Buy Now Pay Later Sites: The History of Personal Credit
While the idea of buy now pay later credit is not new, it has become more visible and acceptable in the last hundred years or so. At one time, borrowing money used to be done with great secrecy, between individuals and in some cases it would be illegal. In the pre-industrial society, usury (which means to lend on interest) was considered a really bad thing.
Credit Profile in the Pre-Industrial Society
Between the 16th and 19th centuries the depictions that were done of people and or business seeking credit were usually depictions of:
- Individuals who sought credit displayed moral weakness
- Business that chose to get credit were only those that were greedy and predatory
As the centuries progressed, many prints later told the story of businessmen who sought credit would not become wealthy but insolvent.
It is hard to imagine; however, back in the 15th century there were many financial businesses that when they first started out were non-profits. They did so because they were not happy with the high rates that the moneylenders of that time were charging. The business was pretty much what we call pawnshops today (not sure if they had their equivalent of Rick, Chumlee, or the old man however).
One of the first ones created was in Perugia Italy in the early 15th century. Backed by the Catholic Pope who said that “charitable pawnshops were exempt from the prohibition on lending at interest, the idea of pawnshops spread like wildfire through Europe because of its great number of Catholics.
At the time, there was much debate and opposition from the financial business. They saw this new kind of lending as a direct competitor and one that would hurt their business. They did everything they could to discredit the pawnshops value with the public. One area they attached was to tie theft to the pawnshops fearing people would start to steal in order to bring merchandise in to get money.
Even with the challenges, these original forms of pawnshops continued throughout the centuries. Some have even emerged as large financial institutions. An example of this was the mont de piete of Paris, this shop was opened before the French Revolution and post WWI & WWWII. Today, it is the Credit Municipal. Additionally, in Mexico one of the original pawnshops (Monte de Piedad) is still open for business.
The Use of Credit Helps Grow a New American Colony
During the early part of the start on the United States, extending credit was very important to the development of this new countries economy. There was not a lot of physical money available during this period; therefore, businesses had to develop ways to allow for their customers to buy goods and services. In many cases, their customers did not have money to back the credit that they were extended (you can look at how they ran their business as the first buy now pay later no credit check programs that you see on the internet today).
In order to keep track of the credit accounts of their customers, businesses used to keep track in their account book. They would put in the credit or barter that people would use to buy their goods or services. Barter was by far one of the biggest forms of payment back then. Some customers who would use these first forms of buy now pay later programs such as farmers would not pay back the credit or bartered goods for a year or after their crops were harvested.
The Birth of Credit Reporting
As the United States began to grow, and expand as a new nation, so did the distance of businesses to their customers. This growth went from a local economy to a national and worldwide one. Before this expansion, it was easy for a business to extend credit to someone who lived in their same town or area. This was because they knew the people and knew if they could pay them back.
With their new extended customers, business did not know the people and could not tell if they could pay them back; therefore, causing the business owner to be sure if they would get paid back. In order to grow their business, the owners could not risk not offering these new customers the option to buy on credit. In order to solve this problem and meet the needs of the business owners the credit reporting industry was born.
The first credit reporting company was starting in 1837 by Lewis Tappan in Manhattan (you may also be very familiar with Lewis Tappan as he was an famous abolitionist and fought for the end of slavery). The name of this new credit reporting company was the Mercantile Agency. The company provided businesses with information on trading partners that were distances away from them. The first form of credit checks by businesses was in the form of a room that business could enter for a fee and hear the credit worthiness of their customers.
Other credit reporting agencies sprang up in the mid-1800’s to support the increased need for credit checks. As this new industry grew, so did how these agencies reported the credit of individuals. In the mid-1860’s, these credit bureaus started to produce a printed report that business could subscribe too. So, it was now much harder for customers who had bad credit to get credit and be able to buy now and pay later for their goods and services.
Imagine this for a moment, back in the mid-1800’s the credit reports not only provided an assessment of the credit worthiness and wealth; however, also included their interpretation of a person’s character. The way they gathered this information was through people’s contacts and interactions with others. Sometimes the data they collected was correct and factual and others based on rumors and speculation. In addition to this issue the reports were not made available to the people who the reports were about.
Credit Reporting in the Twentieth Century & Its Effect on Buy Now Later Programs
The early 1900’s saw much change in the credit bureau businesses. In the early 1930’s, two major credit companies merged to create the Dun & Bradstreet company. They were R.G. Dun& Co. and J. M. Bradstreet & Company. These two companies used technology as drivers in their businesses prior to the merger and that continued after they became one. The innovation evolution the credit industry went from:
- Hand written ledgers
- Typewriters where the output was then printed
The D&B Company as it is known today became full computerized in the mid-1970s.
The continued rise of the industrial revolution and increased production of goods manufactured in the United States provided a growth the U.S. economy and the need for a new approach to the credit industry. That new approach was the introduction of the credit installment plan.
The singer sewing machine is one of the companies who are credited with introducing and growing the buy now pay later type programs that are available today. Their slogan of “dollar down and a dollar a week”, helped grow them to a multinational company and creation of a new credit type industry.
We have come a long way since business owners tracking their customer’s credit history in their credit books. Obtaining credit today is a lot different and we now have more access to our information than ever before.
In addition the three major credit bureaus, most if not all buy now pay later sites and buy now pay later catalog companies offer specialized credit programs so that their customers can purchase their goods and pay on credit. Come to think of it, it is not much different than the way they did it over 300 years ago. The only thing that is changed is the technology and speed at which customers can obtain their credit.