11 Jul The history of credit… and how it hasn’t changed
People have been lending and borrowing since before money even existed. Historians have found evidence of early loans in Assyria and Sumeria, dating back to 3500BC, even before the earliest ‘banks’ came around. Imagine having a credit record that lasted for four thousand years!
In this blog post we’ll take a look at how much credit has (or hasn’t) changed, and whether or not it’s time for an upgrade.
Loans and lending predate currency. Before paper money and coins, the value of goods and services was measured in “commodity money”, like bushels of wheat or shells. In early Mesopotamia (which included area covering modern day Iraq, Kuwait and Saudi Arabia), the ‘shekel’ was used, which referred to a specific weight of barley, or a metal coin: both were used interchangeably in around 3,000BC. The earliest laws around debt and interest were made around 2000BC, with texts like the Code of Hammurabi and the Code of Ur-Nammu examples of the earliest financial regulation ever created.
Some of the earliest professional bankers were the ancient greeks, known as trapezitai in 500BC. In Ancient India, merchants from different towns would even give letters of credit to one another!
- Deposit money into a ‘bank’
- Earn interest on money in your account
- Change money between currencies
- Go through a credit check!
Managing money the medieval way
As history took its course, the ways that people managed their money got more advanced. As Protestantism began to grow in the 16th Century, many people’s approaches towards the church’s ban on ursury (charging interest on loans) became more relaxed and fortunes were made (and lost) through the lending of money. Merchant banks, historic equivalents of today’s investment banks, soon emerged in Italy, starting with grain and cloth providers looking for a way to invest their riches.
Early merchant banks could lend to farmers, with their loans secured against the crops the farmers held. Eventually this paved the way to underwriting and insurance. Insurance markets sprang up, something keenly sought after by sailors and shipowners taking risky (and expensive) trips to discover and plunder the new world. Lloyd’s Coffee House, a coffee house in London opened in 1691, eventually developed into the famous insurance market that still exists today.
At the end of the 17th century, loans of crops and commodities had turned into paper contracts and finance looked pretty modern. However, unless you were a wealthy landowner or a successful businessperson, borrowing money was pretty difficult (if not impossible) to do.
By the end of the medieval era:
- Professional financiers could be found all over the world
- Goldsmiths and merchant banks invested in and lent money to businesses in need of credit
- Private banking and paper banknotes started to emerge
In 1728, the Royal Bank of Scotland issued the world’s first overdraft. It still offers them today! Advances in technology ushered in by the industrial revolution made book-keeping (and lending) much easier. In the 19th century, industrialisation brought with it not just many rich entrepreneurs hungry for credit to put into their businesses, but salaried factory workers. By the end of WWII, life was looking much like it is today. You could apply to your building society for a mortgage subject to income assessments and references.
In 1966, Barclays Bank introduced the Barclaycard: the first line of revolving credit aimed at consumers outside of the USA. The impact it had on the financial industry was huge: by the end of 2016, 32 million people in the UK alone had a credit card.
Since the 1960s, credit innovation in the UK has kind of… stopped. Sure, the internet has made paying for things almost instant, and contactless payments can make spending quicker and easier. For the most part, borrowing money is the same as it’s always been. In the mid-2000s payday loans and rent-to-own stores exploded in popularity, but people quickly realised how they were usually a short term solution that can easily lead to large amounts of debt.
Since the early 1700s:
- Overdrafts arrived
- Mortgages and loans started to become available to ordinary people
- Credit cards got people borrowing en masse
It’s time to give credit an upgrade
Just like 5,000 years ago, if you want to borrow money today, you’ve probably got to pay interest on it. And, just like 5,000 years ago, most lenders make more money from you if you stay in debt. Even overdrafts are much the same as they were nearly 300 years ago – a way to borrow that’s easy to get into, but might be quite difficult to get out.
If you’re only making minimum payments, credit cards can cost fortune too. It seems like pretty much all of the innovation in credit has made life betters for the lenders, but not for the people who borrow… and we think it’s time that change.
At Creditspring, we’re working on a completely new way to borrow. One that rewards the forward-thinkers, and encourages people to plan ahead with their money. A way to borrow with safety in mind. Sound interesting?
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