Bank of America revolutionizes banking industry

In 1950, Bank of America started a project that would change banking around the world. It revolutionized the banking industry with the world's first computer used in banking. It was called ERMA, Electronic Recording Method of Accounting.

In the 1950s, the U.S. population reached 150 million and the postwar economic boom expanded the gross national product. More Americans joined the ranks of the middle class. The number of new personal checking accounts also boomed. Bank of America was the largest bank in California and processed more checks than any other bank in the world. While popular and convenient, checks presented a serious problem in the bank’s back offices—it took a huge Bank of America workforce and countless hours to process millions of checks per month and more than a billion per year. All checks had to be cleared by hand and banks were closing by 2:00 p.m. to process them all. Bank of America knew that the solution, and the future, was in the then new technology of computers.

By 1954, the first computer for business use was delivered. It was called a Remington Rand UNIVAC-1, and if that sounds more like a vacuum cleaner than a computer, it's because it relied on vacuum tubes for its operation. Data was fed into this factory-sized computer through magnetic tapes, which processed at a rate of 12,000 numbers or letters per second. Compare this to a modern supercomputer, which could process up to 2.3 quadrillion calculations per second.

Four years earlier, Bank of America partnered with the Stanford Research Institute to develop the world’s first computer for processing checks. By September 1955, just a year after the delivery of the Remington Rand, Bank of America unveiled ERMA, the Electronic Recording Method of Accounting. The computer processed checks and automated account management.

The then well-known actor and future President of the United States, Ronald Reagan, hosted a transcontinental videoconference to announce ERMA’s debut. The press conference showcased ERMA’s capabilities. It processed checks faster and more efficiently than ever before, approximately 33,000 accounts in the time it would take an average bookkeeper to do 245. It handled, read and sorted a wide variety of paper checks at high speed. It posted to accounts, identified stop payments and holds, flagged overdrafts, calculated service charges, stored account information, printed daily and monthly statements, and sorted 600 checks per minute. ERMA reduced the time required to process checks by 80 percent. It became one of the world’s first successful computers for business application.

But ERMA wasn't the only breakthrough contribution Bank of America made to the industry that year. Around the same time, in partnership with General Electric and Stanford Research Institute, the bank also developed magnetic-ink character recognition (MICR), which is that string of numbers you see at the bottom of checks today. MICR was the solution for one of the biggest challenges initially encountered when developing ERMA—how to enable a machine to read the necessary information from checks, deposit slips and other routine banking documents.

The breakthrough came with the development of techniques for computers to read magnetic characters printed with a black ink containing particles of a magnetizable oxide. Because the reading element is sensitive only to the magnetized ink, subsequent overprinting or visual obliteration had no effect on the machine's ability to read the characters. The development of the ink and the readers is what allowed ERMA to read and process the information on a check. The font, another development, was designed to allow bank staff and customers to read it as well. MICR was so successful in its design that it was adopted as the industry standard by the American Banking Association (ABA) in 1956. Today, the MICR methodology remains the standard around the world.

Bank of America made MICR technology available to all banks and printers without royalty charges. In 1984, American Banker stated, “The development of the MICR line, which enabled checks to be sorted and processed at high speeds, has been recognized as one of the great breakthroughs in banking.”

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