Checking accounts are used every day by millions of people. However, many people today do not realize that while they take this financial instrument for granted, it was not always a part of banking. What we know as the modern checking account developed over hundreds of years in response to consumer demand for greater access to cash.
The concept of a current account did not emerge until the early 16th century. It arose in the Netherlands when Amsterdam was an important center of commercial activity. Traders who were accumulating large sums of money needed a place to put their cash.
The “Cajeros” arose to satisfy this demand. Tellers would hold the money for a small fee. You may not be a trader, but is this starting to sound familiar yet?
High demand soon arose due to increasing competition as more and more people rushed to become tellers. This reduced the cost of delivering one’s money to a teller. It also caused the cashiers themselves to start looking for innovative and new ways to attract customers to choose them.
These new ways of attracting clients took the form of new or additional services granted to a depositor. Like modern banks, these tellers had to come up with new services or even tricks to try and compete for customers. The tricks of today seem to be a little different than those of the early 16th century. However, it is important to realize that today we take the modern checking account for granted. Back then, it was only being invented because banking was still in its infancy.
The idea that someone could walk in with a depositor’s promissory note that would allow them to withdraw money from the depositor’s account was certainly a new and novel idea. This was one of the new services that emerged to meet demand and attract customers. Such a note today would be called a “Check.” Just as a canceled check is kept for a paper record, the depositor’s written order was kept back then to provide proof of the transfer of funds.
This new development really greased the gears of the trading industry, allowing money transfer to be done much more efficiently. Such an improvement in efficiency helped improve the profitability of commerce and the mercantile profession.
Due to the mobility of merchants, the concept of what we now know as a checking account soon spread to other countries beyond the Netherlands. These countries included England, a great world power, and her many colonies on which the sun would ‘never set’. Included in the colonies were those in what would become the Americas.
Influence spread to the original American colonies in 1681. Massachusetts land barons began mortgaging their land to tellers, who in turn began providing accounts that owners could use to write notes or checks.
The current account modernization did not come until later. It wasn’t until the 1700s that checks began to appear in the sense that we understand them today. In England, banks began to print checks in the names of their customers. These checks featured serial numbers to help track them. In fact, it was not until this time that the term “check” began to be used to refer to these financial notes.
The 18th century really marked the period when these once novel new services began to become standardized and widespread. This is the period when enough banks began to standardize their checks that the problem of clearing the checks arose. This precipitated the creation of the first clearinghouses dedicated to expediting check processing.
