As the story unfolds in the world of credit cards, along came Mastercard ( known as Interbank) as the result of a cooperative effort between the various banks up in the Northeastern part of the nation. Remember back in the olden days, there was laws against interstate banking, so banks were limited to their home state. These new fangled little cards gave them access to potential customers across state lines. First VISA now MASTERCARD. Their beginnings took a while to evolve due to those sticky little banking laws.

First there had to be some type of marketing miracle happen for these cards to be useful to the banks, they had to get merchants to use them, AND other banks to honor them. Salesmen actually went door to door or rather store to store door knocking pitching the benefits of these little cards. Merchants were easiest because they could see this as a way to develop new customers even though they were costly starting at 7% of their proceeds. This high percent service fee dropped at more merchants and banks started using them.

Then banking deregulation began before credit cards could really catch on banks had to figure out a way to get around interest rate constraints imposed upon them by the interstate banking laws. These laws prohibited banks in one state from LENDING money to people in another. States set their own interest rate ceilings, so the out-of-state bank couldn’t lend at their own higher rates to another’s state’s citizens.

Woe poor, poor banks, such a challenge ! In 1978, a Supreme Court made a ruling and the result was that NATIONALLY chartered banks could charge people inother states the interest rate set in the bank’s home state. It also allowed banks to become national issuers of cards with more or less uniform interest rates, and allowed banks to set up shop in Delaware or South Dakota, where there are NO LIMITATIONS on interest rates !

This deregulation, combined with liberalized interest rates was the door opener for a whole new industry. However, despite the growth and development in the credit card industry through the 1970’s, it was not a profitable business venture. This would all change in the 1980’s, but then that’s another part of the story, a turn of events that introduced a world of credit cards that put most American’s into bondage.

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