In 1950 Bank of America (BoA) was the largest bank in California, and led the world in the use of checks. This presented a serious problem due to the workload processing them. An experienced bookkeeper could post 245 accounts in an hour, about 2,000 in an 8-hour workday and approximately 10,000 per week. Bank of America's checking accounts were growing at a rate of 23,000 per month and banks were being forced to close their doors by 2:00PM to finish daily postings.
S. Clark Beise was a senior vice president at BoA who was introduced to Thomas H. Morrin, SRI's Director of Engineering. They formed an alliance under which SRI would essentially act as BoA's R&D arm. In July 1950 they contracted SRI for an initially feasibility study for automating their bookkeeping and check handling.
SRI immediately found a problem. Because accounts were kept alphabetically, adding a new account required a reshuffling of the account listings. SRI instead suggested using account numbers, simply adding new ones to the end of the list. In addition these numbers would be pre-printed on checks, thereby dramatically reducing the time to match the checks with account information (known as "proofing").
In September SRI reported back that with these changes, a computer-based system was certainly feasible, which they called ERM, the Electronic Recording Machine. BoA then offered a second six-month contract in November to fully study the changes needed to banking procedures, and design the logical layout of production ERM machines.
While this was underway BoA went to a number of industrial companies to set up production of the machines, but none were interested. So SRI was given another contract in January 1952 to build a prototype machine. One of their biggest problems was to input the check information, especially the account numbers, with any sort of speed. Clark Beise demanded a system that would not require the information to be changed from one medium to another, from check to punch card in particular, while at the same time lowering error rates.
SRI investigated several solutions to the problem, including the first OCR system from a company in Arlington, Virginia. However they found that it was all too easy for banks, and customers, to write over the account numbers and spoil the system. They also experimented with bar-code information, and while this worked well even when printed over, if there was enough "damage" to the code a human operator could not read them. Instead they decided to combine the two technologies, and used MICR-printed account numbers which could be read by a magnetic reader similar to those in a cassette tape recorder. The resulting reader was a mechanical tour-de-force, combining a MICR reader with a large rotating drum that forced checks dumped in the top to come out the bottom in single-file. The system eventually developed to be able to read ten checks a second, with errors on the order of 1 per 100,000 checks.
The final ERM computer contained more than a million feet of wiring, 8,000 vacuum tubes, 34,000 diodes, 5 input consoles with electronic reading devices, 2 magnetic memory drums, the check sorter, a high-speed printer, a power control panel, a maintenance board, 24 racks holding 1,500 electrical packages and 500 relay packages, and 12 magnetic tape drives for 2,400-foot tape reels. ERM weighed about 25 tons, used more than 80 kW of power and required cooling by an air conditioning system.
By 1955 the system was still in development, but the BoA was becoming anxious to announce the project. At the time computers, still known as "electronic brains", were all the rage, and if BoA could announce they were using them it would infer a feeling of futuristic infalibility in the market. In September they froze the design.
By this point no less than 24 companies had expressed interest in building the production machines, but eventually General Electric won the competition. They took the basic design, but decided it was time to move the tube-based system to a transistor-based one using core memory. This won SRI yet another contract, this time by GE to study the commercial computer market and suggest ways the ERM machines could be sold into other markets. After the constuction run they also contracted them to dispose of the original machine.
The first ERMA system was installed in 1959. Over the next two years the rest of the 32 systems were installed, and by 1966 twelve regional ERMA centers served all but 21 of BoA's 900 branches. The centers then handled more than 750 million checks a year, about the number they had predicted to occur by 1970. The automation was so effective that it allowed BoA to be the first bank to offer credit cards attached to a user's bank account. ERMA machines were replaced with newer equipment in the early 1970s.