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Icons of Progress

The Automation of Personal Banking

IBM100 The Automation of Personal Banking iconic mark

It was 1930, and business was bad nearly everywhere. As the Great Depression ravaged the world’s economies, sending industry and commerce grinding to a halt, IBM executives witnessed the office equipment industry freefall by 50 percent. Cash-strapped businesses clinging to life had little reason—or resources—to invest in the machines that were IBM’s wares.

Within this grim tableau, Thomas Watson Sr. stood his ground as an unflagging optimist. Looking ahead to what he referred to as the “demands of the future,” Watson poured money into research and development.

Cash had long dominated personal transactions, but Watson recognized that checks would grow to be big business for banks. He set his sights on creating equipment for the check-processing industry, and in 1934 IBM introduced the IBM ® 801 Bank Proof machine. It was developed by Frederick Lincoln Fuller, a self-taught engineer who returned from retirement, at Watson’s entreaty, to join IBM in 1927. Fuller’s machine could list and separate checks, endorse them and record totals. By replacing hand-written teller sheets, the 801 machine—and its successor, the 803 Proof Machine—dramatically improved the efficiency of the check clearing process.

Despite an economy operating at near-standstill, within four years IBM had installed nearly 500 proof machines with more than 140 clients, and was earning millions in proof machine revenues. Check usage soared, doubling in the US between 1943 and 1952. The machines had a significant impact outside the US, as well. In the early 1950s, IBM began manufacturing proof machines with pound sterling keyboards—as opposed to the decimal keyboards used in the US. The new machines brought the remarkable technological advance of automated proofing of pound sterling cheques to the Bank of New South Wales, Australia’s oldest bank, which is known as Westpac today.

The proof machine was the first in a series of efficiency improvements that IBM would bring to both front- and back-office banking processes. At the heart of these innovations were mainframe computers developed by IBM beginning in the 1950s and deployed across a variety of banking functions. Of particular importance to banks was the IBM 1400 series, introduced in 1959, and the landmark IBM System/360, unveiled in 1964 as the first compatible computer series.

In the 1960s, a system’s hub was typically an IBM 1401 computer, which offered peripherals, such as a card read-punch, high-speed printer, and disk or magnetic tape storage. A 1401-based system could receive data from either punched cards or a magnetic character reader. Magnetically-inked checks were beginning to appear in the late-1950s, and with an array of interchangeable add-ons, banks could easily upgrade to the newest technologies. Tellers could locate customer information stored on the processing unit or storage device, process it and print results at the teller window, all in a matter of seconds. When one of the first 1401-based banking systems was installed at the Pacific National Bank in Seattle, WA, in August of 1961, the bank increased its checking account update speed from 3 to 75 checks per minute.

As computerization moved through industry, IBM was often the vendor of choice in complex and large-scale implementations at banks. In 1965, the first System/360 to arrive in Japan was installed at the Tokai Bank of Nagoya to help centralize and speed its operations. The System/360 also powered Bangkok Bank—Thailand’s largest commercial bank—as it became the first bank in Southeast Asia to implement online transactions on an IBM mainframe in 1971. With IBM’s help, banking operations came online in Brazil, China, Singapore, Venezuela and many other countries in the 1960s and ’70s.

By the 1960s, retail banking had grown faster, cheaper and more accurate. Even so, customers remained tethered to bankers’ hours until the first automatic cash-dispensing machine appeared in 1967. Automated teller machines (ATMs) capable of performing deposits and withdrawals via electronically operated drawers soon followed, and IBM launched its own self-service banking machine, the IBM 3614 consumer transaction facility, in 1973. The 3614 system, linked to the bank's central mainframe computer by telephone lines, was placed in supermarkets, department stores and other high-traffic locations. Systems like the 3614 enabled banks to extend the geographic reach of their personal banking services beyond the branch office—an expansion that greatly increased customer convenience and satisfaction—without having to grow their investment in expensive brick and mortar infrastructure.

By 1985, IBM was selling a number of ATMs, and automated banking had grown more sophisticated with systems like the IBM 4730 Personal Banking Machine, introduced in 1983. A one-stop automated teller machine connected to a System/370 computer, the machine accepted check deposits without slips, dispensed exact change to the penny, cashed paychecks, adjusted account balances on the spot and provided a printed record of every transaction.

As consumer banking next began migrating to the web, lBM worked to help develop Internet banking solutions—such as online debit card transaction capabilities—and helped jump-start the conversion of checks from paper to images by helping to pioneer check-imaging technology, which further reduced clearing costs.

In recent years, IBM has continued to lead the charge for low-cost, efficient and customer-centered banking by driving sophisticated data management and analysis. An IBM solution can automatically correlate incoming customer information from e-mail, phone calls and other channels with existing data and other business intelligence sources, and provide insight into changing customer needs and banking trends. This real-time analysis can help banks quickly respond to emerging customer demands, providing more personalized service.

Such efforts are part of IBM’s broader smarter planet initiative—a drive to develop the world’s systems to be more instrumented, intelligent and interconnected. With a smarter banking mentality, services can be offered across multiple flexible channels, reaching a wider swath of customers ranging from those who do 100 percent of their banking from cell phones, to those living far from both regular Internet access and brick-and-mortar banks.

IBM teamed with the global nonprofit microfinance organization Grameen Foundation—which funds small loans to budding entrepreneurs challenged by poverty—to help it dramatically expand its service capabilities in one example of smarter banking applications. Through efforts like these, IBM is transforming the worldwide flow of money once again.


Selected team members who contributed to this Icon of Progress:

  • Samuel Brand IBM Engineer and 801 Bank Proof Machine Developer
  • Frederick Lincoln Fuller IBM Engineer and Lead 801 Bank Proof Machine Developer
  • Thomas Watson Sr. IBM CEO 1914 - 1956