From coffee houses to current accounts: how banking began

In an age of credit cards, online payments and ATMs, banking is big business, providing an essential channel through which cash flows through society. But it hasn't always been like this.

In days of yore, barter systems were used as a way to procure goods that one needed. People who had a surplus of one commodity (for example, cows) but a deficit of another (for example, corn) could perform a mutually beneficial transaction, trading one for the other.

But trading on pigs or potatoes had its limitations, not least of which was the sheer volume of goods that would have to be carried around to perform simple transactions. For example if you wanted to do business with someone in a far away village without having to take your entire heard along with you, what could you do?

Well, there is evidence of early banking systems going back as far as the third millennium BC - where religious establishments were used as banks. As temples and palaces were generally sturdy and well guarded, they were considered the safest places to store goods and, as sacred places, they offered an additional deterrent to thieves - they'd have to face the wrath of religious deities if they stole!

These basic banks provided a secure place to store wealth, and also became the foundation of money lenders. By creating networks of these stores and reaching agreements between them, the basics of credit were established. For example, you could deposit your grain into one bank, receive a credit note, then withdraw your "funds" from another bank that was also part of the network.

Ancient Rome developed its banking systems to the point where there was the regulation of financial institutions and financial practices. Charging interest on loans and paying interest on deposits became more highly developed and competitive - but after the fall of Rome, banking was abandoned in Western Europe, and was not revived until the time of the crusades.

Modern western banking can be traced back to the coffee houses of London and the London Royal Exchange, which was established in 1565. Coffee houses were often the meeting place of bankers and business men, and eventually became financial centers. Owners of coffeehouses gleaned knowledge from their customers, and used this to make modest investments themselves.

Later came the development of banks in almost every city, town and village, and it's hard to imagine a world now without banking, cash cards and current accounts. Banking has brought security and convenience to society - imagine receiving your salary in notes and coins, having to stash your cash under the bed and carry around a wad of bills everywhere you went!