Digital Identity

Federation in the Credit Card Industry

The early days of the credit card industry provide many excellent lessons for the move from centralized to federated identity management, as well as the challenges of implementing a federated model. We will use it for illustration throughout this chapter.

Bank of America launched the first multi-merchant credit card in 1958. Previously, consumers only had credit relationships with individual merchants. BankAmericard was a way to extend small consumer loans to Bank of America customers at the time of a purchase, for any merchant who chose to participate. In essence, the bank functioned as a central clearinghouse, vouching to merchants for its customers' ability to pay.

Bank of America's charge card was so successful that it attracted rampant competition. In 1966, five other California banks collaborated to issue a competing product, MasterCharge , with a significantly larger customer base. In response, Bank of America began franchising BankAmericard to other banks nationwide. This meant Bank of America no longer had a direct relationship with all the merchants and consumers in the network. It had to establish mechanisms for merchants to verify cards through the card-issuing banks, and for the banks involved to settle transactions. What emerged was a federated financial network. Every bank controlled its own relationships with consumers and merchants. The federation allowed that data to stay in place by creating common policies for member banks ...