History of Checks

According to the latest study, the USA leads the world in check usage, with over 11 billion items issued in 2021. This is surprising considering that checks have been used for centuries, and since then, many new payment methods have been introduced. 

Yes, checks are one of the oldest methods of payment. What started as an alternative to carrying sacks of coins soon became difficult to use despite the advent of technology. Are you wondering how a piece of paper with little details like a signature and amount became a standard for depositing and collecting money? Then you are in the right place. 

In this blog, we will explore the early years of check use, explaining how checks went from being a local currency to a national mode of payment and examining how they have evolved in the 21st century.

Key Takeaways

• Checks have been in use since the 1st century when people would carry a piece of note with instructions to give them money from the drawer’s account.
• As international trade flourished, the traders realized the significance of safely carrying money, and hence checks were used instead of carrying gold coins.
• The increase in checks led to the introduction of clearinghouses, which centralized the processing and made it efficient.
• To automate the reading of check information and make the process secure. MICR lines were added to the check.
• The latest technologies have transformed how businesses issue checks. It is legally allowed to photograph the check and deposit it. Other options are eChecks and check API.
• PostGrid offers a check API with which businesses can automate the printing and mailing of checks while ensuring accuracy and security.

Before going back in time, we need to understand the nature of checks. They are bills of exchange created to make payments without carrying much money. They instruct financial institutions to pay a specific amount from a particular drawer’s account to a payee, who can be either a person or an organization.

1st Century AD

The earliest use of checks is still debated. However, historians believe the first bill of exchange occurred in India between 321 and 185 BC, during the Mauryan Empire. They used a commercial instrument called adhesion, which instructed the banker to pay the amount written on the note to the person carrying it. Another piece of evidence of the early use of checks can be traced back to the ancient Romans, who used prescriptions in the first century.

3rd Century AD

At the beginning of the century, banks in the Persian region started issuing letters of credit, called “cak”, which means “document” or “contract.”. Later, in the Abbassid Empire and the areas ruled by the Arabs, the cak became “sakk”. Traders used it to transport money securely. 

Due to growing international commerce, an alternative payment method became necessary. Traders had to travel long distances, and carrying bags of coins was not safe. Hence, the “sakk” was created. It is issued in one country and can be cashed by the merchant in his bank in another country. 

13th Century

Venice created a bill of exchange in the 13th century. It facilitated international trade without carrying large amounts of silver and gold coins or biscuits, and its use subsequently spread to other European countries.

15th Century

In the early 1500s, citizens of the Dutch Republic began saving their money with the cashiers to prevent keeping too much cash in the house. The cashier kept this money with them for a certain fee. As the number of cashiers grew, they started offering other services to gain a competitive edge. They would pay people who came with a note or an order from the depositor to allow them to give the money. The note served as proof of payment.

💡Also Read: Digital vs Paper Checks

17th Century

England started using handwritten checks, and they were spelled cheques there. Since they allowed a person to draw funds from their account in the bank and required instant payment, they were called drawn notes. One of the earliest evidence of these pieces is from 16th February 1659. It was drawn for one of the scriveners and bankers based in the City of London. The scriveners were those who, before the compulsion of education, could read and write legal documents and letters from the court.

The first preprinted form was issued by the Bank of England in 1717. They were printed on check paper, and the person had to go to the bank to get a numbered check. They will then fill it out and submit it to the bank. This was done to prevent fraud. The use of these pieces gained popularity with the decline in the use of banknotes in 18th-century England.

In the United States, the first check was used in the late 17th century, with Lawrence Childs introducing the first printed version in 1762. Before that, checks were handwritten and had serial numbers to facilitate record-keeping. Later, the Bank of New York started issuing them after the institution was created in 1784.

19th Century

In 1811, the Commercial Bank of Scotland was the first bank to personalize a check by adding the account holder's name. In 1830, the Bank of England started creating checkbooks with 50, 100, and 200 leaflets, which were bound or stitched.

While their increasing usage did bring convenience, it also came with hassles. Banks were struggling to keep up with the growing volume of transactions. They had to send their porters and clerks to clear checks and settle payments with other banks. They would visit all the different banks and keep a book of balances with them until the checks were cleared. They would also have to carry a bag of gold, physical copies of the checks drawn from another bank, and a ledger book. 

Soon, it was realized that this was a highly inefficient method that couldn’t be followed daily. This is when clearing houses were established. This made it easy to settle these pieces in a central location and not go from bank to bank.

 Also Read: Sending Personal Checks Modernized With Check API

As check usage increased in the 19th and 20th centuries, there was growing concern about their security and authenticity. Certain things were required to make processing easy for financial institutions. This was also enforced to ensure safer transactions. 

Signature of the Drawer

Adding the signature of the person issuing the check became mandatory, as this would authenticate the payment. They had to add the amount in words and numerical forms. This was done to prevent the possibility of fraudulently altering the details after they had been written. 

Issue Date

It soon became mandatory to add the issue date to the check. Depending on the country, the check may become invalid after a certain period from the date it was issued. You can encash a check six months after its issue date in the USA and Canada. You can get funds from Australia 15 months after the issued date. After that, they were called stale dates; however, this also depends on the country where the check was drawn. 

Check Number

Every piece was given a number, and a book with sequential pieces was issued to the account holder. This helped the bank detect fraud and ensure that the same check was not given to them twice. In the US, they come with a memo line. This allows the drawer to write the purpose of issuing the piece. In the UK, any note must be written on the back side of the check, as no memo line is provided. 

Machine-Readable Routing and Account Information

The usage increased exponentially in the early 1950s. However, since sorting and processing were done manually, they became time-consuming. This is when banks decided to include computers in their workflows. 

Later, in the 1960s, account information and routing numbers were added to the bottom of the checks as machine-readable MICR lines and codes. The information and its standards are country-specific but serve the same purpose. 

With the information, automated sorting and routing of these pieces between banks was possible. They were then passed on to the automated central clearing facilities. This freed the payee from going back and forth to the bank and allowed them to deposit it at their bank. From there, it will be routed to the originating bank, and funds will be transferred to their bank account. The quicker processing increased the number of checks that were issued every day.  Additionally, they are created using special magnetic ink, so they can’t be altered or forged. Hence, it prevents fraud.

💡Also Read: Do Digital Checks Save More Money Than Paper Checks?

Check Clearing for the 21st Century Act

Despite introducing multiple digital payment methods, 75% of companies prefer checks. However, technology has changed how they are being issued and deposited. Considering this, the federal bodies of the USA have passed a law called Check Clearing for the 21st Century Act. 

Also referred to as Check 21, this law allows banks to use electronic copies of checks instead of paper. People can use a scanner or a mobile phone to scan and deposit it to the bank electronically. This law aims to reduce the cost associated with processing paper checks. Additionally, it offers ease of sending them instead of being transported physically.

E-Check

These are digital versions of checks, wherein the payment is made via the Internet. The person issuing an eCheck fills out the form with their account information, such as account number, routing number, email address, phone number, etc. After receiving the approval, the company adds the details to its payment processing system. From there, the money is electronically taken from the payer’s account and sent via the automated clearing house. It is then deposited into the payee’s bank account. 

While it simplifies payment workflows and reduces administrative burden, it has drawbacks. Since payments are processed via the ACH network, processing delays and errors might occur. Incomplete or inaccurate information might cause the payment to be refused or delayed.

Automation Through Check API

Writing checks the traditional way, which is a time-consuming process that is prone to errors. What if you have to send them in bulk? Additionally, when you manage check printing in-house, you must invest a lot of money in maintaining the inventory, such as printing and mailing supplies. This can take up a significant portion of your business’s expenditure. Moreover, the checks might take days to process and send to the recipient. 

To speed up the processing, you can leverage automation through a check API, like the one offered by PostGrid. You do not have to write each detail on the piece manually. Our solution integrates with existing accounting, financial, and global payroll software to fetch the details. It then automates the printing and mailing, speeding up the process while ensuring accuracy.

Whether you want to send a single check or multiple pieces, our solution is designed to scale to meet growing needs. It saves you the hassle of buying and maintaining materials. You no longer have to run back and forth to the post office. With us, you can send checks from anywhere and at any time. 

We prioritize security and only use checks with bank-grade safety features like MICR lines, watermarks, holograms, etc. Moreover, to preserve data integrity and ensure the privacy of personal information, we conduct the process in a compliant environment, following the guidelines laid down by regulatory authorities such as HIPAA, CCPA, GDPR, and more. 

Additionally, our check mailing service includes an address verification feature, which ensures that the check is sent to the right person and prevents loss, returns, or fraud. 

We offer customization so that you can transform your transactional mail into a marketing piece. You can upload a copy of your check or select a template from our gallery. You can add, edit, or remove fields, change background images and text, and more. 

We also allow adding a note with each piece to give it a personal touch. 

We go beyond printing and mailing. Our dashboard allows you to monitor each transaction, access detailed reports, and filter payments by client name or period, helping you make informed financial decisions. 

💡Also Read: Print Mail Checks 

The checks have a long history, and there has been a significant evolution in processing. Technology and innovation like eCheck and the Check 21 Act have changed how the checks are issued and sent. PostGrid has taken this one step further. It combines familiarity and trust with modern technology to remove manual intervention with check printing and mailing automation. It speeds up the process while ensuring accuracy and security. With our solution, you can scale your operation while keeping it cost-effective. If you want to know how we work, request a demo now.