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The History of digital banking

Once upon a time, managing your finances once meant manually keeping a record at home. Adults wrote checks and noted the expenses in their checkbooks because they couldn't hop online 24/7 and see their checking account balances. Other options included calling the bank during office hours, visiting in person, or receiving bank account statements. Fun, right?

Today, you can do virtually everything online. Many people don't even write checks anymore, opting to swipe their cards, enter payment information online or use Apple Pay instead. Some services, such as closing an account, still require an in-person visit, but you never have to wait for your branch to open to review your finances. But when did online banking start, really?

When you learn about the history of banking, you'll appreciate how far society has come—and of the fact that you'll always have your financial info in the palm of your hand.

When did online banking start? The technology behind the revolution

In 1950, Bank of America workers had to process checks by hand (sounds like paper cut central). As more people opened checking accounts, bankers realized that they needed an automated system to meet the demand.

Engineers suggested adding account numbers to checks to make them easily identifiable. Employees saved time by issuing numbers to new accounts instead of listing account holder’s names in alphabetical order in their systems.

Bank of America paid these engineers to develop the Electronic Recording Machine, Accounting (ERMA) using the limited computer technology available at the time. They started printing account numbers on checks with magnetic ink that machines could scan automatically, which still appears on modern checks.

The bank installed the first ERMA in 1959 and later moved to other branches. The system was so efficient that Bank of America's branches started processing over 750 million checks per year. This efficiency allowed Bank of America to develop other technologies, such as the first credit cards.

New York City banks

In 1983, a New York bank called Chemical released the Pronto system, which allowed home banking with a phone, computer, and TV set. Customers connected their computer to the phone with a modem, then hooked the computer up to a TV set to review their accounts. Pronto's services included checking your balance, transferring funds, paying bills, and communicating with the bank.

Chemical charged a monthly subscription fee for users. Pronto had glitches and blocked telephone use, but it showed consumers the convenience of digital banking.

Bank of America launched HomeBanking in the same year. Other New York banks, including Citibank, Chase Manhattan Bank, and Manufacturers Hanover Trust Company, introduced their own home systems.

Automatic Teller Machines (ATM)

The 1960 automatic teller machine (ATM) allowed workers to deposit cash into their bank accounts. Japan introduced a Computer Loan Machine in 1966 that loaned money to clients with credit cards. These devices made banking increasingly convenient, but users still couldn't withdraw money.

Europe finally opened the first ATMs in 1967. Later advancements included the personal identification number (PIN) for added security.

The ATM spread to Japan, Sweden, and Australia before reaching the United States in 1968. Chemical Bank in New York installed the first ATM, which only dispensed a certain amount of cash.

ATMs also led to the rise of debit cards. In the 1960s, early debit cards had a magnetic stripe that businesses used to collect payment. Cards in the 1980s had silicon chips that verified the user's information.

When they inserted the card in the ATM and punched in their PIN, money came out of the slot, and the system automatically deducted the amount from their bank accounts.

Stanford Federal Credit Union

The Stanford Federal Credit Union was ahead of the times, offering telephone banking in the 1980s. However, the 90s marked the true origin of online banking, when Stanford Federal Credit Union launched the first Internet banking website in 1994. Members could pay their bills through the website in 1997, then use mobile banking as early as 2002.

Presidential Bank introduced internet banking in 1995. Other banks followed suit until 80% of banks offered websites by 2000, giving millions of people access to their accounts from the comfort of their own couches. Score!

Smartphone banking

The internet boom in the 2000s led most financial institutions to take their services online. However, people still needed computer access to visit banking websites. Computers became slimmer, cheaper, and more powerful as the years went on, but smartphones created the next revolution in the banking industry.

Old cell phones had Internet capabilities, but they were slow and awkward to use (seriously, you had to hit about 2,487 buttons just to text a short message to your BFF). Smartphones introduced touch screens and high-speed Internet access that allowed people to access their bank accounts from anywhere. Many institutions developed apps made specifically for mobile use, proving that smartphones are for more than just Candy Crush and calculating your server's tip after you down that mega bowl of spaghetti.

Customers can now perform dozens of banking-related tasks that once required in-person visits. As app technology has advanced, banking apps have introduced new features, such as two-factor authentication. Most apps are free and can be downloaded in seconds.

Key takeaways

It's easy to take online banking technology for granted. But without digital banking, you wouldn't have online shopping, debit or credit cards, fast bill pay, paid streaming services, or Square card readers. Online banking also paved the way for finance apps that help you save money, track your bills, take out loans, make smart purchases and review your expenses. Plus, fewer of those pesky paper cuts.

Nobody knows where technology is headed, but smartphone banking might look quaint a few decades from now. After all, the engineers who developed ERMA or the first ATMs couldn't have imagined banking with a touch screen. How do you think the next generation will bank?

Varo is today's bank—ready when you want it in your pocket, bag or desk, 24 hours a day. It's got 100% of what you need from digital banking. Open a Varo Bank account today.


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