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 old-fashioned audio tape recorder, if anyone remembers those!.
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 through a reader. Current machines process at approximately 750 to 800 items per minute – larger capacity machines are not needed due to declining volumes of cheques.
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.
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).
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 3.1 - The Automated Processing of Vouchers (Debits) - 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.
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. Two additional limits of £100 and £250 were introduced in 1989. From 1 October 1990, the common identifier on all cards with cheque guarantee functionality was William Shakespeare, and his image was 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. Cheque usage began to decline and by the end of the century most major retailers no longer accepted cheque payments at all, so the use of guaranteed cheques declined steeply. Following extensive consultation with guaranteed cheque users and acceptors the former Payments Council concluded that it was in all parties’ interests to manage the Scheme’s demise in a co-ordinated fashion. The Scheme was closed on 30th June 2011. It has not been possible to guarantee a cheque under the Scheme since this date.
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.