Monday, August 27, 2012

A Short History of Bank Checks

There is no surviving documented proof of exactly when financial checks came to be part of financial transactions. Banks were a part of commercial life in ancient civilizations, but there are no records of any of the types of transactions that they carried out. However the ancient Mesopotamians, Greeks, and the Romans used banks. Some historians have dated the process of using checks at about 350 BC.

Certainly in Medieval Italy the banks played a vital part in commercial transactions. Venice and Genoa were an important trading centers. Historical research indicated that Marco Polo brought the idea of a check back to Italy from the court of Kublai Khan in 1275. Prior to that depositors had to appear in person to give instructions for a transaction. Once written instructions were acceptable it made a wider number of transactions possible.

Medieval Tuscan banks began the process of letters of credit and letters of exchange and the by fifteenth hundreds these types of transactions were common. They allowed the Italian mercantile trade to flourish because it was safer to write a check rather than carry large amounts of cash around.

By the early Sixteenth Century the practice had expanded to the Netherlands and once the banks had accepted a policy of paying money upon written instructions, this was the start of the modern account based payments by check. The process came late to England arriving in the late eighteenth century; the English had resisted the change because of the possibility of an increase in the levels of fraud, they were frightened that bank security would be threatened by people writing out cheques to accounts that they did not own. The English called their checks "cheque", and they still use the "que" at the end of the word.

The process of adapting checks occurred very quickly in America, in the 1600's the tobacco farmers in Virginia mortgaged their land and began to utilize their funds by writing checks. The oldest surviving check dates back to an English banker Lawrence Childs and it is dated 1762. The etymology of the word is unclear some view the root source to come from a double check to clarify the signatory. However it is more likely to come from the Anglo French word eschecker which means a chessboard. The Norman Kings developed a fiscal system and all the accounting was done on a piece of cloth which was divided into squares, with counters like draughts pieces.

When checks were first adapted the transactions were more secure for the customer and the recipient who could transfer funds without actually carrying cash. Unfortunately this was not the case for the bankers who still had to travel to the banks and collect the cash. As the system grew in popularity so did the number of messengers travelling between banks. Eventually clearing houses were developed where the checks were exchanged. Historically this was supposed to have started in London when two chatting messengers realized that they were each carrying a check for the other bank and they exchanged them on the spot.

In the U.S.A. the bankers have a choice they can present checks to other banks, the Federal Reserve or private clearing houses for clearance. There is no reason to transport checks from bank to bank the clearing houses scan them and read the characters at the bottom of the check, which identifies the banks they are to be drawn against this is what is known as the routing or sort code. Then there is the individual account number at the base of the check and the number of the check. Once they have been scanned and identified they are presented to the bank electronically to draw the funds.

Until a few years ago checks were very basic as they still are in Europe, they have the banks name, the account name and number and the cheque number as well as a number identifying the bank that they are drawn against. In America theme checks are now all the rage. First of all it was embossed or copperplate lettering, then individual logos, of animals or flowers. From a small change the individualization of checks snowballed.

Nowadays the checks are not issued necessarily by the bank; it is possible to purchase checks from outside approved sources. They are printed with family photographs in some cases. They are available in a huge arrangement of themes, colors, prints and borders.

In the twenty first Century there are other methods of paying bills, by credit, debit or charge card, and this has reduced the number of checks issued, the heyday for check numbers was the sixties, but none the less it is difficult to imagine that the need for checks will cease anytime soon. Who knows the credit crunch may well increase the amount of checks written as credit becomes harder to come by.

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