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One of the most important innovations in the world of finance is the credit card.
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The credit card was introduced in 1958 in Fresno, California by Bank of America. It was called Bank Americard.
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And the idea was that people will carry those cards that allowed them to borrow and spend across different merchants. It
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really stimulated spending and was an important boost to the economy. Before that, we had various types of charge
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cards, but they were typically limited to one merchant or a group of merchants. One of the key features of the credit
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card is really the network externality and this allowed people to shop more freely and they were also able to
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accumulate debt. So they didn't have to pay the credit card at the end of the month but rather this could revolve to
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the next month. There are of course downsides at the same time that it stimulates the
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economy. It also allows people to have excessive debt and sometimes people spend more than they can afford. I've
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seen a number that says that you have over 1 billion credit cards in circulation in the US which is clearly
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huge. However, nowadays it starts being more digital, more contactless, so people will have it on their phone.
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Credit card companies are also facing competition from other forms of payment with the rise of stable coins,
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cryptocurrencies. I would say that there is an increasing push back against the credit card
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companies and the fact that they make such high profits by charging very high interest rates.
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Finally, I would say that with the rise of AI, we might see some other big changes. So, of course, AI can be used
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by the credit card companies and the banks uh themselves because they can use AI to screen borrowers and decide who
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should get a credit card and what credit limit they should have. However, it's not only the banks and the financial
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companies that are using AI. You can also think about consumers that are starting to use AI. And one thing that
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we are starting to see is this concept of an AI agent that allows people to delegate the management of their
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finances to an AI agent. Once they do that, then the AI agent is going to identify all sorts of mistakes that
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people make in the management of their money. This might limit the ability of credit card companies to make a profit
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because right now the profit to a large extent is coming from the fact that people forget to pay. People carry debt
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that maybe they could pay back and the credit card companies are making a profit uh given the high interest rate.
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If those mistakes and biases are going to be eliminated because of agentic AI, then the ability to make a profit in
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this industry could decrease. So this is also something else that we might be watching for. The basic concept of a
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credit card I think will still be with us. People will still need that and the way that this allows them to spend and
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borrow, the way that this creates a role for banks and financial intermediaries.
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However, it might look a little different and hopefully it will be for the best because we don't necessarily
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want people to make those mistakes. It is better if we have more sophisticated technology that allows people to make
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wiser decisions.