History
On September 18, 1958, Bank of America (BofA) officially launched its BankAmericard credit card program in Fresno, California.[7] In the weeks leading up to the launch of BankAmericard, BofA had saturated Fresno mailboxes with an initial mass mailing (or "drop", as they came to be called) of 65,000 unsolicited credit cards.[7][13] BankAmericard was the brainchild of BofA's in-house product development think tank, the Customer Services Research Group, and its leader, Joseph P. Williams. Williams convinced senior BofA executives in 1956 to let him pursue what became the world's first successful mass mailing of unsolicited credit cards (actual working cards, not mere applications) to a large population.[14]
Williams' pioneering accomplishment was that he brought about the successful implementation of the all-purpose credit card (in the sense that his project was not canceled outright), not in coming up with the idea.[14] By the mid-1950s, the typical middle-class American already maintained revolving credit accounts with several different merchants, which was clearly inconvenient and inefficient due to the need to carry so many cards and pay so many separate bills each month.[15] The need for a unified financial instrument was already evident to the American financial services industry, but no one could figure out how to do it. There were already charge cards like Diners Club (which had to be paid in full at the end of each billing cycle), and "by the mid-1950s, there had been at least a dozen attempts to create an all-purpose credit card."[15] However, these prior attempts had been carried out by small banks which lacked the resources to make them work.[15] Williams and his team studied these failures carefully and believed they could avoid replicating those banks' mistakes; they also studied existing revolving credit operations at Sears and Mobil Oil to learn why they were successful.[15] Fresno was selected for its population of 250,000 (big enough to make a credit card work, small enough to control initial startup cost), BofA's market share of that population (45%), and relative isolation, to control public relations damage in case the project failed.[16] According to Williams, Florsheim Shoes was the first major retail chain which agreed to accept BankAmericard at its stores.[17]
The 1958 test at first went smoothly, but then BofA panicked when it confirmed rumors that another bank was about to initiate its own drop in San Francisco, BofA's home market.[18] By March 1959, drops began in San Francisco and Sacramento; by June, BofA was dropping cards in Los Angeles; by October, the entire state of California had been saturated with over 2 million credit cards and BankAmericard was being accepted by 20,000 merchants.[18] However, the program was riddled with problems, as Williams (who had never worked in a bank's loan department) had been too earnest and trusting in his belief in the basic goodness of the bank's customers, and he resigned in December 1959. Twenty-two percent of accounts were delinquent, not the 4% expected, and police departments around the state were confronted by numerous incidents of the brand new crime of credit card fraud.[19] Both politicians and journalists joined the general uproar against Bank of America and its newfangled credit card, especially when it was pointed out that the cardholder agreement held customers liable for all charges, even those resulting from fraud.[20] BofA officially lost over $8.8 million on the launch of BankAmericard, but when the full cost of advertising and overhead was included, the bank's actual loss was probably around $20 million.[20]
However, after Williams and some of his closest associates left, BofA management realized that BankAmericard was salvageable.[21] They conducted a "massive effort" to clean up after Williams, imposed proper financial controls, published an open letter to 3 million households across the state apologizing for the credit card fraud and other issues its card raised and eventually were able to make the new financial instrument work.[21] By May 1961, the BankAmericard program became profitable for the first time.[22] At the time, BofA deliberately kept this information secret and allowed then-widespread negative impressions to linger in order to ward off competition. This strategy worked until 1966, when BankAmericard's profitability had become far too big to hide.[23]
The original goal of BofA was to offer the BankAmericard product across California, but in 1966, BofA began to sign licensing agreements with a group of banks outside of California, in response to a new competitor, Master Charge (now Mastercard), which had been created by an alliance of several regional bankcard associations to compete against BankAmericard. BofA itself (like all other U.S. banks at the time) could not expand directly into other states due to federal restrictions not repealed until 1994. Over the following 11 years, various banks licensed the card system from Bank of America, thus forming a network of banks backing the BankAmericard system across the United States.[24] The "drops" of unsolicited credit cards continued unabated, thanks to BofA and its licensees and competitors until they were outlawed in 1970,[25] but not before over 100 million credit cards had been distributed into the American population.[26]
During the late 1960s, BofA also licensed the BankAmericard program to banks in several other countries, which began issuing cards with localized brand names. For example:
In 1968, a manager at the National Bank of Commerce (later Rainier Bancorp), Dee Hock, was asked to supervise that bank's launch of its own licensed version of BankAmericard in the Pacific Northwest market. Although Bank of America had cultivated the public image that BankAmericard's troubled startup issues were now safely in the past, Hock realized that the BankAmericard licensee program itself was in terrible disarray because it had developed and grown very rapidly in an ad hoc fashion. For example, "interchange" transaction issues between banks were becoming a very serious problem, which had not been seen before when Bank of America was the sole issuer of BankAmericards. Hock suggested to other licensees that they form a committee to investigate and analyze the various problems with the licensee program; they promptly made him the chair of that committee.[28]
After lengthy negotiations, the committee led by Hock was able to persuade Bank of America that a bright future lay ahead for BankAmericard — outside Bank of America. In June 1970, Bank of America gave up control of the BankAmericard program. The various BankAmericard issuer banks took control of the program, creating National BankAmericard Inc. (NBI), an independent Delaware corporation which would be in charge of managing, promoting and developing the BankAmericard system within the United States.[29] In other words, BankAmericard was transformed from a franchising system into a jointly controlled consortium or alliance, like its competitor Master Charge. Hock became NBI's first president and CEO.[30]
However, Bank of America retained the right to directly license BankAmericard to banks outside the United States and continued to issue and support such licenses. By 1972, licenses had been granted in 15 countries.[31] The international licensees soon encountered a variety of problems with their licensing programs, and they hired Hock as a consultant to help them restructure their relationship with BofA as he had done for the domestic licensees. As a result, in 1974, the International Bankcard Company (IBANCO), a multinational member corporation, was founded in order to manage the international BankAmericard program.[32]
In 1976, the directors of IBANCO determined that bringing the various international networks together into a single network with a single name internationally would be in the best interests of the corporation; however, in many countries, there was still great reluctance to issue a card associated with Bank of America, even though the association was entirely nominal in nature. For this reason, in 1976, BankAmericard, Barclaycard, Carte Bleue, Chargex, Sumitomo Card, and all other licensees united under the new name, "Visa",[33] which retained the distinctive blue, white and gold flag. NBI became Visa USA and IBANCO became Visa International.[34]
The term Visa was conceived by the company's founder, Dee Hock. He believed that the word was instantly recognizable in many languages in many countries and that it also denoted universal acceptance.[35]
The announcement of the transition came on December 16, 1976, with VISA cards to replace expiring BankAmericard cards starting on March 1, 1977 (initially with both the BankAmericard name and the VISA name on the same card), and the various Bank of America issued cards worldwide being phased out by the end of October 1979.[36]
In October 2007, Bank of America announced it was resurrecting the BankAmericard brand name as the "BankAmericard Rewards Visa".[37]
In March 2022, following the Russian invasion of Ukraine, Visa announced that it would suspend all business operations in Russia.[38]
Corporate structure
Prior to October 3, 2007, Visa comprised four non-stock, separately incorporated companies that employed 6,000 people worldwide: the worldwide parent entity Visa International Service Association (Visa), Visa USA Inc., Visa Canada Association, and Visa Europe Ltd. The latter three separately incorporated regions had the status of group members of Visa International Service Association.
The unincorporated regions Visa Latin America (LAC), Visa Asia Pacific and Visa Central and Eastern Europe, Middle East and Africa (CEMEA) were divisions within Visa.
Billing and finance charge methods
Initially, signed copies of sales drafts were included in each customer's monthly billing statement for verification purposes—an industry practice known as "country club billing".[39] By the late 1970s, however, billing statements no longer contained these enclosures, but rather a summary statement showing posting date, purchase date, reference number, merchant name, and the dollar amount of each purchase.[39] At the same time, many issuers, particularly Bank of America, were in the process of changing their methods of finance charge calculation. Initially, a "previous balance" method was used—calculation of finance charge on the unpaid balance shown on the prior month's statement.[39]
