Innovations and Payment Systems

Prototype credit card, up for auction, drawing interest


A crudely constructed but historic credit card with the first magnetic stripe expected to fetch more than $10,000 at auction

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UPDATE:The auction of the magnetic-stripe credit card prototype took place Friday, Dec. 14, 2012, at Sotheby’s in New York City. Company officials report that the prototype was purchased for $23,750, a significantly higher price than expected. Other details of the sale, including the identity of the buyer, were not available.

It is only a scrap of cardboard, but it is immediately recognizable to virtually every American and pretty much everyone else in the developed world. This week, it establishes — or, more accurately, re-establishes — its place in history.

One of the only two surviving prototypes of the modern credit card hits the bidding block Friday at the famed Sotheby’s auction house. Carried in the wallet of its co-creator for the past 40 years, the tattered 3-3/8-inch-by-2-1/8-inch brown card has generated quite a bit of interest — and not the kind of interest usually associated with credit cards.

Prototype credit card, up for auction, drawing interest

The Scotch-taped prototype has been in its creator’s wallet for 40 years.

“It might look like just a piece of cardboard, but it is an important relic of financial history, especially modern financial history,” said Richard Austin, head of Sotheby’s book department. “These days, people don’t give a second thought to the use of their credit cards and no one really questions how we came to have them, but there is some real history behind all of it.”

Not convinced of the prototype’s place in the scheme of things? Well, try this: The card is part of Sotheby’s “Fine Books and Manuscripts” collection. Expected to fetch $10,000 to $15,000 at auction, it truly was the start of a financial phenomenon responsible for the 1.4 billion credit cards currently in circulation in the United States alone, with 20 billion annual transactions worth $1.9 trillion.

“It has withstood many challenges over the years to become one of the most successful technologies of the past half century,” computer engineer Jerome Svigals, a key developer of the mag-stripe technology, recently wrote.

It was in Svigals’ wallet that the cardboard prototype has resided for all of these years. Now, the card is awaiting sale at Sotheby’s and is attracting a new round of well-deserved attention.

“This was one of those situations with far-reaching applications that even the creators couldn’t see,” said Chris Garcia, curator of the Computer History Museum in Mountain View, Calif, which houses the other mag-stripe card prototype. “The applications associated with this little piece of cardboard with a magnetic stripe on it expanded into all kinds of other information-related fields — banking systems, security systems, lots of things.”

It began back during the late 1960s, when Svigals and fellow engineer Forrest Parry led a team assembled by the International Business Machines Corp., better known as IBM. Their assignment: Design and build a better credit card.

After a great deal of effort, they did.

Key innovation: magnetic stripe
Though earlier, primitive versions of credit cards had been in circulation for decades, the team developed what it called the “machine readable magnetic stripe credit card.” At its core: Digital information that identified the user in a variety of ways and was programmed into a 5/16-inch-by-3-3/8-inch strip of magnetic iron oxide, placed along the top rear of each card. This black stripe — and the credit card — is what remains so familiar to us today.

The technological breakthrough helped convert the so-called “raised letter” credit cards from single-purpose tools — one for each store or airline or other business — to universal cards accepted by a wide variety of places. Even more importantly, development of the magnetic stripe cleared the way for swift, nearly instantaneous computerized transactions.

In fact, that was IBM’s entire objective — to drive the sale of those new-fangled machines called computers, the majority of which were built back then by, you guessed it, IBM. In fact, Svigals noted, IBM didn’t even patent the mag-stripe card, offering it for free to all takers.

“It was one of those stories of a company that didn’t realize what it had just done,” Garcia said. Eventually, of course, both IBM and Svigals came to that realization.

“The strategy worked beyond anyone’s dreams,” Svigals wrote earlier this year in an article published by IEEE Spectrum, a tech industry trade publication. “By 1990, every dollar IBM had spent developing the stripe technology had returned U.S. $1,500 in computer sales.”

A New York native educated at the Bronx High School of Science and at City College of New York, Svigals now is in his mid-80s and lives in the San Francisco area. He did not respond to messages requesting comment, but he remains a familiar force in the world of computer engineering — a man sometimes called the “father of the credit card.”

Which is quite an honor for a guy who spent a lot of time in the 1960s trying to figure out how to bring then-developing electronic technology to the credit card. In fact, a look back at those years and at that challenge can be educational.

Card’s ripple effect
“These little cards may appear unremarkable, but when you hear the story about their development, it is really quite amazing,” Austin said.

For instance:

  • Much of the impetus during the 1960s for a better credit card came from the airlines, according to Svigals. Why? Because the first jumbo jetliners — the Boeing 747 and the McDonnell Douglas DC-10 — were being developed, meaning that many more passenger transactions would need to be processed at the same time at airline ticket counters. (Yes, children, back in the olden days, airline passengers actually bought their tickets at the airport.)
  • Retail stores and banks, buried by the paperwork and the sheer effort associated with old-fashioned credit cards, also were agitating for a system that could produce faster transactions. No more copying by hand of credit card numbers and then calling the bank for authorization.
  • The team experimented with bar codes and paper tape as repositories of customer data before settling on the magnetic tape. To demonstrate how the new card would look, the cardboard prototypes were whipped together, quickly and none too precisely. The prototype carried by Svigals and offered by Sotheby’s has a rudimentary black stripe pasted to the card (at something of an unintended angle) with old-fashioned Scotch tape.
  • At first, the stripes were going to be attached to credit cards made from paper or thin cardboard. But, in a burst of serendipity, other engineers simultaneously were making enormous progress in the fabrication of plastic substances. It took scientists two years to figure out how to reliably attach the magnetic stripe to the card, but the challenge was met. Thus was born the true modern credit card — a plastic card with the IBM-developed magnetic stripe. Also born were the phrases: “Do you take plastic?” and “paying with plastic.”
  • American Express stepped up to the plate first. In January 1970, it issued 250,000 plastic cards featuring magnetic stripes that allowed customers to use rudimentary airport ticket kiosks and, eventually, bank ATMs and the full range of on-site point-of-purchase and instant payment card systems.
  • Even back then, digital information was producing seemingly miraculous feats. The magnetic stripe developed by Svigals and his team already had room for three “tracks” of recorded digital data. One primarily served airlines with the customer’s name, credit card account number and other information. The second track primarily served banks, with the customer’s account information and other data. The third was available for miscellaneous use.

All of this technology remains in use today, though many credit cards now also carry embedded computer chips and are called “smart cards.” Those chips increasingly perform much of the work once assigned to the magnetic stripes, and instantaneous payment systems also are coming to smartphones.

Still, the credit card designed more than 40 years ago by Svigals and his team are likely to remain with us for many years to come, and the credit processing principles developed or incorporated by that team — and demonstrated in the cardboard prototypes now back in the spotlight — may never disappear.

“The guy who developed these prototypes and has donated one of them is a real pioneer,” said Garcia, the computer museum curator. “He dates back to the earliest days of computing. He’s a huge figure, and the magnetic stripe credit card was a huge factor in the development of real-time computing systems.”

See related:A chat with John Grund: A look at the future of cards, The history of credit cards

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