Abstract
This chapter describes how NBI solved the other half of their operational problems: clearing and settlement. It describes the creation of BASE II in 1974, the first electronic clearinghouse for bank-issued payment cards. It also covers the failed attempt to create a software package for the member banks, known as BASE III.
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Notes
- 1.
‘NBI planning paperless card drafts’, American Banker (18 December 1973), p. 1.
- 2.
The original working name for BASE II was actually “Shared Paperless Activity Network” or the “SPAN between the banks” (Derman interview). “Paperless” commonly appeared in the names of electronic clearing systems at this time, highlighting that the primary goal was to eliminate the flow of paper.
- 3.
Note that with the passage of the “Check 21” Act in October 2003, checks in the US may now be truncated and cleared electronically. See Wade (28 October 2003), p. 23. In fact, some merchants now simply pass checksthrough a scanner and hand the physical paper back to the customer.
- 4.
My language here draws upon John Law’s idea of “heterogenous engineering.” See Law (1987).
- 5.
Jutilla (1973), p. 181.
- 6.
See the “Supporting Documents” section of IRS publication number 583, http://www.irs.gov/publications/p583/ar02.html (accessed on 18 December 2006). The difference between “proof” and “evidence” of payment is subtle—the former is a legal proof recognized by the courts, and supported by the Universal Commercial Code, while the latter is something that a particular party (e.g., an employer or the IRS) would accept as sufficient evidence.
- 7.
Dumler interview.
- 8.
For an explanation of descriptive billing and its benefits for the banks, see Magnis (1970).
- 9.
Some banks used a hybrid method, returning the physical drafts for on-us transactions, but providing a descriptive bill for interchange transactions (Dumler interview).
- 10.
Dumler interview.
- 11.
‘NBI finds no major problems with facsimile drafts’, American Banker (10 October 1973), p. 81. Confirmed in Dumler, Derman, and Russell interviews.
- 12.
Note that this was not an exact, pixel-for-pixel copy of the original draft. The new draft was printed from discrete, alpha-numeric data.
- 13.
NBI finds no major problems.
- 14.
A later story from December quotes Hock as saying that 1 in 300 were requested, so either the ratio increased somewhat over the two-month period, or it was reported incorrectly. See ‘NBI planning paperless card drafts’, American Banker (18 December 1973), p. 1. Either way, the ratio was still small enough to justify building BASE II.
- 15.
The text of the original bill, HR 8753, and a transcript of the hearings is available in ‘The Consumer Credit Protection Act Ammendments of 1977’, 95th Congress, First Session (March 1977). See also Nilson (August 1977), Report No 169, p. 1.
- 16.
Details of the BASE II project primarily come from interviews with Derman, Traweek, Russell, Goldsmith, and Peirce.
- 17.
In the late 1960s, the California commercial banks organized the Special Committee on Paperless Entries (SCOPE), which resulted in the creation of the California Automated Clearinghouse Association (CACHA) (Yeatrakas interview). This organization, with the help of the Federal Reserve Bank of San Francisco, began operating what seems to be the first ACH in the US on 13 October 1972. See Brooke (4 June 1973), p. 13. This was only a regional system for direct deposit and pre-authorized debit transactions, whereas BASE II was a national system for bankcard transactions.
- 18.
Although this was new for the BankAmericard system, most other clearinghouses already used the net settlement technique to reduce the amount of funds transferred.
- 19.
What credit card executives should know about OCR readers, Nilson (November 1977), Report No 174, p. 1.
- 20.
Nilson rebuked this approach as myopic: “At this point in time, handling credit/debit transactions via electronic terminals in any volume is only a mirage. Except for automated teller machines and cash dispensers, EFTS is a bust! … Banks, which until recent months had hoped EFTS would reduce the paper flow, must now find other ways to deal with the volume of sales slips which will increase at least 100% in the next five years as predicted in my last issue” (Nilson November 1977, Report No 174, p. 1).
- 21.
Derman interview.
- 22.
Derman and Traweek interviews.
- 23.
Reportedly, Interbank’s automated clearing and settlement system initially allowed individual exceptions, but they quickly moved to NBI’s model as the exceptions were too difficult to manage (Derman and Powar interviews).
- 24.
Derman interview.
- 25.
Traweek interview. Confirmed in Brooke (6 November 1974), p. 1.
- 26.
Derman interview.
- 27.
Kollmann, Nordemann, and Harrison interviews.
- 28.
Derman interview.
- 29.
Derman interview.
- 30.
Peirce interview.
- 31.
Peirce interview. This was the first IBM mainframe to use silicon memory chips instead of a magnetic core. See http://www-03.ibm.com/ibm/history/exhibits/mainframe/mainframe_PP3145.html (accessed on 15 December 2006).
- 32.
Details of the BASE I port to IBM and the TPF operating system will be discussed in the next chapter.
- 33.
Although SRI had already separated from Stanford University in 1970, they did not formally change their name to SRI International until 1977. See http://www.sri.com/about/facts.html (accessed on 11 November 2010).
- 34.
Brooke (6 November 1974), p. 1.
- 35.
Hock (1974), p. 13.
- 36.
Brooke (6 November 1974), p. 1.
- 37.
Brooke (6 November 1974), p. 1.
- 38.
The term “online” is often used in many different ways. Here I mean a system that maintains constant communication links between nodes, passing individual messages in a near-real-time manner. Some news accounts referred to BASE II as being “online” because it transmitted data over communication lines (as opposed to mailing magnetic tapes), but it is more appropriately described as a batch-oriented data exchange system.
- 39.
Brooke (6 November 1974), p. 1.
- 40.
Kollmann interview.
- 41.
Hock’s autobiography is the only published source that contains any mention of BASE III. See Hock (2005), pp. 241–243.
- 42.
Totten interview. Information on BASE III comes primarily from interviews with Totten, who managed the project in its later phases, as well as Fojtik, Peirce, and Russell.
- 43.
Hock (2005), p. 242.
- 44.
Totten interview.
- 45.
Brooke (1 August 1973), p. 1. See also ‘NBI buys Centurex on-line card system’, American Banker (2 January 1974), p. 5.
- 46.
Totten interview.
- 47.
Peirce interview.
- 48.
Totten interview.
- 49.
Hock (2005), p. 242.
- 50.
Totten interview.
- 51.
Russell correspondence. Confirmed by Totten.
- 52.
Cleveland (1999), pp. 11–12.
- 53.
Cleveland (1999), pp. 11–12.
- 54.
Hock (2005), p. 242.
- 55.
Russell correspondence.
References
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Brooke, P.: BankAmericard begins electronic interchange of drafts. American Banker, p. 1 (6 November 1974)
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Stearns, D.L. (2011). Automating Clearing and Settlement: BASE II and III. In: Electronic Value Exchange. History of Computing. Springer, London. https://doi.org/10.1007/978-1-84996-139-4_5
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