Author: Geoff Walsh
Exploring the origins of the bank, the creation of the branch and more recent innovations
In the beginning there were no banks (‘Happy days!’ I hear you cry). Humans the world over bartered, using anything which came to hand, including grain, metal, precious stones and even animals. Eventually bartering became unsustainable (if you only need a potato and some carrots, who can provide change from a cow?) and so around 3000 BC money was invented as a necessity. The first currency was the shekel in Mesopotamia, which was not a coin but a bunch of barley of a specified weight. For hundreds of years thereafter items for sale across the ancient world were priced in shekels.
By 2000 BC the Middle East had become pretty civilised and they were doing a fair bit of travelling. A lack of trains and planes meant that distances were further in those days, and a shekel in Babylon was not the same as a shekel in Nineveh. For this reason entrepreneurs started small lending/money changing businesses, which were a forerunner to banks as we know them today.
The coin is born
For those who could afford/find it, pieces of gold were ideal for currency, but the problem with keeping your money as gold is that it can be stolen, and around 1700 BC the priests of Babylon offered a service whereby they would look after citizens’ gold. But what to do with all this gold? Naturally they started lending it out, with interest of course. How do we know this? Because they kept ledgers, which were engraved on stone tablets, long lasting and pretty hard to forge. Banking and its symbiont security as we now know them were born. Around 640 BC standardised pieces of metal started to replace barley, and the coin was born.
It stayed this way until the rise of the Romans and Greeks. By 300 BC the temples no longer had a monopoly. Public and private organisations were lending money, accepting deposits and changing currencies. Paper had by now been invented, and so tablets became a thing of the past (or so they thought…). Money-lenders would trade on benches known as ‘bancus’ which is where the word ‘bank’ comes from.
Banks go into decline
The Romans went on to take over the world, then lose it again, and as the Empire descended into decadence and anarchy, banks were blamed and bankers became increasingly unpopular (sound familiar?). Churches deemed it unethical to charge interest on loans and since they were highly respected the practice of banking became less profitable. The fortunes of the banks slid into decline along with the rest of Europe.
The Jewish community, banned from most forms of employment, began to pick up the slack in the 12th Century. Over the next couple of hundred years they were replaced by Italians, who called interest a ‘gift’ or a ‘reward’ and thereby avoided the wrath of the church and made everyone happy. Two leading banks, the Bardi and the Peruzzi became the two market leaders, and were the first institutions to allow loans taken in one town to be repaid in another. They also let customers withdraw money in other towns provided they were in possession of the necessary paperwork, and so branch banking and cheques made their respective debuts. By the 14th Century the Bardi bank had offices in nine countries, from London to Constantinople.
These two financial institutions had created a model which was to remain unchanged for hundreds of years, although neither was to survive their respective loans made to Edward III. In 1345 Edward, and therefore England, defaulted on his war loans and the Bardi and Peruzzi were no more.
The first banknotes
It was around this time that Marco Polo brought back some Chinese paper money, and the IOU, or banknote, was introduced to Europe. The first bank to issue banknotes was the Bank of England in 1695 (which was one of the first national ‘Central Banks’, after Amsterdam). Each note was unique and made out for a specific sum. Standard printed notes replaced these in 1855.
Beginnings of banking technology
Between around 1300 and 1990, in-branch was the way to bank. 1966 saw the invention of the credit card, followed by the cash machine in 1967, but there was still no avoiding the human contact of an actual bank, until 1988 when First Direct was launched – the first non-branch bank. It is only very recently that customers use the telephone or internet, and the latest method, mobile banking, has only been around for about 7 years, going mainstream around 2010. Humanity now uses tablets again!
I’ll leave you with the thought that though banking has existed for 5000 years, branch banking has been around for approximately 14% of that time, internet banking 0.3% and mobile banking just 0.1%!