Incomplete transactions

Again, from the Boston Fed's The Evolution of Consumer Credit in America (PDF):

During the early years of the 20th century, a few hotels issued credit cards to favored guests, but the cards were mainly a gimmick — status symbols that distinguished the cardholders from the masses of cash-paying customers. Retail stores and oil companies were issuing credit cards during the 1920s, but they were single-party cards issued by merchants who saw them as a way to sell more goods and services...

Credit cards as we know them today didn’t take off until the 1960s, when financial innovation, improved technology, and changing consumer attitudes all converged. Financial innovation came in the form of a concept pioneered by Diners Club in 1949: the dual-party card. Dual-party cards represented a major breakthrough because the card issuer wasn’t actually providing the goods or services being purchased. Diners Club was not a restaurant chain or a food service company. It simply signed up hotels and restaurants to participate in its credit card plan, and it then issued cards to creditworthy people who were willing to pay a yearly fee for the convenience (and status) of having a card — no need to handle cash or fumble with a checkbook. When a cardholder charged a meal, the restaurant sent the bill to Diners Club, and Diners Club then paid the price of the meal, minus a small commission, directly to the restaurant’s bank. Finally, Diners Club sent the cardholder a monthly statement (bill), and the cardholder sent Diners Club a check.

But Diners Club was only a first step. The innovation that ultimately put dual-party credit cards into so many wallets was the bank card — a general-purpose card that consumers could use in a wide variety of situations. Franklin National Bank (Franklin Square, New York) introduced the first bank card program in 1951. A few years later, Bank of America launched BankAmericard (now Visa), and Chase Manhattan Bank followed with MasterCharge (now MasterCard).

Terminology: "single-party" and "dual-party". Apart from the customer, a single-party card involved only the merchant. The merchant provided both the item purchased and the credit needed to buy it. By contrast, a dual-party card involved not only the merchant but also a bank; and it was the bank that provided the credit.

With the single-party card, it was buy now and pay later. With the dual-party card it was buy now and pay someone else later.

For the single-party card, the picture is a little fuzzy in my mind. Those cards were before my time. But for the dual-party card the situation is clear. With the dual-party card there are two transactions for every purchase.

1. You buy from the merchant and pay with a credit card.
2. You pay the credit card bill.

Now the nomenclature makes sense to me: single-party, one transaction ... dual-party, two transactions. The "parties" are the ones who get paid. That's why the customer doesn't count as a "party". The fuzziness fades.

Anyway, today's credit cards are two-party cards. Every credit card purchase requires two transactions. Whenever you buy something with a credit card, the purchase is not complete until the credit card bill is paid.

Likewise, if you take a bank loan, buy something, and pay the merchant using the borrowed money, your transaction with the merchant is complete but your transaction with the bank is not.

Looking at it this way, debt is a measure of incomplete transactions.