Computers and Banking

Overview Banks were early technology adopters. The first technology to automate check processing coincided with the first availability of commercial computers between 1950 and 1952. The first ERMA (Electronic Recording Machine-Accounting) computer was installed at Bank of America in 1959, with additional machines installed over the next two years, as explained in this quick overview of ERMA history.

Clearing checks from a bank’s own customers is only part of the challenge. Checks coming in from customers of other banks need to be exchanged for the funds they represent. Bank clearing houses were originally physical locations where banks would trade checks and settle balances with other banks. The HowStuffWorks Web site provides an answer to the question "When I pay for my groceries by check, where does that check go?"

A check’s journey includes a trip through the automated clearing house (ACH). Affirmative Technology’s Web site includes diagrams and descriptions of the ACH network. You’ll find additional information at the Federal Reserve site.

One of the latest pieces of legislation to affect check processing, usually referred to as Check 21, went into effect in October of 2004. It encourages electronic check clearing, and paper checks can stop at any point in the collection change. That means consumers will no longer receive their original checks with monthly statements. You can watch a narrated slide show about Check 21 at the Federal Financial Institution Examination Council Web site. Consumers need to be aware that Check 21 helps banks clear checks faster. The Consumer’s Union Web site offers some useful tips to help consumers avoid overdrafts.

Banking technology One of the most ubiquitous banking technologies is the automatic teller machine (ATM). You’ll find one at most malls, grocery stores, and gas stations. The technology is fairly complex. It includes a card reader, keypad, touch screen, receipt printer, camera, and a cash dispenser that senses and sorts paper money. You can find all about ATM technology at HowStuffWorks.

For an inside look at the computer and communications systems maintained by banking institutions, read the NEC case study about Kumiren Net, a centralized financial system established to conduct savings and loan transactions with Credit Unions throughout Japan.

Banks and other financial services are increasingly turning to artificial intelligence to detect suspicious transactions. The American Association for Artificial Intelligence offers a page of links about AI in banking.