The Fresno Drop: how BankAmericard became Visa
On September 18, 1958, sixty thousand residents of Fresno, California opened their mailboxes to find a small plastic rectangle they had not asked for and did not expect. It had their name on it. It had a $300 to $500 credit limit. And it came from Bank of America, a California-only institution that had just placed a very large bet on whether ordinary Americans would borrow money responsibly from a piece of plastic.
They would not, at first.
The man behind the gamble was Joseph P. Williams, a 41-year-old running BofA’s Customer Services Research Department, who had spent two years persuading executives that the key to democratizing credit was not waiting for customers to apply for it. Mail them a card, he argued, and they will use it. Before the drop, BofA had quietly signed up more than 300 Fresno merchants — mostly smaller retailers, Florsheim Shoes and their ilk rather than Sears — who agreed to pay a 6 percent fee on every transaction. On day one, cardholders simply existed; the merchants would follow. a16z
The BankAmericard was not the first credit card. Diners Club had been issuing charge cards since 1950. But Diners Club expected you to clear the full balance at the end of each month — a product for expense accounts, not paychecks. Williams’s card offered something different: revolving credit. Pay a portion each month, carry the rest forward at interest. For the first time, a retail customer without a store tab or a Macy’s charge account could buy a refrigerator on Tuesday and pay for it across the following year.
Fresno was chosen partly for its size — 250,000 people, enough to sustain a program — and partly because BofA held 45 percent of the local market, which meant most residents already had a relationship with the bank. There was a third reason, less flattering: if the whole thing cratered, nobody was paying much attention to Fresno.
It nearly cratered. Within months, delinquency rates hit 22 percent — Williams had projected 4 percent. Counterfeiters quickly learned to replicate the cards. Merchants resented the fees. Journalists and politicians attacked Bank of America for mailing unsolicited credit to people who had never asked for it. Williams resigned in December 1959 as the program bled approximately $20 million. The bank published an open apology to three million California households. The project that was supposed to democratize credit looked, from the outside, like a very expensive lesson in overconfidence. Wikipedia
By May 1961, BankAmericard was profitable. BofA had tightened controls, clarified fraud liability, and discovered that most Americans — given a few months of practice — turned out to be reasonably responsible borrowers. The bank began licensing the card to other institutions in 1966, threading around interstate banking restrictions by turning the program into a franchise. The network grew unwieldy: different banks, different standards, interchange disputes nobody had anticipated.
Into that mess, in 1968, stepped Dee Hock, a Pacific Northwest bank manager assigned to untangle BankAmericard’s chaos in his region. He proposed a committee. He became its chair. His diagnosis was blunt: Bank of America controlled a system it no longer had the capacity to operate. In June 1970, BofA relinquished control; the issuing banks formed National BankAmericard Inc. with Hock as president. He spent the next six years turning a franchise into an international network, and on December 16, 1976, the unified system took a new name. Hock had chosen it himself: Visa, because it was recognizable in most languages and implied, he said, “universal acceptance.”
Williams mailed the card before anyone asked for one. Nearly seven decades later, it is still arriving.
Sources
- Visa Inc. — Wikipedia — BankAmericard 1958 launch, Fresno rationale, Williams and Hock, NBI formation, 1976 Visa rebrand.
- The Fresno Free-for-All — Andreessen Horowitz — Card terms, merchant sign-ups, Williams’s reasoning, and the delinquency crisis.