When we use cash, we are using legal tender notes that imply value that can be redeemed from a central source that anyone accepts. But the banks don't issue those notes, the Federal Reserve does. Ultimately, we trade in those notes because we have the expectation that they are worth something and redeemable. (We will just brush aside the fact that it's all fiat currency/funny money for the moment.)

Now what happens if we don't have the cash on hand for a purchase? If we take out a loan from the bank, the bank gives us cash, but no one else with whom we do business has any knowledge of that arrangement - they don't care and don't need to because the cash has actual value (perceptual as it may be right now).

In absence of a bank loan, it used to be that we could amass "credit" with individual stores who would assess our means, our reputation, and our needs and individually manage our line of credit, and each line of credit would apply to only that business. If a new business entered the market, we would have to individually apply for credit with that store and this application would usually be contingent on the development of a business relationship. Those individual stores were liable for the results of default on payment.

In our modern era, we have a pseudo-financial entity known as a credit card company that offers to assume the task of micro-managing credit requests emanating from consumers and partially shield businesses from liability while guaranteeing them payment for purchased items in exchange for monthly or transactional fees. Part of that business relationship also includes the equipment. The business doesn't have to do business with any given credit organization if they so choose. The exchange is that they lose out on the customers that depend on that service with which to do business. To me it's pretty simple.

But that also assumes a perfect business world and - as you so accurately point out - doesn't include the effects of government, which just throws a monkey wrench in the whole works by distorting things. You are 100% correct in noting that the currency manipulation by the Federal Reserve results in inflated prices, devaluation of debt, and the encouragement to consumers to take on debt. You are also correct in noting that the Federal Government has taken upon itself to further distort the market by "bailing out" banks and other financial institutions for their bad investment decisions and placing manipulative regulations upon the credit card companies. These effects encourage inefficient and overly-risky decision-making.

Would the size of the credit market be as big as it is without the distortions of the Federal Reserve and government policy? I agree with you that they would not. But I still see a role for the credit industry - absent government manipulation - as a service.