It Started at the Hinky Dinky Supermarket in Lincoln, NE

 

There was a time when buying groceries was a very singular transaction consummated by payment in cash or by check.

I have related some of my work experience here, but I bet we have many Ricochet members, not to mention our general population, who have no idea how the transition from a paper-based payment system to an almost totally electronic payment system got started and evolved.

In 1971, I was still working as a systems analyst/programmer/program manager at a service bureau processing checking accounts for small commercial banks on an IBM-360 mainframe.  I had been married for five years, and we had three small children. I had just finished my undergraduate program in statistics attending George Washington University at night. My work was consuming more than 50 hours per week regularly, and because of conversions and software updates, I worked frequent weekends. And I was “on call” overnights because that’s when the bank work processing took place, and it had to be completed when the bank opened.

My dear wife informed me that I needed to do something to change this so that she and I and our children could do more things together as a family. She had a really good case. The economy was entering a recession, and I was working for a small business that might not survive an economic downturn. I looked at making a change.

The Federal Home Loan Bank Board (FHLBB), regulator and insurer (FSLIC) of savings and loan institutions, was converting their computer systems from Honeywell to IBM, and they hired me as an expert/consultant at a GS-13 pay level, a slight increase but no overtime. I saw this as a way to stay connected to the financial institution industry. Little did I know how deeply this would take me into the changes to occur in payment systems.

Now to the subject of the post. Maybe mutual savings banks in the northeast made the first really attention-getting move in payment systems when they introduced NOW (Negotiable Orders of Withdrawal) Accounts for their savings account customers. Commercial banks were the sole offerers of what was then called demand deposit checking accounts. Grocery store purchases were uniformly completed with payment by check or cash. Credit cards had been developing over the last couple of decades with BankAmericard, American Express, and MasterCard leading the way. That system was supported by paper and some batch computer processing, but there was no magnetic stripe yet on the cards. But the “smart card” was hitting the scene.

That’s when John Dean and Hinky Dinky Supermarkets in Lincoln, NE, got together and offered those depositors with savings accounts a card that could be used to pay for purchases in an online, real-time transaction. Savings and Loans operated predominantly with terminals connected online to their computers. Commercial banks were almost all still operating batch systems for processing checks. So this Hinky Dinky thing was seen as a real threat by the banks.

At the Bank Board, I was right in the middle of this, working closely with our General Counsel’s office to provisionally approve the Nebraska trial venture into “debit cards.” We did the same by drafting a regulation that permitted S&Ls to install cash-dispensing machines, later referred to as ATMs, in their service area without requiring any application to the Board. This resulted in a lawsuit filed by the Comptroller of the Currency, the regulator of commercial banks, accusing the S&Ls of creating branches illegally.

Mutual Savings Banks and Credit Unions started entering the fray. Things started to get really hot. Next thing we knew, Congress was involved, and they created the Electronic Funds Transfer Commission with a charge to look at what was going on and submit recommendations on how the financial industry should move forward in the payments arena. My boss was designated as the FHLBB representative on the EFT Commission and, being his Special Assistant, I was by default his Deputy Representative, so I attended the meetings and did the work on his behalf. All the interested parties were represented: Treasury(BGFO), Comptroller of the Currency, USPS, FRB, FHLBB, NCUA, ABA, CUNA, the three major credit cards, all the involved trade associations … I can’t remember all of the designations.

This Committee went on for the better part of two years and published a report . As we know, all the financial institutions ultimately got to receive direct deposits and offer payments capability to their depositors. Notice the Post Office was represented because direct deposit for government payments was under consideration, and Social Security check delivery was a big part of their workload and revenue from Treasury. And this is where I got to know the Treasury (BGFO) representative, and later was employed by Treasury, directed the implementation of direct deposit for government payments working with the FRB. I later became the Chief Disbursing Officer, so I was glad to see that all the conversion of paper to electronics that I had a hand in developing was working.

And now all commercial businesses can take advantage of direct deposit and the network for their payrolls and other payment transactions. Individuals can use this automated clearing capability through the internet as well. The magnetic stripe on the card was a big part of this as well. But Hinky Dinky is how I remember the start.

I hope this is not too boring. Not all historical events are easy to look up, particularly when it comes about through a long series of smaller events

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  1. Rodin Member
    Rodin
    @Rodin

    Not boring at all. And I appreciate the ease of electronic banking. But I do worry about surveillance potential and loss of access when the power goes out.

    • #1
  2. Bob Thompson Member
    Bob Thompson
    @BobThompson

    Rodin (View Comment):

    Not boring at all. And I appreciate the ease of electronic banking. But I do worry about surveillance potential and loss of access when the power goes out.

    I’ll probably do another post at some point discussing the major changes that have taken place in the financial institutions industry structure which has more bearing on your concerns about surveillance. Remember I did a an earlier post advocating that we not adopt  digital banking.

    • #2
  3. Hang On Member
    Hang On
    @HangOn

    I first used an ATM in Britain in the 1970s while I lived there. I could use my card anywhere in western Europe. The US I had left didn’t have anything like it where I lived. Going out of state and needing funds was a real pain. 

    • #3
  4. Bob Thompson Member
    Bob Thompson
    @BobThompson

    Hang On (View Comment):

    I first used an ATM in Britain in the 1970s while I lived there. I could use my card anywhere in western Europe. The US I had left didn’t have anything like it where I lived. Going out of state and needing funds was a real pain.

    Do Travelers Checks even exist anymore? That was how one carried cash when traveling back then. Of course, other arrangements were needed when travel was extended or indefinite.

    When I first got to Treasury and before electronic transfers were used for routine retail transactions, we had a system called the Treasury Financial Communications System (TFCS) that was used for SWIFT interbank transactions. That was run on a Tandem computer system. But things could be difficult for a longtime traveler for personal transactions.

    • #4
  5. cdor Member
    cdor
    @cdor

    Very interesting, Bob. You have had a unique life! As a small business owner, I had a jaundiced attitude toward credit cards. Yes, they put an end to returned checks (for lack of funds), but they were expensive. Early on when my business was smaller, I paid 3 to 4% fees to the credit card processors. Some businesses paid even more. Later on, I got the fee down to about 2%, but my volume was up, and my individual charges were about $350 on average or more. Nonetheless, I was paying, annually, a chunk of dough to the processors. It was an irritation to me that the credit card companies were aiming to get a piece of the action for every transaction made in the entire world. That is a whole lot of money.  

    • #5
  6. Bob Thompson Member
    Bob Thompson
    @BobThompson

    cdor (View Comment):

    Very interesting, Bob. You have had a unique life! As a small business owner, I had a jaundiced attitude toward credit cards. Yes, they put an end to returned checks (for lack of funds), but they were expensive. Early on when my business was smaller, I paid 3 to 4% fees to the credit card processors. Some businesses paid even more. Later on, I got the fee down to about 2%, but my volume was up, and my individual charges were about $350 on average or more. Nonetheless, I was paying, annually, a chunk of dough to the processors. It was an irritation to me that the credit card companies were aiming to get a piece of the action for every transaction made in the entire world. That is a whole lot of money.

    Credit cards are an odd animal much of which I don’t approve. I would think by this time most all business people who accept them would have factored in the costs of which you speak as a cost of doing business. For a while I was using debit cards but then the credit cards began offering rewards and I switched. That way I can run the balances to the statement cutoff pay date, pay the bill with no interest, get the rewards, and keep cash in my bank account longer. I sympathize with small business but no sympathy for the big guys.

    • #6
  7. Headedwest Coolidge
    Headedwest
    @Headedwest

    You reminded me of one of the oddities of early credit cards. The first Bank Americard I got was issued by a Pittsburgh bank. This was before the mag stripe, so the credit card was put in the machine that swiped it and printed the receipt. I would get a carbon copy of the swipe, after the chunk-chunk swipe imprinted the card number on the receipt.

    A competitor bank in Pittsburgh offered the Master Charge card. 

    The Bank Americard bank distributed or sold the swipe machines, as did their competitor. But the Americard bank had a little twist: their card had a small notch in the right hand edge. Their card swiper had a little metal post in it that their card fit neatly over.

    The Master Card did not have a notch, so if a merchant tried to swipe a Master Card in the Americard swipe machine, it would not work. The card would be bent, or maybe even broken. 

    Of course all the Americards with the notch worked fine in the Master Card swiper.

    It was a competitive edge, but how much of one I cannot guess.

    By the way, a couple of my credit cards (but not all of them) still have the raised numbers that were necessary to emboss the number on the carbon paper. I wonder if any mechanical card machines are still in use?

     

    • #7
  8. OccupantCDN Coolidge
    OccupantCDN
    @OccupantCDN

    Not boring at all – but I did google Hinky Dinky Supermarkets… They got bought out by Tom Thumb of Texas, which is now part of Albertsons …

    My most recent credit card doesnt even have raised numbers on it – so it wouldn’t work in one of those slider machines…  And all the numbers are on the back of the card…

    In high school, I read Frank Abagnale’s “Catch Me If You Can” which is set during this time period, about his exploits of exploiting the banking and checking systems of the era to defraud millions from the system…His fake Pan Am checks were so good, that the company actually cashed them… The movie kinda glosses over a lot of this because its not really photogenic on screen…

    • #8
  9. Bob Thompson Member
    Bob Thompson
    @BobThompson

    I forgot to mention that one of the driving factors at the Treasury to get payments delivered electronically was the fact that we could not accomplish check reconciliation rapidly enough to respond timely to claims of non-receipt by mainly social security payees. Legal services were starting to take us to court and we were ordered to issue replacement checks without knowing if the payee had actually received and cashed the check. So we were getting many double payments and the court would not allow any recovery when the second payment was illegitimate. The one-way credit transfer nature of the direct deposit electronic payment solved this.

    One reason we were so slow in the reconciliation process and could not determine if a check had been paid and see if the intended recipient had cashed it was that we were still receiving the paid physical checks from the federal reserve. The checks then were green punched cards (many reading this have never seen what was often called an IBM punched card) and we had truckloads stacked on our loading docks awaiting entry through punched card readers, a very slow process. While we were pushing to convert to EFT the Federal Reserve implemented a check truncation process in their processing so the check data was captured at the initial processing point by them and sent to Treasury on magnetic tape. Problem solved.

    • #9
  10. tigerlily Member
    tigerlily
    @tigerlily

    Rodin (View Comment):

    Not boring at all. And I appreciate the ease of electronic banking. But I do worry about surveillance potential and loss of access when the power goes out.

    Ditto.

    • #10
  11. OccupantCDN Coolidge
    OccupantCDN
    @OccupantCDN

    tigerlily (View Comment):

    Rodin (View Comment):

    Not boring at all. And I appreciate the ease of electronic banking. But I do worry about surveillance potential and loss of access when the power goes out.

    Ditto.

    Or when there is a telecom disruption. Look at Rogers 2022 Outage – that disrupted interact transactions for an entire day. (July 8 2022)

    https://en.wikipedia.org/wiki/2022_Rogers_Communications_outage

     

     

    • #11
  12. GLDIII Purveyor of Splendid Malpropisms Reagan
    GLDIII Purveyor of Splendid Malpropisms
    @GLDIII

    My wife was the CFO for a major union pension fund for over 25 years, and one of her on going commitments was to get all of the hidebound pensioners to move from a paper check in the mail to the security of knowing it showed up on time in their accounts. When she started no-one was on Direct Deposit, whee she retire four years ago I think she was at 99% for the many 10’s of thousands of retirees getting that annuity.

    Some of the 20 to 30 monthly stories she had about her conversations with the retirees and what she had to go through to get them to see the logic were really humorous.

    • #12
  13. Bob Thompson Member
    Bob Thompson
    @BobThompson

    GLDIII Purveyor of Splendid Ma… (View Comment):

    My wife was the CFO for a major union pension fund for over 25 years, and one of her on going commitments was to get all of the hidebound pensioners to move from a paper check in the mail to the security of knowing it showed up on time in their accounts. When she started no-one was on Direct Deposit, whee she retire four years ago I think she was at 99% for the many 10’s of thousands of retirees getting that annuity.

    Some of the 20 to 30 monthly stories had about her conversations with the retirees that she had to go through to get them to see the logic were really humorous.

    Oh, I have some good stories as well. We started the project to convert social security checks to direct deposit in the mid-seventies with what we referred to as a pilot for recipients in Georgia and Florida. The financial institutions of all types were participating and signing up was strictly a voluntary proposition for the depositors. We put on quite a marketing program and elicited as much help as possible from all those institutions. It is not easy to get the elderly to change their routines and getting those checks in the mail on the third of the month and going to the bank was an important social event for many of them. But we did well and opened the program across the whole country two years later. We learned a lot about how to present things and the financial institutions along with the Federal Reserve Banks ironed out operating issues. The initial electronic transfer system for direct deposit was a batch-oriented magnetic tape system.

    As we built volume over the years into the eighties and even converted other government applications we finally hit a participation rate of over fifty per cent which is a number well recognized by Congress. We were able to get the Social Security Administration to push new recipients to sign up when they applied for their benefits. It wasn’t mandatory but it was presented in the form of a question: “What financial institution do you want us to send your direct deposit?” It got much easier to sign people up But it remained voluntary, unlike what we hear today when they talk about digital banking.

    Our conversion of paper to electronics was to create a more efficient and less costly operation but what digital banking seeks is control over the people.

     

    • #13
  14. Steve C. Member
    Steve C.
    @user_531302

    I moved to a small southern town in 1973 and had my first and only exposure to “counter checks”. Nearly every retail store had stacks of blank checks from the 3 local banks. If you didn’t have cash you could take a blank check from your bank, fill out your information, sign it and hand it to the cashier. I did this a few times and don’t remember even having to show an ID.

    It was a small town.

     

    • #14
  15. Headedwest Coolidge
    Headedwest
    @Headedwest

    Steve C. (View Comment):

    I moved to a small southern town in 1973 and had my first and only exposure to “counter checks”. Nearly every retail store had stacks of blank checks from the 3 local banks. If you didn’t have cash you could take a blank check from your bank, fill out your information, sign it and hand it to the cashier. I did this a few times and don’t remember even having to show an ID.

    It was a small town.

    My mother in a small Pennsylvania city bought all her gasoline at a station where they pumped the gas for her, and she paid them with checks.

    Three years ago I was visiting my sister in a small town in Illinois. She had a little plumbing problem at her house, so I went to the hardware store to get the part to fix it. I was in line behind a woman making a purchase of less than $3. I had to wait for her to write a check for the purchase.

    A year later we were taking my sister on a longish road trip to a family funeral. She wanted to pay for a gasoline fill-up in a state part of the way there. She asked me if I thought the gas station on the Interstate would take a check. I said she could ask but I didn’t think so; she used a credit card. But it was not her preferred way to pay.

    So, yeah, small towns are different.

    • #15
  16. Rodin Member
    Rodin
    @Rodin

    Bob Thompson (View Comment):

    GLDIII Purveyor of Splendid Ma… (View Comment):

    My wife was the CFO for a major union pension fund for over 25 years, and one of her on going commitments was to get all of the hidebound pensioners to move from a paper check in the mail to the security of knowing it showed up on time in their accounts. When she started no-one was on Direct Deposit, whee she retire four years ago I think she was at 99% for the many 10’s of thousands of retirees getting that annuity.

    Some of the 20 to 30 monthly stories had about her conversations with the retirees that she had to go through to get them to see the logic were really humorous.

    Oh, I have some good stories as well. We started the project to convert social security checks to direct deposit in the mid-seventies with what we referred to as a pilot for recipients in Georgia and Florida. The financial institutions of all types were participating and signing up was strictly a voluntary proposition for the depositors. We put on quite a marketing program and elicited as much help as possible from all those institutions. It is not easy to get the elderly to change their routines and getting those checks in the mail on the third of the month and going to the bank was an important social event for many of them. But we did well and opened the program across the whole country two years later. We learned a lot about how to present things and the financial institutions along with the Federal Reserve Banks ironed out operating issues. The initial electronic transfer system for direct deposit was a batch-oriented magnetic tape system.

    As we built volume over the years into the eighties and even converted other government applications we finally hit a participation rate of over fifty per cent which is a number well recognized by Congress. We were able to get the Social Security Administration to push new recipients to sign up when they applied for their benefits. It wasn’t mandatory but it was presented in the form of a question: “What financial institution do you want us to send your direct deposit?” It got much easier to sign people up But it remained voluntary, unlike what we hear today when they talk about digital banking.

    Our conversion of paper to electronics was to create a more efficient and less costly operation but what digital banking seeks is control over the people.

     

    One of the first things I did when I started helping my mother-in-law getting her checking and payments in order was to get her social security check on direct deposit. She would have never done that on her own.

    • #16
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