BANKING: The Machines Take Over

In a functional glass-and-concrete building in San Francisco, the Bank of America, the nation’s biggest (1960 deposits: $9.7 billion) commercial bank this week showed off the most highly automated center any bank can boast. It will serve as the nerve center for the bank’s automation system, which has taken ten years to put into operation. It will take over all the work connected with handling checks for the 87 Bank of America branches in the San Francisco area; it will tabulate and clear checks, keep track of the checking accounts and print the monthly statements.

Seven similar check-processing centers are already in operation in other areas of the state, and the new center will keep tab on their operations as well, maintaining a running picture of the bank’s business in all of its 702 California branches. Computers in the new center will scan a list of 349,300 of the bank’s real estate and installment loans, send reminders to delinquents. By Teletype the center is linked to the bank’s 72 overseas offices. The center is the latest example of the revolutionary changes banks are going through to keep up with the mounting paper work. As Bank of America President Seth Clark Beise says, “I knew we could never get enough people to do the paper work, even if we could afford to pay them the ever-increasing wages.” The number of checks written in the U.S. each year has soared from 4 billion in 1943 to an expected 14 billion in 1960, is currently increasing by nearly a billion a year.

Helpful ERMA. The Bank of America aided by the Stanford Research Institute’ started out by developing what it calls ERMA—Electronic Recording Machine Accounting. General Electric put the sys tem together, hitching components from National Cash Register Co. and Pitney-Bowes to its own computer, which it programed to process checks and do bank bookkeeping. To mark checks for use in the system, the Stanford researchers devised a set of stylized Arabic numerals*printed them in magnetic ink so that no matter how a check is folded or crumpled the numbers can still be read by ERMA. Subsequently the American Bankers Association approved the Stanford method for use in all member banks.

A check with the depositor’s code number must be put through an encoder where an operator inscribes it with its dollar amount before it is turned over to ERMA. From there on, a battery of machines do all the work. The machines sort and tabulate the checks, debit the accounts, print the statements when they are due, and put the checks in neat piles to be returned to the banks. ERMA also produces three daily records for the banks: a status report on the balance in each account, a journal of the most active accounts (noting large withdrawals that might indicate an account is being wooed away by a competitor) and a list of overdrafts, which it prudently refuses to pay.

When the Bank of America began to phase in the first ERMA system two years ago, it cautiously kept its bookkeepers on the job to make sure ERMA did not err. But the system proved so efficient that Beise did away with the monitors.

The success of ERMA encouraged Beise to find other jobs for computers. The Bank of America’s huge traveler-check and credit-card business will soon be handled entirely by optical scanners and IBM 7070 computers. Other IBM computers even check on the efficiency of the branches. Beise gets a report each month that compares the amount of business done by a branch with the number of workers employed. He is satisfied that the equipment is paying off, estimates that it saves 30% on the cost of handling checks alone.

A Boost from the Fed. Looking ahead, Beise hopes to realize one of banking’s cherished dreams: to abolish the paycheck. By teaming up IBM 7070s with ERMA, he plans to credit his bank employees’ wages directly to their accounts, hopes the scheme will appeal to other companies for which his bank handles the payroll. Asks Beise: “Instead of printing checks for a company, which the employee has to deposit, why not print deposit slips?”

Dozens of other U.S. banks are beginning to automate. Chase Manhattan, the nation’s second largest commercial bank, will soon automate its check-processing procedure, expects to save 20% on clerical costs. Chicago’s Merchandise National Bank will start phasing in a duplicate of the ERMA system by next spring. Milwaukee’s First Wisconsin National Bank is installing an advanced check encoder that in one operation imprints the checks with all the data needed to process them through an ERMA system.

The more widespread automation becomes, the better it will work. It will get a big boost from the Federal Reserve System, which is starting to convert its check clearinghouses in New York, Philadelphia, Chicago, Boston and San Francisco to automated systems. The Fed is expected to pressure other banks diplomatically to fall into line, start using the preceded magnetic-ink checks.

For some depositors, all this efficiency will have one drawback. Since the clearing of checks will be greatly speeded up, it will no longer be possible to write out a check and wait for a day or two to deposit the cash to cover it.

*They look like this: 0210″0067:14″015