The History of Clearing

by | Jul 11, 2023 | More About Clearitt

As the Founder of Clearitt, I wanted to take a moment to share some insights into the fascinating history of interbank clearing, tracing its origins back to the 17th century and its evolution into the streamlined process we know today.

The Start of Interbank Clearing

The interbank clearing process commenced in the United Kingdom during the 1600s. At that time, bank clerks faced the arduous task of sorting handwritten cheques received from specific banks. To reconcile the amounts owed between banks, clerks would visit each bank individually, comparing the cheques received. If both banks had cheques from one another, they would net out the amounts and settle the difference in cash. This process required the clerk to repeat these steps for each bank, making it quite cumbersome.

In 1770, a resourceful bank clerk proposed a game-changing idea; instead of travelling between banks, all clerks could convene in one location. The Five Bells Tavern on Lombard Street in the City of London became their meeting place. Each bank had a designated box, and clerks would drop the cheques into the box of the issuing bank. Afterwards, they would calculate the net amounts owed, settle the payments, and perhaps raise a celebratory ale. This innovation saved the banks from unnecessary gross cash payments and streamlined the clearing process.

Interbank Clearing Spreading

As the need for a dedicated clearinghouse grew evident, a separate establishment was constructed in 1833, marking the birth of the first clearinghouse. From there, the concept of clearing spread across the globe. In the United States, the New York Clearing House, founded by commercial banks in 1853, brought efficiency to the clearing and settling of cheques between participating banks. Prior to its establishment, employees from 60 banks traversed the city streets, presenting cheques to one another. This manual process was time-consuming, and prone to confusion, disputes, and errors. The establishment of the clearinghouse significantly improved the situation, saving time, effort, and financial costs.

Australia followed suit, establishing its own clearinghouses. Melbourne saw the establishment of a clearinghouse in 1868, and Sydney joined in with its own clearinghouse in 1895.

The 1970s brought about a groundbreaking advancement; the computerization of interbank clearing. This marked a pivotal moment in the evolution of clearing, propelling it forward with increased efficiency. The refinement of the clearing process continued, and today, banks even offer real-time clearing, enabling instantaneous transactions.

Clearing for Everyone

Clearitt draws inspiration from the historical evolution of clearing and aims to take it further by making the benefits accessible to everyday businesses. Through our platform, businesses can experience the time and cost savings that clearing offers, freeing up working capital and empowering growth.

Thank you again for your interest in Clearitt.

Best regards,

Richard Johnsson

Founder and CEO

Clearitt Australia Pty Ltd


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