ABA Banking Journal - November 2008 - (Page 86)

Eighttopics Tech innovations that took banking into the 21st Century By Lauren Bielski, senior editor urrounded by PCs and personal electronic devices of all sorts, many of us are blasé 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. 2. MICR S 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. SRI, Bank of America, and General Electric led efforts to build the technology. ABA pushed for this first, critical 1. ERMA The first core processor: Despite rising check volumes, even after World War II banks still handled each customerfacing 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.” 1908 1918 Hollerith modernizes punch cards used for manual account processing 1918 Fedwire executed via Morse Code using leased-line telegraph circuits. (From 1920s-60s Fedwire migrates from leased-line telegraph to Telex to computer over proprietary networks.) 1900 1905 1910 1915 1920 1925 1930 19 Adding machines are introduced, which are more compact than Burroughs devices and can fit on top of a desk. Computing Tabulating Recording Co. becomes International Business Machine (IBM) 86 NOVEMBER 2008/ABA BANKING JOURNAL Subscribe at www.ababj.com http://www.towergroup.com http://www.towergroup.com http://www.ababj.com

Table of Contents Feed for the Digital Edition of ABA Banking Journal - November 2008

ABA Banking Journal - November 2008 Contents Editor's Column Banking 2.0: Credit, Banking's Essence, Set for Rethinking Snapshot: The Few, the Proud, the Banks that Can Raise Capital Will Strong and Simple Banks Inherit the Business? Back to the Future ABA Resources ABA Chairman's Position Farm Lenders Must Take Care When Lending in Indian Country Pass the Aspirin Into the Breach Adventures Across A Century What the Future Holds, Post Crisis Paul Volcker: A Financial Legend Still Speaks Strong Ed Yingling: Weathering the Storm Dick Kovacevich: "Boring" Banking to Dynamic Financial Services Jim Culberson: Community Banking: What has Changed and What Shouldn't Walter Shipley: How a Chemical Reaction Helped to Mold Today's JPMorgan Chase William Isaac: Challenges and Opportunities Ahead for Banks A Hundred Years from Our Pages Eight Tech Innovations that Brought Banks into 21st Century Bank Cherokee: Third Generaton Marks 100th Year The First National Bank of Altavista: Railroad Gave Birth to a Town, a Hope Chest, and a Bank Rosedales Federal Savings and Loan Association: How a Friendly Game of Cards Turned into a 100-Year Mutual New Washington State Bank: Cooking Up the Next 100 Years Mailbox Banker's Mart To Advertise/Index of Advertisers The Economy

ABA Banking Journal - November 2008

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