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The Development of the ERMA Banking System: Lessons from History

IP.com Disclosure Number: IPCOM000129770D
Original Publication Date: 1993-Apr-30
Included in the Prior Art Database: 2005-Oct-07
Document File: 21 page(s) / 88K

Publishing Venue

Software Patent Institute

Related People

AMY WEAVER FISHER: AUTHOR [+3]

Abstract

In the early 1950s banking was faced with a paper-handling crisis. Banks were unable to keep on top of the rising number of checks and were unable to retain bookkeeping staff. Bank of America, then the largest bank in the world, fumed to Stanford Research Institute to develop an automated bookkeeping end proofing system. SRI and BofA worked together to create ERMA (electronic recording machine -- accounting) and to develop the MICE (magnetic-ink character recognition) check coding system. The work on this project demonstrates the necessity of senior executive involvement, strong leadership, and innovative engineering.

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THIS DOCUMENT IS AN APPROXIMATE REPRESENTATION OF THE ORIGINAL.

Copyright ©; 1992 by the Institute of Electrical and Electronics Engineers, Inc. All rights reserved. Used with permission.

The Development of the ERMA Banking System: Lessons from History

AMY WEAVER FISHER

JAMES L. MCKENNEY

(Image Omitted: First in a series about computer use at sank of America.)

In the early 1950s banking was faced with a paper-handling crisis. Banks were unable to keep on top of the rising number of checks and were unable to retain bookkeeping staff. Bank of America, then the largest bank in the world, fumed to Stanford Research Institute to develop an automated bookkeeping end proofing system. SRI and BofA worked together to create ERMA (electronic recording machine -- accounting) and to develop the MICE (magnetic-ink character recognition) check coding system. The work on this project demonstrates the necessity of senior executive involvement, strong leadership, and innovative engineering.

In the early 1950s, the banking industry was on the brink of a crisis. Between 1943 and 1952, check use in the United States had doubled from four billion to eight billion checks written every year. Bankers projected by 1955 the number of checks would be increasing by approximately one billion per year, and, by 196O, 14 billion checks would be written each year.l This dramatic increase in checking (shown in Figure 1) led to a substantial, twofold problem for the industry: The paperwork was staggering and banks were unable to retain bookkeeping staff. This situation had banks at a standstill; they were able neither to expand, nor, in some cases, even to keep pace with the increasing flow of paper.*1

The overwhelming growth of paperwork at the banks was created by the check-clearing process. Each of the 28 million checks written every business day passed through approximately two and one-third banks, taking more than two days to be processed. This led to a staggering 69 million checks in process throughout the United States banking system on an average day.3 Unless a check was deposited at the bank where both accounts were located, the check had to be sorted by hand and individually rung up on an adding machine a minimum of six times during the clearing process.1

In a 40-person branch, at least seven people were employed as full- time clerical workers. Most were young female bookkeepers between the ages of 18 and 24. Their monotonous work mainly consisted of sorting pieces of paper, running an adding machine, and bundling checks. Not surprisingly, considering the drudgery of the position and the age of the women, who traditionally left the banks upon marrying, the turnover rate was exceedingly high -- in some areas reaching 100 percent turnover each year.4

Once a check was deposited at a bank, two things needed to be accomplished quickly: proofing and bookkeeping. Proofing was done to identify the originating bank or branch and verify the amount on the check. Ch...