Americans were buying on installments more than a century before the first credit card. A New York furniture store is usually credited with it in 1807, Singer made it national in 1856, cars made it normal in the 1920s, and the card fee arrived with the first charge card in 1950.
A furniture store on Chatham Square, 1807
The story usually starts in New York, with a furniture maker named Cowperthwait. His store opened in 1807 near Chatham Square. The story goes that it let customers take a table or a bed home and pay for it in parts. Historians argue over who was truly first, but Cowperthwait is the name that stuck, and the store kept selling furniture on credit for more than a century.
For most of the 1800s, though, paying in parts was something you did with a shopkeeper who knew your family. It was local, personal and written in a ledger behind the counter.
Singer's $5 idea, 1856
The sewing machine changed that. In the 1850s a Singer machine cost about $100, a large share of what a working family earned in a year. Very few households could pay that at once.
In 1856 Edward Clark, Isaac Singer's business partner, offered a way in: $5 down and $3 a month. The customer "hired" the machine, kept paying, and eventually owned it. Miss the payments and the machine went back.
It was the first time a company sold on installments across the whole country, and it worked for a simple reason. A family with a sewing machine could take in sewing, so the machine helped pay for itself. A writer for Scientific American noticed something else: people would happily pay $100 in small monthly amounts for something they wouldn't pay $50 for up front.
The car makes it normal, 1919 to 1929
By the 1920s, the thing people wanted most, and couldn't pay for in one go, was a car. In 1919 General Motors started its own finance company, GMAC, so its dealers could sell on monthly terms. Henry Ford held out against selling on credit for years and lost ground to GM while he did.
By the end of the decade, most new cars in America were bought on installments. Paying over time had stopped being something you did at the corner store. It was how the country bought the biggest thing it owned after a house.
Layaway, the Depression's version
The 1930s turned the idea around. With credit hard to get and cash short, stores held an item behind the counter while the customer paid it off a little at a time, then handed it over at the last payment. Layaway plans had shown up in ads decades earlier. The Depression made them common, and they stayed in department stores for another fifty years.
A forgotten wallet, 1950
The next change started with a dinner, at least as Diners Club later told it. In 1949, the story goes, a New York businessman named Frank McNamara finished a meal and realized he had left his wallet at home. The next year he and his partners launched Diners Club: a card you could use at member restaurants and settle once a month.
It was the first general-purpose charge card, and it came with something new. The restaurants paid Diners Club a cut of every bill, about 7%. The fee on a card payment is as old as the card itself.
Sixty thousand cards in the mail, 1958
In September 1958 Bank of America mailed 60,000 working credit cards to people in Fresno, California, most of whom hadn't asked for one. The "Fresno drop" worked well enough, and messily enough, that within about a year the bank had cards in the hands of people across California. Merchants paid the bank a percentage of every sale. The program later became Visa.
What stayed the same
Two hundred years on, the pieces are familiar. Someone wants a thing that is worth more to them than they can pay for today. The seller lets them pay in parts. And somewhere along the way, someone takes a small cut for handling the money.
Singer's insight still holds up best. The plans that last are the ones where the thing being paid for helps the buyer pay: a sewing machine, a delivery truck, a trade.
Sources
- Museum of the City of New York, Cowperthwait Furniture & Carpets; Encyclopedia.com, Installment buying, selling and financing
- American Business History Center, The sordid saga of Mr. Singer and his sewing machine; American Heritage, Isaac Singer and his wonderful sewing machine
- Marketplace, Autos spurred the credit boom
- Wikipedia, Layaway
- Diners Club, History and legacy; History.com, When were credit cards invented?
- 99% Invisible, The Fresno Drop
The Back PageOne piece in every edition of the Collections Brief that has nothing to do with software. Read it at your desk; nobody will mind.
More from the Back Page →