If not for the fact that its failure in 1974 almost brought down the world financial system, Franklin National Bank may have been remembered for the greatest consumer financial invention of modern times.

The Long Island, N.Y., bank has long since been subsumed under European American Bank, and its introduction of a revolving credit card in the early 1950s is an almost forgotten footnote.

But people knowledgeable about the early development of bank-issued credit cards, what are now MasterCard and Visa, say Franklin National's innovative, later vilified chairman, Arthur Roth, was the industry's Bell or Edison.

His card, designed to make it easier for his customers to shop at local merchants, and hence prevent the stores from losing business to big chains and New York City, was the closest progenitor of the general-purpose bank credit card.

It took another decade, until the early 1960s, for the equivalent of an AT&T or Ford to emerge, with the mass-production and marketing muscle to create national and international distribution and demand. Ironically, 30 years later, the actual AT&T and Ford, among other industrial and service companies, became direct players alongside the credit card banks in one of the most competitive and profitable industries in the world.

The 1960s events -- the national expansion of Bank of America's original BankAmericard, and the early jockeying among other major banks that eventually coalesced as Master Charge -- are what this American Banker supplement commemorates.

The decision to highlight 30 years of bank credit cards was somewhat arbitrary. As with other historical phenomena, it is hard to fix a date for the start of it all. Each development had an antecedent.

A chronology prepared by Visa U.S.A. for its 20th anniversary in 1990 began in 1914 with a metal charge plate issued by Western Union. Eighty years later, the one-time telegraph company is recovering from bankruptcy as a financial services concern specializing in money transmissions and bill payments.

Until the post-World War II marketing innovations that culminated in the mass issuance of bank cards 30 years ago, consumer credit was dominated by oil companies and retail stores. Charge accounts, which stores had been using to foster shoppers' loyalty, took on physical properties like Western Union's metal plates, or simple cardboard cutouts, until the plastics era.

General Petroleum Co. is credited with inventing the oil company card in 1924. Oil companies and retailers still control some $45 billion of consumer revolving credit, but they have been dwarfed by commercial banks, now at about $150 billion, not including securitized assets.

This is not to say that general retailers are out of the proprietary credit business. Sears, Roebuck and Co., in the installment credit business since 1911, still has more than 50 million SearsCharge cards in circulation -- a base larger than that of any MasterCard or Visa bank.

Sears also created, and in 1993 spun off, the Discover card, a bank credit card challenger that also exceeds any single bank in issued cards, at 40 million.

Retailers saw the banks' cards as a frontal attack on a core business, and the industries stayed at each others' throats for years. Some proprietary credit operators have recently come around to offering cobranded MasterCard or Visa cards. Only last year did Sears finally give in and accept MasterCard and Visa in its stores. At the same time, it added features to SearsCharge in hopes of keeping those customers from fleeing.

The Flatbush National Bank "Charge-It" program in Brooklyn, N.Y., in 1946, may have been the first sign of the post-war credit ferment. But it was a clumsy hybrid of charge account and scrip that didn't cause too much concern among retailing's credit grantors. The bank required rapid repayment of outstanding charges, much like today's standard American Express card.

In 1950, the year before the Franklin Charge Plan on Long Island, Diners Club in New York started what its promotional literature calls "the first multi-use charge card," then mainly for hotels and restaurants. That was about eight years ahead of the current traveland-entertainment card leader, American Express.

Diners was the brainchild of Frank McNamara, who saw an opening for a widely accepted replacement for cash. The company grew rapidly with the financial backing of department store heir Alfred Bloomingdale.

Diners was a few years removed from the Air Travel Card, the International Air Transport Association's forerunner of corporate travel cards. Despite its T&E emphasis, Diners is also a close cousin of bank credit cards. Banks at various times owned parts of the company and its franchises, and it has been wholly owned by Citicorp since 1981.

Bank of America helped seal its reputation as the quintessential retail bank by piloting BankAmericard in Fresno in 1958, taking it statewide the next year, and franchising it starting in 1966. Books that have recounted the BankAmericard story, such as Martin Mayer's "The Bankers" (1974) and Terry Galanoy's "Charge It" (1980), tell of behind-the-scenes intrigue. Plans for the card were reportedly being hatched as early as 1946; that was three years before the death of the bank's legendary founder, A.P. Giannini.

In the early 1960s, as other banks straggled and many abandoned attempts to launch card programs, BankAmericard continued to go strong. Many bankers assumed that the California bank, then the largest in the word, was blindly throwing good money after bad. Extensive financial disclosures were not required then, so Bank of America simply kept secret the fact that its card had begun to make money around 1963.

By that time, dozens of credit card issuers around the country were losing many millions of dollars. It was the fault of their own indiscriminate issuing policies, and of the inherent inefficiencies in operating, clearing, and fraud prevention procedures -- problems that would take years to clear away.

One source of help was Bank of America and the interchange network it set up through BankAmerica Service Corp. It licensed BankAmericard outside California, at first exclusively to one bank in each market. Bankers Trust Co. and later Chase Manhattan Bank in New York, First National Bank of Chicago, and Barclays Bank in Britain were among those who aligned with

BankAmericard, and many of those early allegiances endured through the conversion to Visa.

Non-BankAmericard banks also began taking collective action. In 1966, Marine Midland Bank of Buffalo pulled together a group that included Citizens and Southern National Bank of Atlanta, First National Bank of Louisville, Valley National Bank of Arizona, and Pittsburgh National Bank; they formed Interbank Card Association.

Interbank later adopted a common identity by buying the Master Charge name from an association that had been formed by several of Bank of America's California competitors.

For a time, the members were tied together only by an "i" (for Interbank) logo on the card and at merchant locations. The confederation was admittedly loose, and its marketing relatively uncoordinated, but the antiBankAmericard forces were legion. Not-forprofit Interbank quickly became the larger organization.

"It was the Master Charge name that sold it," said Charles T. Russell, the recently retired president of Visa International, who worked for Pittsburgh National Bank when it was part of the charter Interbank group.

"I remember going out to California to try to sell merchants on the Interbank 'i', and they wouldn't take it," Mr. Russell recalled. 'The common logo is what built acceptance, the same way BankAmericard worked."

It was a lesson that Mr. Russell would later take to National BankAmericard Inc., which was to raise logo management to a high art with the name change to Visa in the mid1970s.

Alex W. "Pete" Hart, who served from 1989 to 1994 as president of MasterCard Intemationai, grew up with the credit card business like Mr. Russell and worked for banks on both sides of the association divide.

When Mr. Hart worked at BancOhio in Columbus, BankAmericard was not an option because City National Bank, the predecessor of Bank One, owned that franchise. BancOhio built a proprietary program and by 1969 became a member of Eastern States Bankcard Association, one of the early MasterCard processors.

Mr. Hart jumped to First National Bank of Chicago in 1973, and later became the top marketing and operations executive at First Interstate Bancorp.

"In the very early years, the banking culture was very skeptical about credit cards," Mr. Hart said recently. "It was a big leap, But that's the way it was for a lot of us. I came in from the lumber business -- there was a lot to learn, but I had no biases.

"The competition between banks was largely local, but it was very intense. You wanted to beat the other guy. And since the other guy was likely to be in the other system, the interassociation rivalry also got intense."

Denny D. Dumler, who was building Colorado National Bank's BankAmericard/ Visa program in the 1960s and 1970s, said there was no love lost with the Master Charge camp.

"Nick Ferrante [of Security Pacific Bank] and Charlie Walsh [Manufacturers Hanover Trust] became friends of mine, but they were Master Charge, they were the bad guys," Mr. Dumler said. "That made the business a lot of fun, in ways moreso than today."

In Pittsburgh, Mr. Russell remembers outright sabotage. Mellon Bank altered its card dimensions and rigged its point of sale imprinters to prevent them from accepting cards issued by Pittsburgh National. The latter dispatched branch personnel to the stores to "unfix" the offending impriaters.

Back in San Francisco, the BankAmericard licensees, increasingly sophisticated about the credit card business and alarmed at its poor profitability, were growing restless. Complaints were heard about fee structures, chargeback procedures, and lack of coordination, and some banks threatened to bolt to Interbank.

In the fall of 1968, BankAmerica Service Corp. called a meeting at City National in Columbus. Bank of America officials were of little help.

"They said that because of antitrust law, they couldn't dictate rules for the group," said Mr. Dumler, now a Visa executive vice president, who was at the Columbus meeting. "They said it was up to us to figure out how to do it."

Out of the ensuing confusion, a BankAmericard executive from National Bank of Commerce in Seattle, Dee W. Hock, took charge.

"He said essentially two things," Mr. Dumler said. "He suggested we be sensitive to BofA's position, and he offered to head a committee to look into the rules and operating structtlfe."

Mr. Dumler and several others conferred with Mr. Hock, and that was the beginning of the end of BankAmerica Service Corp. Mr. Hock, with Bank of America's support, prepared for the spinout of the new licensing agent, National BankAmericard Inc., a forprofit, non-stock corporation owned by its members.

NBI opened for business in 1970 with 243 charter members led by Bank of America, which retained ownership of the BankAmericard name and, for four more years, the international part of the program. Dee Hock was installed as chief executive officer and stayed until his retirement in 1985.

Mr. Hock is unanimously acclaimed as the industry's foremost visionary, who built a business around a set of futuristic assumptions -- he looked beyond credit to the more encompassing notion of "value exchange" -- that invariably came true.

He also was seen as an autocrat and taskmaster who made a number of enemies -- no small feat for someone who spent 15 years running a politically sensitive, memberowned company.

"Dee Hock had an incredible ability to stir things up," said Robert Miller, a Visa senior vice president who, while a Seattle banker in 1970, was among the first Mr. Hock recruited for NBI's San Francisco nerve center.

"He always wanted to churn things up, and get people to think and probe and really use their brains," Mr. Miller said. "A lot of people took the way he did it as a personal affront, but he was only trying to push the limits and remove any artificial constraints. The results could be tremendously exciting. It was really a lot of fun."

"I took exception to a lot of what [Hock] did, but he did a marvelous job selling and getting the support he needed from the industry," said D. Dale Browning, the retired president of Colorado National Bank and founder of the Plus automated teller network, who now serves as senior consultant to Visa.

"Without him, I'm not sure it would have gotten done," Mr. Browning said.

Charles Russell, who left Wachovia Bank in 1971 to become Mr. Hock's executive vice president at NBI, said he endorses the view expressed some years ago by Chase Hammer: "For all he did, the industry should write Dee Hock a check for $1 billion."

When he joined the young NBI, "the industry was a disaster," Mr. Russell said. "Maybe three banks were making money, and the rest were losing a lot. The Chicago banks had staggering losses, fraud was out of control, cards were being stolen by the stack."

NBI had to act fast. Mr. Hock set a technology-based agenda that called for creation of an authorization system, a settlement system, card accounting software, and point of sale terminals to automate authorizations.

The first two, known as BASE I and BASE II, were up in short order. The terminal network Mr. Hock envisioned didn't come together until costs came down, in the 1980s. "The only thing we never really did was the software, and that was a blessing. We had no business doing that," Mr. Russell said.

Mr. Russell's competitive juices from the NBI era are still flowing. BankAmericard was then No. 2, and he claims it worked a lot harder than Master Charge.

While the demanding Mr. Hock and his staff logged six- and seven-day weeks, "Interbank was considered more of a country club," Mr. Russell said. "We did everything first and they copied us. Their INAS system was a copy of BASE I, and INET was a copy of BASE II."

Across the continent in New York, Interbank loyalists never took such charges lying down. John Reynolds and Russell Hogg, the Interbank/MasterCard chief executives during most of Mr. Hock's years at Visa, turned their annual appearances at the American Bankers Association's card conference into debates about the card groups' relative merits, management styles, member-friendliness, bylaws, technologies, and any other points on which the speaker thought he had an edge.

"NBI was very precocious as an organization, no doubt about it," said Edward J. Hogan, one of the first Interbank employees, still a senior vice president at MasterCard. "Their BASE I and BASE H were firsts, but we did other things before they did.

"Remember: Interbank was the first organization of its kind in the world, the first with open and democratic membership. We also quickly became the biggest in the world. When NBI was in formation, we let them look at our rules and regulations and how we were structured, because they were looking for some help in how to get started."

"I thought Visa was always a little too quick to beat their breast," former MasterCard chief Pete Hart said.

"Visa had stronger central management," he said. "MasterCard, being more member-driven, might have taken a little longer at times. But it had its share of firsts. MasterCom [an image processing system for resolving chargeback problems] was ahead of Visa, as was the Master Banking home banking umbrella and the intemational on-line debit network that includes Maestro."

If Mr. Hart's invocation of recent events seems to lack the fire of Pittsburgh's war of the imprinters three decades ago, the blame rests squarely with the upheaval that came to be known as duality.

In 1971, Worthen Bank & Trust of Arkansas decided to challenge the NBI bylaw that prevented members from also joining the Master Charge system. Unable to sway the NBI leadership, Worthen filed an antitrust action. It wanted the right to process both systems' transactions for its merchant customers, so the merchants would not have to deal with two banks. Since Interbank had no similar bylaw, a Worthen victory would also mean that any victory would also mean that any bank could issue both cards simultaneously.

No one was more adamant than Dee Hock in opposing Worthen. Blurring the membership lines, he contended, would make the associations, and the entire card business, less competitive.

Five years later, after conflicting court decisions and U.S. Justice Department opinions, the renamed Visa U.S.A. decided that its bylaw might not stand up in court, and thus began duality.

The men who would lead the industry's post-Hock generation, including Charles Russell, Pete Hart, and Dale Browning, railed against duality when it was proposed.

"Duality was unfortunate," Mr. Browning said. "The industry would have been more sophisticated sooner, and developed new products faster, without it."

Denny Dumler complained that when he was chairman of the ABA bank card conference in 1980, he wanted to show examples of individual banks' advertising. "A lot of MasterCard and Visa generic ads came in, but nothing from the banks," he said. "No one was advertising, because they were all doing the same thing. We lost the ability to differentiate."

The duality critics managed to adjust to the new reality. "It's OK now," Mr. Dumler said. He sees credit cards as more akin to packaged goods, with marketers selling multiple brands to an increasingly heterogeneous public.

Perhaps the greatest beneficiary of duality was Visa itself. Concurrent with its name change and the saturation advertising of it, all U.S. banks, not just the legacy of the BankAmericard licensing program, had the option of jumping on the glitzy blue, white, and gold bandwagon. And virtually all did.

Citibank, the long-time Master Charge leader, used unprecedented volumes of nationwide direct mail to become the largest Visa bank---even bigger than Bank of America--and it was rewarded with a seat on the board of directors.

Donald Auriemma, the card industry consultant who was then with MasterCard stalwart Chemical Bank, resisted credit card duality and drew up plans for a Visa debit card instead.

"One day I got a call from [senior executive vice president] Bob Lipp asking what we were doing about going dual," Mr. Auriemma said. "I told him about Visa debit, and he repeated the question--he wanted to know about going dual with credit cards. So we went dual."

Mr. Auriemma said duality on the merchant side of the business was "a no-brainer." In New York, he said, the effect of all banks jumping in was anything but anticompetitive.

Though Chemical was slower off the mark than Visa members Chase and Bankers Trust, Chemical mobilized 2,000 branch personnel to sign dual merchant accounts, and won the race, Mr. Aufiemma said.

Some conspiracy theorists thought duality was Dee Hock's hidden agenda all along.

"I always believed it was something Visa wanted deep down," said Mr. Hart. "MasterCard was No. 1 at the time, and duality would not have been in the interest of the market-share leader. It was the best thing that could have happened to Visa."

It also defined the bank card business as we now know it. By 1979, Visa had grown larger than MasterCard, eventually to open a margin that was about equivalent to that by which Master Charge once led BankAmericard. And the two associations staked out their strategic positions accordingly, Visa portraying itself as "everywhere you want to be," MasterCard as the "smart" No. 2.

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