The Evolution of Banking

Banks are one of the oldest, and most important businesses of our industries. Banks have two important economic functions, the first being financial intermediation. The money deposited, lent or invested in banks go towards the creation of governments, households, and business enterprises. Most banks are profit-seeking corporations that make their profits by charging borrowers. This has helped finance the American economy which has been built by generations of entrepreneurs. The second function of banks is their operation of a payments system. We currently make most of our payments by swiping credit and debit cards issued by our banks, writing checks, or by making transactions online. A majority of the country’s money is actually bank money, and the rest of the currency we use is Federal Reserve Notes and coins, or “legal tender” that is issued by the government. Banks hold large reserves of legal tender in case we request legal tender at the bank or ATM.

During colonial times in America when modern banks did not exist, Americans exchanged credit, and relied on merchants and banks in Great Britain. Governments of each colony would issue paper money and coins. In 1781, Alexander Hamilton, who became known as the most financially astute of the founding fathers, recommended to Congress’s superintendent of finance, Robert Morris, that it was necessary to institute banks in order to advance trade for the nation. Three years later, Hamilton became a founder of the Bank of New York. His policies would eventually fill out major components of the modern financial system of America. He founded a national bank, the Bank of the United States (BUS), which prompted states to charter more banks. This proved to be effective—on the eve of the Civil War in 1858 there were 1600 banks in existence.




Modern Banking

Modern banking has come a long way since then. In 1981, the early version of what people considered to be online banking first began in New York. Four major banks offered home-banking services available to customers, and people slowly began to adapt. Although, it wasn’t until the next wave of innovation in the mid-1990s that online banking began to gain momentum. On October 1994, Stanford Federal Credit Union was the first bank to offer internet banking as a service. Soon after, internet banking began to catch on, and other banks followed suit. The convenience of the service became obvious to customers, with higher interest rates, more access, and easier transactions. There was also environmental friendliness since it was a paperless process.

By the 2000s, online banking had gained popularity in e-commerce. An estimated 80% of banks in America were offering internet banking, and it began to gain legitimacy among customers. A 2010 survey by Fiserv found that mobile payments were growing at a faster rate than the internet. It was clear that online banking was evolving as more innovation came to fruition. For example, to protect customer data, banks enforce online security by using encryption technology to avoid fraud and identity theft. Online banking has proved that it’s here to stay, and the best banking practices will be digital ones. Zikher helps people digitize their loan process and gives customers the convenience of completing it from home. Our platform also provides a high level of security with our application programming interfaces (API).


Author: Yvonne Kwan




Sarreal, Ruth. “History of Online Banking: How Internet Banking Became Mainstream”. GOBankingRates, 2016. Online. Internet. 5 Jul. 2017. Available:

Sylla, Richard. “The US Banking System: Origin, Development, and Regulation | The Gilder Lehrman Institute of American History”., n.d. Online. Internet. 5 Jul. 2017. Available:

“The Evolution of Modern Banking”., 2014. Online. Internet. 5 Jul. 2017. Available:


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