As executives sought to increase transaction volume to maximize investments in electronic equipment and personnel , the bank turned to travel services . In 1964 , Bank of America signed 10 airlines into the BankAmericard plan . By then , more than 3,000 hotels , restaurants and travel agencies across California accepted the card . Incorporating travel features expanded BankAmericard ’ s market from affluent female shoppers to their upwardly mobile husbands . Unlike travel cards , the bank offered these services without charging an annual fee . Combining retail and travel created economies of scale , making the BankAmericard cheaper for merchants and consumers . It also created network effects : More consumers would carry the BankAmericard , more businesses would accept it and participation would be more valuable for both groups . Still , Bank- Americard operated exclusively in California . Bloomingdale was right ; it was not yet a competitor of the Diners Club .
Given the constraints of interstate branching restrictions , both legal — in that banks could not build branches across state lines — and ideological — in that bankers could not easily think beyond state borders — it was not obvious that banks would develop nationwide credit card plans in the 1960s . Market participants and observers understood retail bank credit as bound in space . In this environment , the path to BankAmericard ’ s nationwide expansion appeared essentially by accident .
As bankers around the country realized that the BankAmericard had found a stable , profitable market in California , they sought to understand and replicate its success . Bank of America executives capitalized on this interest . In 1965 , the bank began to market its proprietary credit card accounting software , repackaging a financial information system developed in its local market for sale to a global cohort of large , computerized banks . Executives focused on US banks with existing card programs — like Marine Midland in upstate New York — and on foreign banks — specifically Barclays in England , which planned to initiate its own card plan . Building on this experience , executives concluded that a nationally ( and , in the case of Barclays , globally ) compatible accounting system run on efficient computers could provide a technological foundation for expanding the BankAmericard beyond California . Bank of America could sell more than its accounting software ; it could sell its entire card plan , recruiting consumers and merchants at scale .
To do so , Bank of America executives developed a national cooperative network in the style of its California operation . The bank adopted a franchise model , selling licenses to participant banks , setting their geographic territories and ultimately controlling entry and competition within the network . Bank of America executives designed the system so they could manage it from the top down , replicating their experience managing a statewide card network across California ’ s diverse markets . To join the network , banks paid a $ 25,000 franchise fee and 0.5 % of their card plan ’ s gross credit sales . In return , participant banks gained , according to executive Ken Larkin , “ a nationally-known product … a card which is not limited to one regional area .”
Initially , Bank of America restricted participation to large regional banks and assigned territories to licensees . The bank encouraged licensees to market cards aggressively , teaching participants how to use the unsolicited mailing strategy it developed in California . In theory , participant bankers would not compete to enroll the same merchants and consumers , or if they did , competition in any market would be confined to a few “ reputable banks .” The franchise model also meant that licensee banks were fundamentally subordinate . The BankAmericard system had a clear hierarchy , with the nation ’ s largest bank firmly at the top .
Bank of America adopted the franchise model to replicate the local ties created by its branch network , using licensees ’ community relationships to root the Bank- Americard in markets across the country . Bank of America ’ s executives first recruited banks in large cities not yet served by bank card programs . The bank also sought large banks , which could afford the technological systems and costs associated with launching the plan on a massive scale through unsolicited mailing . Licensee banks , in turn , recruited merchants and consumers in their immediate market area . They also expanded across their assigned regions by signing agent agreements with smaller banks — partnerships similar to those used by charge account bankers who built small-scale card networks in the mid-1950s . Agent banks recruited local merchants and suggested potential cardholders to licensee banks , which managed all consumer accounts .
Although card networks hinted at a future where bankers could decouple their services from the physical constraints of their branch systems , in the 1960s bankers saw cards as a tool for connecting consumers and merchants to their branches . Bankers worked to embed card plans within community relationships , efforts that extended to plan branding . “ We give other banks the benefit of our experience in helping them set up their own cards ,” Larkin explained in October 1966 , indicating that although banks were joining Bank of America ’ s network , they would retain control of their card plan locally . Like the correspondent charge plans , BankAmericard cards and advertising carried the local licensee ’ s name to tie the BankAmericard program into the local community . Unlike the earlier plans , “ Bank Americard ” appeared centrally in bold text , signaling which bank was paramount .
Bank of America announced its plans to license the BankAmericard in May 1966 , and over the next two years the program grew rapidly . By the end of 1966 , Bank of America counted eight licensees , growing to 17 the following year . By the end of 1968 , 41 licensee banks issued BankAmericards , and 1,823 agent banks signed up merchants and recommended consumers in their territories . With this growth came building tension . Although Bank of America relied on its partners to build the network , executives also intended the BankAmericard as the steppingstone for Bank of America ’ s eventual nationwide expansion . “ The ultimate objective of this program ,” Larkin wrote in a March 1966 memo , “ is to make the name BankAmericard a household word throughout the nation .” These ambitions , well known within the banking industry , undermined trust among participant banks , especially when Bank of America seemed to place its own interests ahead of the franchisees and the success of the system .
The BankAmericard network ’ s model of cooperation without competition was at best a strained compromise , which placed Bank of America as at once a competitor and referee . At the same time , the Bank- Americard ’ s expansion inspired a competitive fervor among rival firms , especially large regional banks that topped the local financial hierarchies in the nation ’ s geographically segmented banking markets . These banks recognized Bank of America ’ s ambitions , and they sought to use its mass
20 FINANCIAL HISTORY | Summer 2024 | www . MoAF . org