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Isn’t it crazy to think that so many stores used to run their own credit books and have to do all that accounting and servicing by themselves? Every pharmacy, hardware store, grocery store... anywhere that wanted to accept credit had to do it all.





What was the reason to “accept credit” in the first place, in an era when anyone with stable employment could have applied for a line of credit (i.e. a personal long-term loan) from their local bank, such that they could then pay these services with cash?

I can understand credit as a natural extension of “running a tab” at a hotel or restaurant—you order now, and settle your account later, for various definitions of “later.” But why would a retailer be interested in offering private/internal credit that they had to manage and settle? Sounds negative-ROI to me.


So people didn't have to carry cash around.

People would set up accounts at their local stores so all their common daily and weekly errands could be done without cash. Then once a month (after payday) they would take cash around to all the local stores paying their accounts. (Or write a check, I guess)

Stores supported this because it was a form of lock-in, and because it reduced friction. Faster than exchanging cash too, or writing a check.

When working correctly (the customer comes in and pays without prompting) it's super low effort. Especially for stores with only one location and checkout counter. Only really costs time and money when a customer requires chasing up.


Well, for one it reduces friction, which increases the likelihood of making a sale. If a customer comes in to a store, but has to leave to go to their bank, there is a chance they won't return to make the purchase. Even if it is something they need, a competitor might lure them in between the point they get money from their bank and they get back to your store. The value, of course, depends on how many additional sales the reduced friction generates, versus the cost of maintaining credit books.

In most cases they were just running a tab. Unless you make the customer pay a deposit up front, any gap between the purchase and the invoice being paid is an extension of credit.

Because it is the norm.

You're probably coming from the opposite frame, that requiring cash up front for all transactions was the norm. It wasn't. We've been extending credit and taking on debts for millennia. It's just how money works.


It for some weird reason is not the norm in a large part of the world (the individual credit lines for every little store thing, not the debt-based finance system in general) where it has been totally the norm to bring cash into stores for those everyday purchases. You had cash on you anyway, because people have always owned wallets, and it's not that much of a burden to carry a wallet with you.

It seems to me that this store credit thing has been very much a US thing, and it probably is the reason why credit-based electronic payment systems took over the US while at the same time debit-based systems accomplishing the exact same goal became dominant in many European countries.

Funny thing: when it comes to gasoline, the roles are reversed. In the US, you get no gas if you don't first go into that store and prepay or provide a credit card that guarantees a payment. In most of Europe, you just drive up to the gas pump and fill up, and then you go into that little store in order to pay.


That's a nice theory, but having credit at stores etc was a thing in Europe too.

It's for scenarios like "I'd like to buy those $40 steaks, but I've only got $30 with me."

One reason is that in the old days people would run out of money before the next payday. The other is as an alternative to giving your kid cash to go buy something for dinner.



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