Emergency of technology

As volumes increased in the 1950s and 60s, automation of the sorting process became more of a necessity. In the very early days of computer processing, teams of punch card operators typed cheque details onto punch cards. Machines that processed the punched cards updated customers’ accounts, thus automating what bank clerks had previously recorded in ledgers. Sorting, however, was still done by hand.

By 1960, a newspaper review in The Times of the “Potentialities of Automatic Reading Devices” stated that investment in reading machines was worthwhile if data could be analysed from more than 100 remote points or “if the encoding or sorting of documents would call for a staff of 10 or more girls”. By this point inter-bank clearing volumes had already reached 2.5 million items per day and a reading machine, running at 10 per cent of its full capacity for an eight-hour day, would be cheaper than a staff of punch card operators.

In 1959 the American banks, in collaboration with US business machinery manufacturers and printers, produced and patented the E13B standard MICR (Magnetic Ink Character Recognition) code. This is a standard font, which is used in conjunction with magnetic ink – ink with a high iron content which becomes magnetised when passing through high-speed sorters. Each character has its own unique magnetic signature which is read by the MICR read head, a device similar to the playback head in an audio tape recorder.

The first American reader/sorters produced by Burroughs, NCR and IBM had a throughput rate of approximately 1,500 documents per minute (DPM), whilst their European equivalents made by EMI (named FRED, the Figure Reading Electronic Device) and De La Rue Bull offered speeds of between 300 and 750 DPM.

These early reader/sorters set the pace and this throughput rate has not been improved upon very much, probably because there is a finite limit to the speed at which paper can be passed though a reader. Current machines still process at approximately 1,000 to 1,800 items per minute.

The London clearing banks carried out their own studies and attended various demonstrations of the different automatic cheque sorting machines  available, both in the UK and abroad, to decide on the most suitable system for Britain. In 1960 the world’s first fully operational electronic cheque and document sorter, using the American MICR system, was demonstrated to the Committee of London Clearing Bankers at the London head office of NCR. Mainly as a result of the greater speeds achieved by the American system, the Committee settled on that system as being the most appropriate. At the same time, the banks also agreed to reserve the area at the bottom of the cheque specifically for encoding the branch and account details. The use of MICR encoding on a cheque in conjunction with high-speed reader/sorters revolutionised cheque processing.

Lloyds and Barclays Banks both installed automatic cheque sorting machines in 1960/61 and began testing their systems around that time. It was Westminster Bank (which later merged with National Provincial Bank to form National Westminster Bank), however, that stole the march. On 5 September 1962, Europe’s first MICR cheque reader/sorter system – capable of reading and recording cheque codelines - was opened at its Lothbury head office by Reginald Maudling, the then Chancellor of the Exchequer.

Electric vans

With the arrival of reader/sorters, bundling up cheques into mailbags for delivery to the Bankers’ Clearing House was no longer viable as automation dictated that cheques be fed in a strict regular order. Cheques had to be sent in boxes, which then had to be moved on trolleys and the trolleys could only be moved in vans. However, because of access restrictions into Lombard Street, special vehicles were needed. Electric vans, rather like milk-floats, were commissioned because they were quiet (there was concern that vans going in and out of the clearing house would be too noisy and at one stage, the street was even paved with rubber blocks to keep noise to a minimum).

Standard format

With automation, cheques also needed to be made of much stronger paper and, in anticipation of this move, the Banking Information Service reported in February 1962 that cheques would, in future, be printed on thicker, stiffer paper. This meant that items could be processed more effectively using these automatic sorters.

All cheques must nowadays: conform to C&CCC Standard 3 - the industry standard detailing layout and font; be printed on a specific weight of paper (CBS1); and contain explicitly defined security features.

Since 1995, all cheque printers must be members of the Cheque Printer Accreditation Scheme (CPAS). The Scheme is managed by the Cheque and Credit Clearing Company and requires that all cheques for use in the British clearing process are produced by accredited printers who have adopted stringent security standards.

The Lloyds Bank hand-drawn cheque Over the centuries, cheques have come in all shapes and sizes and even in the modern era it has proved impossible to drive out all forms of non-standard paper. Printed cheques have been in use since the early 18th century so this image of a hand drawn cheque is an interesting one. In 1926, AL Mabey, a member of staff at Lloyds Bank in Temple Bar, London had a bet that a hand-drawn cheque was as valid as the printed form of a cheque. Mr Mabey painstakingly hand-drew a cheque for the sum of £2 and deposited it. To his delight it did in fact pass through clearing in the normal way.

Upon hearing that a hand-drawn cheque had passed through clearing without a problem, the Chief Accountant at the Lloyds Bank Head Office requested the Temple Bar manager ask his customers to use the standard printed cheque rather than draw their own - he had not realised that it came from a member of staff. It did show, however, that in those days it was not essential to use the standard printed cheque; and Mr Mabey won his bet!

Cheque guarantee cards

To encourage retailers to accept cheques as payment for goods and services, the first cheque guarantee card was issued by National Provincial Bank in October 1965. Initially these cards enabled encashment of cheques in branches up to a total value of £20 per day. From 1966 cards were issued that guaranteed encashments by cheque, and payments by cheque for goods and services, up to a value of £30.

The UK Domestic Cheque Guarantee Card Scheme was established in 1969 to create common, easily identifiable design features to simplify acceptance procedures for retailers and other acceptors of cheques. The Scheme’s initial guarantee limit was £30, increasing to £50 in 1977 and two additional limits of £100 and £250 were introduced in 1989. Since 1 October 1990, the common identifier on all cards with cheque guarantee functionality has been William Shakespeare, and his image is used within the cheque guarantee hologram or logo on all cheque guarantee cards.

1990 was also the year that cheque payments peaked, with 4 billion being written. However, cheque usage has been declining since then and most major retailers no longer accept cheque payments at all, so the use of guaranteed cheques is in steep decline. In September 2009 the members of the Cheque Guarantee Card Scheme announced that the Scheme will close on 30th June 2011, meaning that it will no longer be possible to guarantee a cheque under the Scheme after this date. This decision followed on from the announcement to close the Scheme made by the Payments Council earlier in 2009. The Payments Council had concluded that it was in all parties’ interests to manage the Scheme’s demise in a co-ordinated fashion following extensive consultation with guaranteed cheque users and acceptors.

Keeping things going

By 1970, mergers and acquisitions (mainly in 1969 and 1970) had reduced the number of clearing banks in England and Wales to six: Barclays Bank, Coutts & Co, Lloyds Bank, Midland Bank, National Westminster Bank and Williams & Glyn’s Bank.

The mining crisis of 1973 led to the three-day week and restrictions on power consumption. Crisis planning was as important then as it is now. The Committee of London Clearing Bankers held an emergency meeting in December of that year to seek clarification from the Government over the position of the banks during the crisis. The upshot of the meeting was that while banks were exempt from the restrictions on the use of office machinery for cheque sorting, the use of heating and lighting was not covered and, as a result, the banks withdrew evening opening facilities for the duration of the crisis.

Representatives of the clearing banks continue to meet on a regular basis to discuss how to manage the clearings in the event of a crisis, whether as a result of a natural or a man-made disaster. Major exercises are carried out on a regular basis to play out possible scenarios and ensure that normal service will continue.

Cheque and Credit Clearing Company established

The publication of the Child Report in 1984 brought about the establishment of the Cheque and Credit Clearing Company (C&CCC) in the following year. The ten member banks of the Bankers’ Clearing House (Bank of England, Barclays Bank, Central Trustee Savings Bank, the Co-operative Bank, Coutts & Co, Lloyds Bank, Midland Bank, National Girobank, National Westminster Bank, and Williams & Glyn’s Bank) had participated in a major review of the “Organisation, Membership and Control of the Payment Clearing Systems”. The resulting report (known by the name of the author, DM Child) led to the formation of the Association for Payment Clearing Services (APACS), a new umbrella organisation which would oversee the development of the clearings and the payment industry as a whole.

The C&CCC was established in 1985, under the APACS umbrella, as the new membership-based industry body to manage the general clearing – which was renamed the “cheque clearing” - and the credit clearing, which processes bank giro credits. The company took over the business of the Bankers’ Clearing House with a remit covering England and Wales. All members of the clearings were to be shareholders in the new company and would also be required to become members of APACS.