Charge Cards

Charge cards are often thought of as being like credit cards, but they are different in many ways.

Charge cards are best thought of as something between a debit card and a credit card.  Like a debit card, and unlike a credit card, they cannot carry a balance on them month after month.  This means that it is not possible to build up a large interest bearing debt on the card.  Unlike a debit card they have a separate balance from a checking account and the way in which they are dealt with is to demand full payment in every monthly statement.

Charge cards were in fact the first payment cards in wide use.  The first card to be offered was the Diner’s Card, which started among a few New York restaurants in the 1940s and which had its first cards printed on cardboard.  The Diner’s Card grew rapidly with many restaurants in big cities accepting the card.  The card made money through both a subscription charge to its card holders and a charge to the restaurants who accepted the card, in much the same way as charge cards work today.

As well as the Diner’s Card, which is now no longer an independent company but a brand controlled by Bank of America, the other big player is American Express.  American Express started out as a mail operation in New England in the 1850s but by the 1940s was purely a consumer finance operation.  Its cards were not simply aimed at restaurants but at the executive traveler market, with a very wide range of benefits for card holders and one of the highest merchant charges in the payment card business.

Both American Express and Diner’s Card have always aimed at the upper section of the payment card market and unlike credit cards have never expanded beyond this milieu.  This is because prompt payment is at a far higher premium for charge cards rather than credit cards, where the money is made on the interest charged.  Both the American Express and the Diner’s Card brand are used also to sell credit cards as they both have an exclusive reputation.  The credit cards are offered to a wider market than the charge cards.

Charge cards finance themselves partly through an annual fee but the majority of their running costs are met through merchant charges, which are the charges that the shopkeeper has to pay to the card provider for processing the card.  Charge cards often have the highest merchant charges, which is why they tend to be accepted at fewer places.