A brief history of VISA and MasterCard
The card networks(VISA/MasterCard) started out as non-profit associations helping their member banks to generate profits. Today, they are hugely profitable publicly traded companies — A fact that would have astonished anybody in the 80s. How did this come to be? Read further
The rise of Checking Accounts
It’d be a stretch to say that the card networks might not exist today had the Federal Reserve Bank not mandated the banks to accept checks for deposit at par. But, this certainly took away the profits banks would have otherwise made by charging check deposits. The Checking account is by far the oldest payment system in the US. Back in the day, banks were faced with the problem of clearing checks presented by customers. A messenger carried bags of checks to other banks, received funds and brought it back for deposit. This led to the creation of Clearing houses where reps from banks came together, cleared & settled their checks every day. It made checking efficient & with Federal Reserve Bank imposing a restriction on banks from charging customers for deposits checking adoption accelerated.
ACH — Innovation and Automation
Naturally banks tried to find other ways to further optimize this process. Innovation led to the introduction of check sorters and MICR readers…