Consumer credit may seem like a fairly new invention – but it’s actually been around for more than 5,000 years!
In fact, many millennia before the credit score became ubiquitous, there is historical evidence that cultures around the world were borrowing for various reasons. From the writings in Hammurabi’s Code to the exchanges documented by the Ancient Romans, we know that credit was used for purposes such as getting enough silver to buy a property or for agricultural loans made to farmers.
Consumer Credit: 3,500 B.C. to Today
In today’s infographic from Equifax, we look at the long history of consumer credit – everything from the earliest writings of antiquity to the modern credit boom that started in the 20th century.
Consumer credit has evolved considerably from the early days.
Over the course of several millennia, there have been credit booms, game-changing innovations, and even periods such as the Dark Ages when the practice of charging interest (also known as “usury”) was considered immoral by some people.
A Timeline of Consumer Credit
Below is a timeline of the significant events that have helped lead to the modern consumer credit boom, in which Americans now have over $12.4 trillion borrowed through mortgages, credit cards, student loans, auto loans, and other types of credit.
The Ancients and Credit
3,500 BC – Sumer
Sumer was the first urban civilization – with about 89% of its population living in cities. It is thought that here consumer loans, used for agricultural purposes, were first used.
1,800 BC – Babylon
The Code of Hammurabi was written, formalizing the first known laws around credit. Hammurabi established the maximum interest rates that could be used legally: 33.3% per year on loans of grain, and 20% per year on loans of silver. To be valid, loans had to be witnessed by a public official and recorded as a contract.
50 BC – The Roman Republic
Around this time, Cicero noted that his neighbor bought 625 acres of land for 11.5 million sesterces.
Did this person literally carry 11.5 tons of coins through the streets of Rome? No, it was done through credit and paper. Cicero writes “nomina facit, negotium conficit” – or, “he uses credit to complete the purchase”.
Moral Concerns About Lending
800 – The Dark Ages in Europe
After the collapse of the Western Roman Empire, economic activity grinded to a halt. The Church even banned usury, the practice of charging interest on loans, for all laymen under Charlemagne’s rule (768-814 AD).
1500 – The Age of Discovery
As European explorers and merchants begin trade missions to faraway lands, the need for capital and credit increases.
1545 – England
After the Reformation, the first country to establish a legal rate of interest was England in 1545 during the reign of Henry VIII. The rate was set at 10%.
1787 – England
Philosopher Jeremy Bentham writes a treatise called “A Defense of Usury”, arguing that restrictions on interest rates harm the ability to raise capital for innovation. If risky, new ventures cannot be funded, then growth becomes limited.
The Birth of Modern Consumer Credit
1803 – England
Credit reporting itself originated in England in the early 19th century. The earliest available account is that of a group of English tailors that came together to swap information on customers who failed to settle their debts.
1826 – England
The Manchester Guardian Society is formed, and later begins issuing a monthly newsletter with information about people who fail to pay their debts.
1841 – New York
The Mercantile Agency is founded, and starts systemizing rumors about the character and assets held by debtors through a network of correspondents. Massive ledgers in New York City are made, though these reports were heavily subjective and biased.
1864 – New York
The Mercantile Agency is renamed the R. G. Dun and Company on the eve of the Civil War, and finalizes an alphanumeric system for tracking creditworthiness of companies that would remain in use until the twentieth century.
1899 – Atlanta
The Retail Credit Company was founded, and begins compiling an extensive list of creditworthy customers. Later on, the company would change its name to Equifax. Today, it is the oldest of the three major credit agencies today in the United States.
The Consumer Credit Boom
1908 – Detroit
Henry Ford’s Model T makes automobiles accessible to the “great multitude” of people, but they were still too expensive to buy with cash for most families.
1919 – Detroit
GM solves this problem by loaning consumers the money they need to buy a new car. General Motors Acceptance Corporation (GMAC) is founded and popularizes the idea of installment plan financing. Consumers can now get a new car with just a 35% downpayment at time of financing.
1930 – United States
By this time, efficient U.S. factories are pumping out cheaper consumer products and appliances. Following the lead of GM, now washing machines, furniture, refrigerators, phonographs, and radios can be bought on installment plans. It’s also worth noting that in this period, 2/3 of all autos are bought on installment plans.
The First in Big Data
1950 – United States
By 1950, typical middle-class Americans already had revolving credit accounts at different merchants. Maintaining several different cards and monthly payments was inconvenient, and created a new opportunity.
At the same time, Diners Club introduces their charge card, which helps open the floodgates for other consumer credit products.
1955 – United States
Early credit reporters use millions of index cards, sorted in a massive filing system, to keep track of consumers around the country. To get the latest information, agencies would scour local newspapers for notices of arrests, promotions, marriages, and deaths, attaching this information to individual credit files.
1958 – United States
BankAmericard (now Visa) is “dropped” in Fresno, California. American Express and Mastercard soon follow, offering Americans general credit for a wide range of purchases.
1960 – United States
At a time when the technology was limited to filing cabinets, the postage meter, and the telephone, American credit bureaus issued 60 million credit reports in a single year.
1964– United States
The Association of Credit Bureaus in the U.S. conducts the first studies into the application of computer technologies to credit reporting. Accuracy of data is also improved around this time by standardizing credit application forms.
1970 – United States
The first Fair Credit Reporting Act is passed in the United States. It establishes a standard legal framework for credit reporting agencies.
1980s – United States
The three biggest credit bureaus attain universal coverage across the country.
1989 – United States
The FICO score is introduced, and quickly becomes a standard system to measure credit scores based on objective factors and data.
2006 – United States
VantageScore is created through a joint-venture between the top three credit scoring agencies. This new consumer credit-scoring model is used by 10% of the market, and 6 of the 10 largest banks use VantageScore.
The Information Age has enabled a new era in consumer credit and assessing risk – and today, credit reports are used to inform decisions about housing, employment, insurance, and the cost of utilities.
Learn more about how data, the internet, and modern computing is changing credit in Part 2 of this series.
China’s Economy: 40 Years of Soaring Exports
China’s economy today is completely different than 40 years ago; in 2021 the country makes up the highest share of exports globally.
Animated Chart: 40 Years of Soaring Exports in China
China has the second highest GDP in the world, and it exports 15% of all the world’s goods. But how did this come to be?
A mere 40 years ago, China’s economy was in an entirely different situation, making up less than 1% of global exports and still in the infancy stages of building its economy. The above animated chart from the UNCTAD showcases China’s rise to global trade dominance over time.
Timeline: The Rise to Power
The China of the mid-20th century looks remarkably different when compared to the modern-day nation. Prior to the 1980s, China was going through a period of social upheaval, poverty, and dictatorship under Mao Zedong.
Beginning in the late 1970s, China’s share of global exports stood at less than 1%. The country had few trade hubs and little industry. In 1979, for example, Shenzhen was a city of just around 30,000 inhabitants.
In fact, China (excluding Taiwan* and Hong Kong) did not even show up in the top 10 global exporters until 1997 when it hit a 3.3% share of global exports.
|Year||Share of Global Exports||Rank|
*Editor’s note: The above data comes from the UN, which lists Taiwan as a separate region of China for political reasons.
In the 1980s, several cities and regions, like the Pearl River Delta, were designated as Special Economic Zones. These SEZs had tax incentives that worked to attract foreign investment.
Additionally, in 1989, the Coastal Development Strategy was implemented to use strategic regions along the country’s coast as catalysts for economic development.
The 1990s and Onwards
By the 1990s, the world saw the rise of global value chains and transnational production lines, with China offering a cheap manufacturing hub due to low labor costs.
Rounding out the ‘90s, the Western Development Strategy was implemented in 1999, dubbed the “Open Up the West” program. This program worked to build up infrastructure and education to retain talent in China’s economy, with the goal of attracting further foreign investment.
Finally, China officially joined the World Trade Organization in 2001 which allowed the country to progress full steam ahead.
Made in China
Today China is a trade giant and manufacturing behemoth. Only the U.S. and Germany come close to its share of global exports, sitting at 8.1% and 7.8% respectively.
|Rank||Country||Share of Global Exports (2020)|
|#6||🇭🇰 Hong Kong SAR||3.1%|
|#7||🇰🇷 South Korea||2.9%|
China’s manufacturing industry has become dominant in producing just about anything from commonplace household items to integral pieces in automotive manufacturing. Some staples of Chinese manufacturing are:
- Precision instruments
- Industrial machinery for computers and smartphones
COVID-19 made China’s integral role in the global economy even more visceral, as major delays in the supply chain occurred when the virus hit the country.
An Economic Superpower
In 2021, China’s trade recovery from the crisis has bested most other countries—in Q1 2021, its exports grew by almost 50% compared to the previous year’s quarter, to around $710 billion.
And the country is not slowing down any time soon. Further plans for economic development are well under way, like Made in China 2025, with the goal of becoming a dominant player in global high-tech manufacturing. Additionally, the famous One Belt, One Road initiative has been funding infrastructure projects globally over the past decade, and the country is also a founding member of the RCEP—which is soon to be the world’s biggest trading bloc.
However, China still faces a series of challenges, such as:
- Population decline
- The onset of labor saving technology
- Trade wars with U.S. and sanctions from other trade partners, like Europe
- The emergence of ASEAN trade powers, like Vietnam
A declining population has many implications like a shrinking workforce and domestic market. Additionally, many companies are setting up shop in less costly manufacturing hubs like Vietnam.
Furthermore, inexpensive innovations in labor-saving technologies, such as robotics and automation, have already begun to undermine the cheap manual labor that has made China the world’s manufacturer.
All of these elements and more could potentially spell a slowing of growth in China’s export dominance. However, while the future for China may not be certain, currently, global trade and production could not function without it.
The Biggest Business Risks in 2021
We live in an increasingly volatile world, where change is the only constant. Which are the top ten business risks to watch out for?
The Biggest Business Risks Around the World
We live in an increasingly volatile world, where change is the only constant.
Businesses, too, face rapidly changing environments and associated risks that they need to adapt to—or risk falling behind. These can range from supply chain issues due to shipping blockages, to disruptions from natural catastrophes.
As countries and companies continue to grapple with the effects of the pandemic, nearly 3,000 risk management experts were surveyed for the Allianz Risk Barometer, uncovering the top 10 business risks that leaders must watch out for in 2021.
The Top 10 Business Risks: The Pandemic Trio Emerges
Business Interruption tops the charts consistently as the biggest business risk. This risk has slotted into the #1 spot seven times in the last decade of the survey, showing it has been on the minds of business leaders well before the pandemic began.
However, that is not to say that the pandemic hasn’t made awareness of this risk more acute. In fact, 94% of surveyed companies reported a COVID-19 related supply chain disruption in 2020.
|Rank (2021)||% Responses||Risk Name||Business Risk Examples||Change from 2020|
|#1||41%||Business Interruption||Supply chain disruptions||↑|
|#2||40%||Pandemic Outbreak||Health and workforce issues, restrictions on movement||↑|
|#3||40%||Cyber Incidents||Cybercrime, IT failure/outage, data breaches, fines and penalties||↓|
|#4||19%||Market Developments||Volatility, intensified competition/new entrants, M&A, market stagnation, market fluctuation||↑|
|#5||19%||Legislation/ Regulation Changes||Trade wars and tariffs, economic sanctions, protectionism, Brexit, Euro-zone disintegration||↓|
|#6||17%||Natural Catastrophes||Storm, flood, earthquake, wildfire||↓|
|#8||13%||Macroeconomic Developments||Monetary policies, austerity programs, commodity price increase, deflation, inflation||↑|
|#10||11%||Political Risks And Violence||Political instability, war, terrorism, civil commotion, riots and looting||↑|
Note: Figures do not add to 100% as respondents could select up to three risks per industry.
Pandemic Outbreak, naturally, has climbed 15 spots to become the second-most significant business risk. Even with vaccine roll-outs, the uncontrollable spread of the virus and new variants remain a concern.
The third most prominent business risk, Cyber Incidents, are also on the rise. Global cybercrime already causes a $1 trillion drag on the economy—a 50% jump from just two years ago. In addition, the pandemic-induced rush towards digitalization leaves businesses increasingly susceptible to cyber incidents.
Other Socio-Economic Business Risks
The top three risks mentioned above are considered the “pandemic trio”, owing to their inextricable and intertwined effects on the business world. However, these next few notable business risks are also not far behind.
Globally, GDP is expected to recover by +4.4% in 2021, compared to the -4.5% contraction from 2020. These Market Developments may also see a short-term 2 percentage point increase in GDP growth estimates in the event of rapid and successful vaccination campaigns.
In the long term, however, the world will need to contend with a record of $277 trillion worth of debt, which may potentially affect these economic growth projections. Rising insolvency rates also remain a key post-COVID concern.
Persisting traditional risks such as Fires and Explosions are especially damaging for manufacturing and industry. For example, the August 2020 Beirut explosion caused $15 billion in damages.
What’s more, Political Risks And Violence have escalated in number, scale, and duration worldwide in the form of civil unrest and protests. Such disruption is often underestimated, but insured losses can add up into the billions.
No Such Thing as a Risk-Free Life
The risks that businesses face depend on a multitude of factors, from political (in)stability and growing regulations to climate change and macroeconomic shifts.
Will a post-pandemic world accentuate these global business risks even further, or will something entirely new rear its head?
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