Cheques

 Barclays cheque, St Austell branch, 1917 (ref 0003-2942)

Cheques evolved from letters written to goldsmith bankers. The first bankers in England were goldsmiths who kept valuables for their customers. Gradually customers realised that they need not withdraw cash themselves, but could write to their banker asking him to make a payment from the account to a third party. By the end of the 17th century, the cheque was established as a simple way to pay debts.

The pre-printed cheque began to appear from the middle of the eighteenth century - as the business of banking became more organised, bankers started to print cheques ready for the customer to fill in the details. This, of course, made it easier for the banker to be sure that the cheque or letter was genuine. The definition of a cheque was formalised by the Bills of Exchange Act 1882 as 'a bill of exchange drawn on a banker payable on demand.'

As the use of cheques developed, they attracted the attention of forgers and counterfeiters. To combat this, banks, in conjunction with paper makers and printers, started to incorporate security features into their cheque papers. Extra security is provided today by the magnetic line at the foot of the cheque to allow automatic reading, encoding and sorting when the cheques are processed. Between 1958 and 1971 cheques were printed with the revenue stamp, and were known as medallion cheques. Cheques were liable for stamp duty until February 1971.

Clearing

Clearing cheques in the eighteenth-century consisted of bank clerks calling at a number of banks in London to present cheques for payment and obtain cash in return. As the use of cheques increased, the clerks had to cover a larger distance on their daily rounds. The clerks therefore devised a scheme where they met daily at a central point in the City to exchange cheques and settle the difference between the totals exchanged. The advantages of the system were soon recognised by the banks, and a room was hired where the clerks could meet and exchange cheques in private. As the volume of work increased, more space was required by the clerks, so in 1833 a Clearing House was built in London. It was built for the use of the private banks, and membership of the Clearing House was not granted to a joint stock bank until 1854.

Barclay, Bevan and Co, one of a number of private banks which amalgamated in 1896 to form Barclay and Company Limited, was a member of the London Clearing House. It was out of this private bank that Barclays' clearing department emerged. The department was situated in head office at 54 Lombard Street and later, in 1951, at St Swithins Lane. Country banks were initially not involved in the London Clearing House, and instead sent their cheques direct to the banks upon which they were drawn. This system caused great delays in payment, and mistakes were commonplace. William Gillett, a member of an established banking family, came up with the idea of Country Clearing in 1858. He originally suggested establishing a separate clearing house in London for country banks but the London Clearing House stepped in and offered to clear cheques drawn on country banks through their London agents. Each London bank acted as agent for a number of country banks. The development of this system contributed to an increase in country branches throughout the UK.

Provincial clearing houses were established in major cities throughout the UK to facilitate the clearing of cheques on banks in the same town. Birmingham, Bradford, Bristol, Hull, Leeds, Leicester, Liverpool, Manchester, Newcastle, Nottingham, Sheffield and Southampton all had their own clearing houses. In 1960, Barclays Clearing Department moved from London to Northampton, thus centralising the process on one custom-built site.

Automation began in the 1960s with the invention of magnetic ink character recognition, enabling cheques to be read by new reader-sorter machines. In 1967, automation was introduced to the Barclays Clearing Department. Cheques were encoded and fed into the machines which processed the cheques at a speed of approximately 1,600 per minute. They were sorted into branch order and each cheque was sorted a maximum of three times. The code line was printed out and written onto disc. The list was then sent to the branch along with the original cheque. In 1976, Barclays ended the practice of returning cancelled cheques to the signatory.

Automation of the inter-bank clearing system continued in the 1980s. CHAPS (Clearing House Automated Payment System) was launched in 1984 to allow for payments to be transmitted by one bank branch to another via a computer system linked through British Telecom's Packet Switch Stream Service. It provided same day clearing for high value cheques and electronic fund transfers. Following the Child Report of 1984, APACS (Association for Payment Clearing Services) was established to oversee the payments and clearing system, and in 1985, the Cheque and Credit Clearing Company was created by the clearing banks to operate the bulk clearing system for inter-bank cheques.

Given declining cheque usage in the early 1990s, clearing banks wanted to outsource their processing operations, either to another member or to specialist cheque processing organizations. Changes to clearing rules in 1994 by the Cheque and Credit Clearing Company allowed for this to happen, with Barclays outsourcing their business to iPSL. 90% of cheque processing was then done by iPSL, with the remaining 10% of Barclays cheques paid in at the same branch on which they were drawn. This remaining 10% were known as ‘house cheques,’ and did not go to the clearing house but were subject to manual processing by branch cashiers. However, these house cheques were not subject to the same security rigour as the ones processed by iPSL. Increased automation at iPSL, and the introduction of fraud detection software meant that these cheques underwent rigorous security checks. The house cheque process, however, remained largely unchanged, and was continually targeted by those who considered it the weakest link in the overall cheque process.

In 2007, Barclays introduced the Voucher Image Archive, which enabled front line staff to view images of cheques processed by iPSL, but house cheques did not benefit from this change, and house cheque fraud continued to rise. In 2009, a decision was made to move from same-day clearance to clearance on day two. Although this did have the effect of countering fraud, the issues of manual processing and the lack of imaging remained a problem. In May 2012, Barclays began to route all house cheques through the clearing process, thereby removing the need for manual checks in branch. Now, all cheques are routed through automated fraud detection software and images of the cheque are available to view by front line staff, meaning that any queries a customer may have with a particular cheque can be resolved instantly. The final house cheque in Barclays history was processed on 21 May 2012 at Preston Fishergate branch, laying to rest a 240 year process.

The use of cheques peaked at 4 billion per annum in 1990, but declining use since then has led to some suggestions that cheques should be phased out. However, in 2011, following a public outcry, the Payments Council committed to keeping cheque clearing open for as long as customers needed it. Technological developments now mean that cheques are processed as digital images, and customers are able to pay them in as a photograph via their banking app.