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card number and issuing bank, ushering in electronic
This October will mark the 40th anniversary of The authorization. With the 21st century came EMV, which
Green Sheet Inc., which began as an email newsletter further enhanced card security.
for agents hungry for information in what was a Incentives drive terminalization
brand new industry in 1983. To celebrate our decades
of service to the ever-evolving payments sphere, we As more bankcards were issued and more retailers
will be publishing a series of articles over the coming embraced card acceptance, fraud escalated, creating a need
for better screening technologies. And a small army of
months that will provide retrospectives delving into device manufacturers and authorization services emerged
several aspects of our multifaceted industry. to keep pace with demand. Devices were designed to read
information from mag stripes and route that information
through authorization and clearing processes.
the corresponding technology and staffing investments—
was outside their core competencies. Verifone built the first electronic credit card terminal,
the Zon Jr. It can still be found at merchant locales
At the same time, the two vying bankcard brands were today, as can manual card imprinters (knuckle busters),
building state-of-the-art communications centers to although neither complies with EMV or other modern
support electronic authorization, clearing and settlement security requirements. Verifone and other manufacturers
of credit card payments. I toured one; it had the feel of a found the fastest way to get more terminals at merchant
NASA mission control center (which meant something at checkouts was to tap ISOs that were beginning to work
the time). with acquirers.

That the networks could connect merchants and FIs across The earliest terminals were rudimentary. After all, the
the country and authorize transactions in seconds was only thing needed was confirmation that a card was not
revolutionary. In 2022, Visa, alone, reported it processed lost or stolen, and the cardholder had sufficient credit to
192.5 billion transactions valued at $14.1 trillion. The top cover a purchase. When that was the case, a green light
10 acquirers, according to the website Statista, handled flashed on the terminal; if not, a red light flashed. More
nearly 137 billion credit and debit card payments in 2022. sophisticated terminals followed in response to merchant
requirements and efforts to contain fraud.
Fraudsters were quick to jump on opportunities they saw, Interchange flashpoint
requiring the brands and FIs to implement sophisticated
technologies and processes to curb fraud. Subsequently, All of this innovation and network capacity came with
an entire cottage industry coalesced around card fraud a cost. Interchange was the basic fee paid to card issuers
detection and prevention. primarily to cover the risk should the cardholder renege.
Compressing clearing times, fighting fraud But it has had other uses, as well.

In the industry's earliest days, card information was Initially, interchange was set low to encourage merchant
captured using a knuckle buster, a clunky machine that acceptance of electronic capture, and there were just a
enabled merchants to imprint carbon paper slips with handful of interchange rates based on merchant category
information such as card number and merchant ID. and perceived risk. Even as recently as the early 2000s,
Merchants gave a copy to the customer, kept a copy for the card brands would lower interchange to spur greater
themselves, and bundled up additional copies for pickup adoption among certain categories of merchants.
by local bank employees to begin the clearing process,
which could take weeks. It was around the turn of the century that interchange
tables grew longer and more complex, and this became a
None of this could occur, however, until the merchant flashpoint for merchants. Rates were not only set according
determined the number on the card was not in the to the type of merchant accepting the card, but also by type
various bulletins (booklets printed on newsprint and of card used. Plain cards are and were the least expensive,
distributed weekly by the card brands) listing cards that high-end rewards cards the most expensive.
were lost, stolen or over limit. (Eventually, the two card
brands combined their bulletins.) Numbers were listed Merchants became accustomed to battling with Mastercard
sequentially, and when a card number was not listed, the and Visa. In 1996, 5 million retailers, led by Walmart,
clerk would write on the charge slip the page number filed a lawsuit against Visa and Mastercard alleging,
where it did not appear. Large-dollar purchases usually among other things, that the two card brands violated the
required phone calls to card-issuing banks. Sherman Act (a federal antitrust law) with their "honor all
cards" rules. These rules held that a merchant accepting
With time, credit cards were affixed with magnetic Visa credit cards, for example, had to accept all Visa-
(mag) stripes containing encoded information, such as branded cards, including debit cards.

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