Paying with Cards

Enter a store in the United States. Any store. You will find logos on theproducts sold in the store. Some logos will be familiar and others will not.The brands will be appropriate to the store: you will find a Nike swoosh ina shoe store but not in a bookshop, and the Kellogg tiger will beckon to youin a grocery but not in a hardware store. There are, however, two logos thatwill show up in all of these outlets. One will be a four-letter word written inblue italics on a white background, the first letter sporting an orange splash:VISA. The other will feature a Venn diagram of two overlapping circles—onefire-truck red, the other mustard yellow—across which is written, asyou might have guessed by now, a compound word with an uppercase C inthe middle: MasterCard.

Now go to a foreign country. Any country. You will find the same twologos almost everywhere, from Shanghai to St. Petersburg, Sofia, Szczecin,and Székesfehérvár. The further you stray from the beaten path of globalization,the fewer of these two logos you will encounter, but you will be surprisedto find them occasionally even in small, rural villages in the poorestregions of the world. Though far from everyone in countries like Hungaryor Ukraine will use those two logos, almost everyone will recognize them.

Today, Visa and MasterCard, together with smaller brands such as DinersClub, American Express and Discover, stand with Coke, McDonald's, Microsoftand others as universally recognized brands. Credit cards are theepitome and a protagonist of globalization. As a new form of payment, theyembody the effortless and instantaneous flow of money, in the form of information,from anywhere to anywhere else in the world. Cards tear downnational boundaries by allowing travelers to pay easily, without the burdenof having to carry wads of cash and to exchange one kind of currency foranother. Today, traveling without a credit card turns simple transactionssuch as plane and hotel reservations into unduly cumbersome chores. Cardsalso make long-distance purchases possible. Without cards, the Internet, themost global of institutions, would never have been able to turn into a globalretail marketplace. The global nature of commerce demanded a global paymentsystem, and the large credit card companies built their own worldwideweb of authorization and processing, linking souvenir shops and banks allover the world.

It is not just Western cardholders whose convenience is served by the waythe credit card weaves the world into a global bazaar. Lives in the rest of theworld are also profoundly affected. Globalization expands the reach ofcredit card markets to the less affluent parts of the world, to places wherethose markets had not existed earlier—in the process transforming localpopulations into card-carrying consumers. In this book, we trace the courseof this transformation and the paths that emerging card markets carved inBulgaria, China, the Czech Republic, Hungary, Poland, Russia, Ukraine andVietnam. Our story is not, however, a straightforward account of globalization.We demonstrate that despite the overwhelming similarities around theworld in the appearance of credit cards (small rectangular pieces of plasticproportioned according to the golden ratio, with a magnetic stripe onthe back exactly 0.223 inches from the upper edge, and sometimes a smallembedded computer chip), and despite the undeniable ambitions of multinationalcard companies to present cards as a standard, "McDonaldized"product, postcommunist card markets neither developed according to a single"Western" blueprint nor proceeded in identical "postcommunist" waysin all of the eight countries.

Credit Card's Dual Role:Both Payment Mechanism and Instrument of Credit

The credit card stands at the intersection of two momentous changes in theworld economy. As a means of payment, the card is replacing cash as well aschecks (where they previously existed) with a piece of plastic and the digitalflow of information. The most recent step in a long historical progressionfrom beads and shells to gold coins and paper money, the payment cardmakes the link between value and its material vessel even more attenuated.At the same time, the credit card is also an instrument of accessing consumercredit. As such, it allows people to use money they do not yet haveto buy goods now and pay for them later, and it is a major force in the rapidexpansion of consumer credit and consumer culture. Thus, to understandcredit card markets, we must recognize that the credit card is not one buta combination of two products: the payment card and the consumer loan.

As a means of payment, the credit card helps displace cash from day-to-dayexpenditures, making payments more convenient, transparent andtraceable. As an instrument of credit, the card provides access to small-scalerenewable loans, enabling cardholders to enjoy purchases they would nototherwise be able to afford. Historically, the two products were seamlesslyfused into one in the form of a piece of plastic that fueled the twentieth-centurycredit card revolution in the United States. Conceptually, they aredifferent, however. Credit can exist without cards: in the United States, retailcredit has been around for much longer than cards, and examples aboundof economies where installment purchases, home mortgages and personalloans flourish but no cards exist, with payments being made exclusively incash or by check. Cards can also exist without credit: when a debit card isused, the money is immediately deducted from one's bank account, and theissuers of pre-paid cards do not extend any credit to cardholders; the cardserves only as an instrument of payment. In fact, as we show, the majority ofthe Visas and MasterCards in circulation in transitional countries are debitcards, so cards extend little or no credit to customers in these countries.

Each of the two products that the credit card represents—a personal loanand a payment tool—offers its own set of puzzles. For instance, as a meansof payment issued to individual holders and used in a variety of retail locations,the credit card has to be peddled simultaneously to consumers andmerchants, giving rise to the chicken-and-egg problem (or as we call it, thetwo-sided market problem). As an instrument of borrowing, the credit cardnecessitates solving another problem: the card issuers' uncertainty regardingthe future repayment of the loan.

Market Creation Versus Market Operation:Generative and Functional Rules

Today in the developed world, the payment card is a natural part of everydaylife. We take it for granted. It works effortlessly,...