The Card
Building a Real-Time Global Network Before Anyone Had the Words for It The Money Stack — Episode 3 of 10 In September 1958, Bank of America mailed sixty thousand credit cards to the residents of Fresno, California. Nobody had asked for one. Nobody had been credit-checked. The cards simply arrived in envelopes, fully activated, with a spending limit attached, addressed to strangers. It went about…
In September 1958, Bank of America mailed out 60,000 credit cards to Fresno, California residents without prior credit checks. The cards, fully activated and addressed to strangers, arrived in envelopes with spending limits attached. However, the program quickly turned into a failure, with widespread fraud and delinquency rates exceeding 20%. The situation led to the term "Fresno Drop" being used internally, causing significant embarrassment.
Despite its failure, the Fresno Drop proved the importance of the network in credit card transactions. A card alone is worthless without a robust network, as merchants require a reliable system to accept the card within seconds. This realization became the foundation for the development of Visa.
The challenge of establishing a two-sided network is twofold. Cardholders need merchants to accept their cards, while merchants require customers to carry the cards. Neither side has an incentive to move first, as the network is worthless until it already exists. Diners Club tackled this problem in 1950 by initially convincing restaurants to accept charge cards in exchange for wealthy customers who would dine there.
It worked because the founder, Frank McNamara, solved both sides simultaneously through salesmanship and slight misrepresentation.
In the late 1960s, Bank of America faced chaos as the BankAmericard was licensed to hundreds of banks, each issuing their own cards with inconsistent acceptance. Fraud was rampant due to the lack of central fraud detection and different chargeback resolution methods. To fix the system, Dee Hock, a branch manager, proposed a cooperative owned by the competing banks themselves.
This cooperative would own the network, with universal and non-negotiable rules ensuring equal treatment for all members. The network's value lay in its universality, requiring neutrality and preventing any single party from being advantaged over others. In 1976, BankAmericard was renamed Visa, and the cooperative model remains the governance structure of the card networks today.
Written by urgent.news from Dev.to's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
