Academic journal article ABA Banking Journal

Eight Tech Innovations: That Look Banking into the 21st Century

Academic journal article ABA Banking Journal

Eight Tech Innovations: That Look Banking into the 21st Century

Article excerpt

Surrounded by PCs and personal electronic devices of all sorts, many of us are blase about automation. Yet ABA Banking Journal, on our 100th anniversary, would like to look at a time when computers were exotic contraptions, at first as big as houses, and not yet the backbone of bank operations. We asked for experts to weigh in on which innovations mattered most over time.

1. ERMA

The first core processor: Despite rising check volumes, even after World War II banks still handled each customer-facing function, from account opening to check processing, with pen, paper-based ledger systems, and elbow grease. Robert Hunt, a senior analyst and research director for retail banking practice at TowerGroup, Needham, Mass., who in 1960 worked at a New Jersey bank, said that blind bank drafts were common and a teller would phone a back office bookkeeper to confirm account numbers. Memo posting was also a manual, card-punch-based process. At day's end, cards indicating account activity would be sent to clerks, who would check results against funds available.

"This was where the term 'memo post' came from," says Hunt.

Still, a quiet revolution was brewing. Bank of America was working with Stanford and General Electric on what would be the first core processor: ERMA, or Electronic Recording Method of Accounting system, which was an automated approach to bookkeeping and proofing.

"Banks could not have kept pace without ERMA and later models like the IBM 1401," says Hunt. "The back office for checks was created with ERMA."

2. MICR

When a check is more than paper: By the mid-1950s, when the post-war U.S. economy needed cash alternatives, ABA realized that manual handling and sorting of checks had to supplanted by streamlined means.

In 1956, Stanford Research Institute studied what is now known as Magnetic Ink Character Recognition--essentially, toners mixed with iron oxide allowing machines to pick up the data printed on the check.

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SRI, Bank of America, and General Electric led efforts to build the technology. ABA pushed for this first, critical wave of check modernization, in part, by assigning the development of font and printer trials to the Battelle Memorial Institute, which ultimately resulted in use of the E-13B font and the adoption of other important standards, according to Lyn Askin, in "MICR Toner-The Development of Checks Created the Demand for MICR Toner."

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By the 1960s, MICR's wide use shortened the clearing cycle considerably. MICR-related systems routinely improved. "MICR and use of the IBM 3890 reader/ sorters, and related technologies, let banks process checks in a timely way," says Andrew Dresner, director, Retail and Business Banking & Strategic IT Practices, Mercer Oliver Wyman, in New York.

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3. ATM

A bank doesn't need a teller or four walls: The stalwart and now ubiquitous Automated Teller Machine was first installed by Chemical Bank in Rockville Center, N.Y., in 1969, according to the Columbia Electronic Encyclopedia.

There were other really early deployments--and the device took a while to catch on. Yet, ATMs ultimately changed banking permanently by breaking the convention that transactions depended on tellers, branches, and banker hours, notes Emmett Higdon, senior analyst, eBusiness and Channel Strategy, Forrester, Cambridge, Mass.

"As ATMs gained traction, they let customers bank when it was convenient. This happened at a time when the country saw broader spread of "bedroom communities," says Higdon, adding: "ATM deployment was the first big step in banks beginning to operate in a more accessible and consumer-friendly way."

Stessa Cohen, research director, Gartner Stamford, Conn., points out that the dramatic rise ATM deployment in the 1970s also occurred when greater number female wage earners came into the work force. …

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