Charge card

A charge card is a card that provides a payment method enabling the cardholder to make purchases which are paid for by the card issuer, to whom the cardholder becomes indebted. The cardholder is obligated to repay the debt to the card issuer in full by the due date, usually on a monthly basis, or be subject to late fees and restrictions on further card use. It can also be a smart card.

Though the terms charge card and credit card are sometimes used interchangeably, they are distinct protocols of financial transactions. Credit cards are revolving credit instruments that do not need to be paid in full every month. There is no late fee payable so long as the minimum payment is made at specified intervals (usually every thirty days). The balance of the account accrues interest, which may be backdated to the date of initial purchase. Charge cards are typically issued without spending limits, whereas credit cards usually have a specified credit limit that the cardholder may not exceed.

Though originally charge account identification was paper-based, in 1959 American Express became the first charge card operator to issue embossed plastic cards to ISO/IEC 7810 ID-1 standard. Cards have an embossed bank card number complying with the ISO/IEC 7812 numbering standard.

In 1914, Western Union opened the first charge account for its customers and provided them with a paper identification. There were many larger department stores which opened store charge accounts for their customers with paper identification, enabling the customer to make purchases on credit provided by the store. However, these accounts could be used only within the store which issued them. In 1950, Diners Club began opening charge accounts with paper identification cards, directed at the travel and entertainment markets. The novel feature of these cards was that the charge card could be used in a large number of stores. These stores had to enter an agreement with Diners Club, and pay a fee to the company. For the fee, Diners Club carried the cost of setting up accounts, authorizing each transaction, processing transactions and collections, bore the financing costs and assumed the risk of cardholders defaulting. The new system was especially appealing to smaller stores in competition with the larger stores but who could not justify setting up their own charge account facilities. Eventually the larger stores began accepting these cards, testifying that the fees charged by the card operator were lower than the store's cost in running their own store accounts. In 1957, American Express also entered the field, and in 1959 was the first company to issue embossed plastic charge cards to ISO/IEC 7810 standards.

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