In this article, we'll examine the history of ATMs—by IBM. IBM was just one of the players in the ATM industry and, by its maturity, not even one of the more important ones. But the company has a legacy of banking products that put the ATM in a more interesting context, and despite lackluster adoption of later IBM models, their efforts were still influential enough that later ATMs inherited some of IBM's signature design concepts. I mean that more literally than you might think. But first, we have to understand where ATMs came from. We'll start with branch banking.
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Bank branches, being branches, do not exist in isolation. The bank also has a headquarters, which tracks the finances of its various branches—both to know the bank's overall financial posture (critical considering how banks fail), and to provide controls against insider theft. Yes, that means that each of the branch banks had to produce various reports and ledger copies and then send them by courier to the bank headquarters, where an army of clerks in yet another back office did yet another round of arithmetic to produce the bank's overall ledgers.
As the United States entered World War II, an expanding economy, rapid industrial buildup, and a huge increase in national mobility (brought on by things like the railroads and highways) caused all of these tasks to occur on larger and larger scales. Major banks expanded into a tiered system, in which branches reported their transactions to "regional centers" for reconciliation and further reporting up to headquarters. The largest banks turned to unit record equipment or "business machines," arguably the first form of business computing: punched card machines that did not evaluate programs, but sorted and summed.
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If tellers punched transactions into cards, the bank could come much closer to automation by shipping the cards around for processing at each office. But then, if transactions are logged in a machine readable format, and then processed by machines, do we really need to courier them to rooms full of clerks?
Well, yes, because that was the state of technology in the 1930s. But it would not stay that way for long.
In 1950, Bank of America approached SRI about the feasibility of an automated check processing system. Use of checks was rapidly increasing, as were total account holders, and the resulting increase in inter-branch transactions was clearly overextending BoA's workforce—to such an extent that some branches were curtailing their business hours to make more time for daily closing. By 1950, computer technology had advanced to such a state that it was obviously possible to automate this activity, but it still represented one of the most ambitious efforts in business computing to date.
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One of the interesting things about the ATM is when, exactly, it pops up in the history of computers. We are, right now, in the 1960s. The credit card is in its nascent stages, MasterCard's predecessor pops up in 1966 to compete with Bank of America's own partially ERMA-powered charge card offering. With computer systems maintaining account sums, and document processing machines communicating with bookkeeping computers in real-time, it would seem that we are on the very cusp of online transaction authorization, which must be the fundamental key to the ATM. ATMs hand out cash, and one thing we all know about cash is that once you give yours to someone else you are very unlikely to get it back. ATMs, therefore, must not dispense cash unless they can confirm that the account holder is "good for it." Otherwise the obvious fraud opportunity would easily wipe out the benefits.
So, what do you do? It seems obvious, right? You connect the ATM to the bookkeeping computer so it can check account balances before dispensing cash. Simple enough.
But that's not actually how the ATM evolved, not at all. There are plenty of reasons. Computers were very expensive so banks centralized functions and not all branches had one. Long-distance computer communication links were very expensive as well, and still, in general, an unproven technology. Besides, the computer systems used by banks were fundamentally batch-mode machines, and it was difficult to see how you would shove an ATM's random interruptions into the programming model.
Instead, the first ATMs were token-based. Much like an NYC commuter of the era could convert cash into a subway token, the first ATMs were machines that converted tokens into cash. You had to have a token—and to get one, you appeared at a teller during business hours, who essentially dispensed the token as if it were a routine cash withdrawal.
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For roughly the first decade of the "cash machine," they were offline devices that issued cash based on validating a token. The actual decision making, on the worthiness of a bank customer to withdraw cash, was still deferred to the teller who issued the tokens. Whether or not you would even consider this an ATM is debatable, although historical accounts generally do. They are certainly of a different breed than the modern online ATM, but they also set some of the patterns we still follow. Consider, for example, the ATMs within my lifespan that accepted deposits in an envelope. These ATMs did nothing with the envelopes other than accumulate them into a bin to go to a central processing center later on—the same way that early token-based ATMs introduced deposit boxes.
From the article:
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