Evolution of Payment System

Abstract

Clearing has been an important part of the banking system and will always remain apart of it for years to come. Clearing in banking indicates the transfer of fund from oneperson to another. This clearing of the fund can take place in 2 ways either throughcash or through cheque. There has been no major change in the cash transactionsexcept for the changes in the value of money. However, the cheque clearing system hasundergone lot of changes. The origin of cheque can be traced back to the first centuryAD, where banks in and around Persia used to issue letters of credit called “Sakks”wherein the banks used to pay the identified payees as per the instructions. Thiseliminated the cumbersome process of carrying money or gold which was very risky.Changes have taken place in cheque clearing over the period of time. From ordinarycheque clearing to MICR clearing and finally to the latest in clearing ‘ChequeTruncation System’. This is a conceptual paper which tries to explore the changes thathave taken place in the bank clearing system in the past, present and will also try tovisualise the future of bank clearing.