charg-It locally. Biggins joined the Paterson bank in 1947 to set up its time-plan department, has just now found time to put Charg-It into operation. As soon as he can, he will work on ways to peddle the idea to other banks.
The first bank-sponsored community credit plan of its kind in New Jersey (and one of the first in the country) went into effect in Paterson on September 6.
The plan is called “Charg-It,” and is sponsored by The Paterson Savings and Trust Company.
Charg-It was developed to meet the demand for a workable credit system which, through a central financing organization, would give customers of smaller retailing establishments credit facilities comparable to those of major department stores.
The participating stores offer their customers the choice of either a regular 30-day charge account or a revolving charge account.
The regular 30-day Charg-It account calls for billing every 30 days —payable in full each month.
The revolving Charg-It allows the customer up to 6 months to repay a previously established credit limit. For example: A customer granted $180 as the credit limit must pay $30 a month and then may continue to charge an amount up to the $180 monthly credit limit if payments are made regularly.
The bank will be responsible for all details connected with Charg-It as sponsors of the plan in Paterson. It will issue an account plate to shoppers which can be used only in participating stores. The stores can receive credit applications, but the bank will do all credit investigation and billing. Bills will be payable at the bank.
A number of merchants signed up at once when the plan was announced at a dinner meeting in late August. Twenty-five stores were participating on the day the plan opened, and the bank expects that many more will want to join up.
Customers using Charg-It pay nothing extra for the privilege.
In announcing the plan, Paterson Savings advertised:
Here are a few of the time savers and conveniences that will be yours when you join the Charg-It family:
You can shop in your own neighborhood Charg-It stores and receive the same credit courtesy available at the biggest stores in the city.
No need to carry large sums of cash. Charg-It ends money loss worries.
You receive only one itemized Charg-It bill. No more paying for each purchase separately.
Any member of your family may use a Charg-It credit plate— extra plate will be provided.
Ends embarrassing waiting while your purchases are okayed by the credit manager. Your magic Charg-It plate is your automatic OK.”
It was made plain also, that “this plan will be modified as may be required by any government regulations concerning the extension of credit.”
assets/images/credit-card-chronology/charg-it_formal_opening_banking_1950-10_p84.jpg
^Formal opening of the “Charg-It”’ booth in the main lobby of the Paterson (N. J.) Savings and Trust Company as the new shopping service was instituted on September 6. President C. Kenneth Fuller stands by as Miss Janet Neer, in charge of the bank’s booth, prepares to sign up the first customers. The new service had 25 stores as subscribers on its first day, with more expected as the plan gets into full operation
The First National Bank of Bellevue, Washington, is the fourth bank to adopt the “Charg-It” plan. It is the first bank outside of New Jersey to do so.
“Charg-It” is a copyrighted plan which allows local merchants, specialty shops, and other retailers to offer charge account plate convenience through the bank, without establishing their own credit departments. President of the plan is John C. Biggins, vice-president of County Bank & Trust Company, Paterson, the first bank to utilize it. Other users are the National Newark & Essex Banking Company, Newark, and the First National Bank of Jersey City.
You CAN now buy your new car or even an airplane on the installment plan with a credit card from your bank under a new and novel credit financing system recently instituted by the Buffalo Industrial Bank in cooperation with some 200 retailers of autos and planes, boats and motors, furniture and household appliances, as well as home repair and modernization contractors. Under this system, called the “Bankway Plan” and designed to simplify installment plan buying, the prospective purchaser goes to the bank, establishes his credit and is issued a credit card which is renewable yearly. He is told just how much installment buying his card entitles him to and is given a directory of the cooperating retailers. Presentation of his card to one of the participating retailers gives him immediate credit (after a phone call to the bank), with no necessity for any questioning by the retailer. The bank accepts full responsibility for the buyer’s credit. The buyer merely signs an installment contract with the retailer who sells the contract to the bank. Installment payments are made by the buyer directly to the bank, with interest figured at bank financing rates, and payments are made separately on each installment contract. As soon as consumers’ goods are sufficiently available it is believed that 600 western New York state retailers will be cooperating in the new plan. “We are the first bank in the country to inaugurate such a plan,” says Kenneth R. Reid, vice president in charge of business development. “We expect to see the idea spread. We think customers will like the plan of establishing their credit before they go out to buy.”
The Buffalo Industrial Bank has inaugurated a new credit plan which eliminates credit checking of customers by store credit managers. The system, called the “Bankway Plan,” puts it up to the individual to establish his credit.
A NEW credit plan for radio and electrical appliance dealers, which eliminates red tape for installment buying and ends the responsibility of store operators for the credit standing of their customers, has been inaugurated by the Buffalo Industrial Bank, Buffalo, N. Y. It is the first bank in the country to launch such a program. Approximately 200 Buffalo area radio and appliance dealers are participating in the plan, according to an executive of the bunk. It is expected 600 dealers in Western New York will participate “as rapidly as consumer goods are made available.” Under the plan, the individual goes to the bank, establishes his credit and gets a credit card, renewable yearly. The bank will tell him the amount of installment goods he can purchase under the arrangement. Then when he wants to buy, he presents his card to the dealer and credit is extended immediately, with no checking except a telephone call from the dealer to the bank. The customer does not have to give confidential credit information to each dealer becsluse the bank accepts full responsibility. The customer simply signs an installment contract with the dealer, and the dealer sells this to the bank. The customer than pays his installments to the bank, with interest ut bank financing rates. He makes his payments separately on each installment contract. “We are the first bank in the country to inaugurate such a plan,” said Vice President Kenneth R. Reed in charge of business development. “We expect to see the idea spread. We think customers N ill like the plan of establishing their credit before they go out to buy.”
BUFFALO, N.Y., Nov. 14— Inauguration of a new credit plan for installment buyers that ends the responsibility of store operators for their customers’ credit standing was announced today by the Buffalo Industrial Bank.
Called the “bankway plan,” the system provides that an individual establish his credit at the bank, which will decide the amount of installment buying he can do under the arrangement. He receives a credit card, renewable yearly, and a directory of participating dealers. The customer presents the card when he wishes to make a purchase and the dealer simply calls the bank for verification, eliminating the need for receiving confidential credit information. The customer signs an installment contract with the dealer. This is sold to the bank. The bank then collects the installments plus interest at bank-financing rates.
The Franklin National Bank of Franklin Square, New York, has undertaken an unusual job. It’s a retail charge account service, currently used by about 23,000 Long Island families, which also provides small merchants with a collection and credit department. The bank views its plan as a broad attempt to support private enterprise at the small retailer’s level, and to enable him to meet the competition of big stores which have their own credit facilities. Some merchants have increased their dollar sales volume by about 30 percent through use of the service. It works this way; The purchaser of merchandise presents to the store a credit card issued by the bank, and gets his goods without paying cash. At the end of the day the dealer sends his credit sales slips to the bank, which accepts them like cash (without recourse) and immediately credits his account with the sales, deducting a 5 percent service charge. At the end of the month the customer gets a statement from the bank with his accumulated slips and pays his bill to the Franklin. Each participating dealer receives the credit vouchers representing his month’s business. Franklin National has set up a special department, operated by a separate staff, to handle the service. The plan, said to be unique, was started as the result of a suggestion made by the merchants themselves. At a bank-sponsored conference called to consider ways in which local retailers could build their businesses, it was pointed out that perhaps their greatest need was more charge accounts. Maintenance of their own credit facilities represented, in many cases, an impossible burden. Could the bank help? “We’ll try,” said Fraklin National’s president, Arthur T. Roth. The charge account arrangement was the result. The service is limited to dealers and individuals approved by the bank. There’s a careful investigation in each Case—of the merchant before he’s eligible to participate and of the customer before he or she gets a credit card. As each day’s slips are received by the department, the tickets are inserted in the individuals’ ledgers. They’re posted monthly on a cyclical billing arrangement. So far, the bank says, delinquencies are virtually the same as for instalment loans. The 23,000 Nassau County card holders have purchsaed more than $1,000,000 worth of goods and services on the charge account bsmis
In August 1951, Franklin National Bank in Franklin Square, New York started the first of the current bank credit cards, although the program did not achieve full scale operation until April 1952.
It was not until the late 1940’s and early 1950’s that the Flatbush National Bank of Brooklyn and the Paterson Savings and Trust Co. of Paterson, N.J., adopted bank charge card plans. These early bank plans involved a paper credit card and a book of script equal to the custo- mer’s credit limit for 1 month. When the customer charged merchandise he pre- sented the credit plate and the book of script and was required to sign a sales slip. The store sent the customer’s signed sales slips and script to its bank which credited the merchant’s deposit account with the full amount. Although these plans were considered to have merit, the use of script involved burdensome paper- work. This early plan was refined by Franklin National Bank of New York in 1951 with the development of a sales slip worded in the form of a bank draft. This more workable plan was rapidly adopted by other banks and became the basis for the modernday credit card. The con- sumer readily accepted the credit card as a payment medium because it had a number of advantages including a tool for money management and ease of pur- chasing goods.
Thus, sometime around 1950, the modern credit card was born under the shadow of the old Dutch church that still stands on the corner of Flatbush and Church today. (OK, the bank was farther down, across from Linden Blvd. But Biggins definitely saw the church when he was going on his lunch break.) The bank used credit bureaus, not personal relationships, to decide on people’s credit worthiness, and the merchants people purchased from had no idea whether they owed money or not. The bank was directly giving customers revolving credit accounts for consumer goods — a first.
It was a revolutionary idea, but this special credit card for Flatbush small businesses didn’t last long. Independent American banks like Flatbush National (and Flatbush Trust Company, down the street) — much like the Bailey Building & Loan in the classic film It’s a Wonderful Life — were not long for this world. Biggins’ dad, John Biggins, Sr., sold the bank to the much larger Manufacturers’ Trust Co., and when they took over, they were probably like “what the hell is this thing?”. It was quickly canceled, but Hyman reports that Biggins went over to Patterson Savings & Trust Company in New Jersey where he successfully implemented an identical program. Meanwhile, the Diner’s Club Card hit the scene, and it stole Flatbush’s thunder with a made-up, yet lengendary backstory about a guy forgetting his cash at a company dinner.
So there you have it: The credit card really was invented in Flatbush, because a guy in his family’s business was trying to look out for the small shops of Flatbush Ave. Kind of a cool origin story for something that has had such a huge impact on American lives.