How did checks and other types of credit work before modern communications?

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Now we have computer systems that can instantly determine the funds available in an account when a transaction occurs. One bank can also contact another bank instantly when an individual wants cash from a bank that they are not a member of.

How did people manage to do this when there were mountains, oceans, and seas between one bank another?

In: Economics

3 Answers

Anonymous 0 Comments

When it came to checks, the short answer is the process was not instantaneous. You would deposit a check and would have to wait 3-5 business days for the check to “clear” – meaning that the issuing bank would transfer the funds to your bank, after which they would be available in your account. If the funds were not available, the check would bounce and you would not receive funds. International transactions – “mountains, oceans, and seas between one bank another” – were also much less common and would not typically be handled by personal check.

Credit was handled via the actual credit companies. When someone came to your store to make a charge, you would call the credit intermediaries (eg. Visa, Mastercard) and they would check to see if the customer had enough credit available to make the purchase. If they did, then you would be given an authorization code for the transaction, assuring that you would be provided funds.

Anonymous 0 Comments

Checks were first implemented (so far as we know) with the Knights Templar in their escorting people to the Holy land. People would deposit gold/silver/jewels and the like at a Templar location in Europe. They would be issued a note/letter stating how much was deposited (minus fees) and then they and their Templar Guards would be given a ciphered pass code (each different). When they got to their destination they would take the note to a different Templar depository, give their pass codes proving they were entitled to the money and it would be given to them.

Similar concepts were done with various banks who trusted each other in the following centuries but the modern concept and usage of a check was not common until large chain banks, or event national banks were implemented and by that point in time we had long range communications of the telegraph.

Anonymous 0 Comments

With checks, you only accepted them form people you trusted. You were often required to show a driver’s license or a bank-issued check guarantee card, and if anything looked fishy, they simply would not be accepted. If there was a mountain or ocean between your purchase and your bank, most establishments would not accept your check as a matter of policy. Instead, you’d use travelers’ checks which were prepaid and worked almost exactly like gift cards do today.

Credit and charge cards were even harder to use, many places simply didn’t accept them. Being able to use a card for fast food or at a convenience store is a relatively new thing, McDonald’s didn’t take cards until the early 2000s. Many places, like gas stations or department stores, would only take their own card…the Discover card grew out of the Sears store card. Otherwise, it was much like a check, you only allowed it for people you trusted.

Before credit cards (an era where women were often not in control of their finances), it wasn’t unusual for stores to allow people to buy things on store credit. During the day (stores weren’t usually open evenings) the husband would work, the wife would shop, put everything on store credit, and the husband would pay one big weekly or monthly bill. If it wasn’t paid, they’d get cut off until it was and likely offered less credit in the future. Checks and cards were a natural extension of this, and stores would employ the same system of informal scrutiny as they did before.