Abstract
This chapter describes the creation of NBI’s first electronic authorization system, known as BASE. It recounts the various ways that banks sought to automate local authorizations, how Omniswitch demonstrated that interchange authorizations could be switched between local centers, and the efforts to create a single shared national authorization system for all the different charge and credit cards. This effort was ultimately abandoned and I end by describing the design and construction of NBI’s own system, which went into production in April of 1973.
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Notes
- 1.
Brooke (11 August 1971), p. 6.
- 2.
Hughes (1983), p. 79.
- 3.
MacKenzie further points out that historians should never treat reverse salients or critical problems as “given, independent of the actors involved.” In the midst of events, actors may not agree on what goal should be obtained, what is hampering progress toward it, and how it might be solved. Causation may also run the other way—actors may formulate critical problems based on what they can accomplish, and then argue for a corresponding reverse salient. See MacKenzie (1987), pp. 197–199. In the case of authorization, there seems to have been rather widespread agreement that it was a significant problem area, though I will note the few minor disagreements regarding how it should be solved.
- 4.
Recall that in a local authorization, the acquirer and issuer are the same organization, or are served by the same processor, so political issues are largely removed.
- 5.
National Authorization Joint Feasibility Study Final Report (29 January 1971), p. 8.
- 6.
National Authorization Joint Feasibility Study Final Report (29 January 1971), pp. 8–9.
- 7.
‘Fast credit card authorization is offered to banks and merchants by CSI’, American Banker (6 January 1971), p. 8.
- 8.
Unfortunately, the article did not mention a reason for this design choice, but there are two possibilities: first, because a denial embarrasses and erodes the confidence of a legitimate cardholder, such a decision should be verified by a human; second, it may have been culturally inappropriate for a denial to come from an automated, impersonal recording.
- 9.
Wiegold (18 June 1971), p. 1. See also, ‘Omniswitch tests merchant-to-bank authorization system’, Payment Systems Newsletter (July 1971), p. 4. Whether Omniswitch was actually the first to test POS terminals is somewhat unclear. The news articles imply this but are also vague enough to create doubt. I have not yet found an earlier report about POS terminals in the banking news sources. Tom Schramm, Omniswitch’s VP of operations, noted that he thought they were at least one of the first to test them, if not the first (Schramm interview).
- 10.
Note that these terminals performed authorization only. Merchants were still required to use a standard imprinter to complete a paper sales draft for clearing and settlement.
- 11.
‘Magnetic stripe for credit cards urged by ABA unit’, American Banker (16 February 1971), p. 1. See also ‘ABA adds to guides for magnetic card coding’, American Banker (18 March 1971), p. 1. Interestingly, the airlines favored putting the stripe on the front of the card, but the ABA decided that this “would seriously deface the logo of the bank plans,” and chose instead to put it on the back. The Japanese banks, however, put the stripe on the front of their cards for many years (Conway interview).
- 12.
Manufacturers included IBM, Data Source, Addressograph, and Transaction Technology Incorporated, a subsidiary of First National City Corporation (now known as CitiCorp).
- 13.
See Omniswitch Tests Merchant-to-Bank Authorization System, p. 5.
- 14.
‘NDC credit authorization pilot underway’, Payment Systems Newsletter (July 1971), p. 7.
- 15.
‘Electronic funds transfer test announced by City NB&T’, Payment Systems Newsletter (July 1971), p. 5. See also Brooke (14 July 1971), p. 1. CNBT is now known as BancOne. They remained at the forefront of technological innovation, providing the bank processing side of the Merrill Lynch Cash Management Account (CMA), the first investment account that could be accessed using checks or a payment card. See Nocera (1994), pp. 159–199.
- 16.
Jelliffe (July 1971), p. 6.
- 17.
Brooke (9 July 1971), p. 1.
- 18.
Jelliffe (July 1971), p. 5. See also Brooke (28 January 1972), p. 1.
- 19.
Whether merchants were still required to deposit the paper drafts is not mentioned.
- 20.
Brooke (28 January 1972), p. 1. Emphasis added.
- 21.
Information on Omniswitch was collected through interviews with Tom Schramm, former VP of Operations. Schramm also provided reports, presentations, and news clippings from the time, allowing me to verify his comments with the written record. The most detailed news story on Omniswitch is Brooke (11 August 1971). Schramm came to NBI in 1974.
- 22.
To be clear, Omniswitch’s innovation was the switching of authorization request messages, not the switching of digital messages in general. For the development of packet switching, see Abbate (1999).
- 23.
Schramm interview.
- 24.
Omniswtich (1971), p. 20.
- 25.
Omniswtich (1971), pp. 7–8. See also Quigley (1 December 1971), p. 8A.
- 26.
Although a few NBI members used third-party processors (such as NDC) in the early 1970s, the vast majority did not.
- 27.
There were of course localized exceptions to this, as in the New York area. Also, a few acquirers contracted Omniswitch to handle their merchant calls directly via inbound Wide Area Telephone Service (WATS) lines.
- 28.
Brooke (4 January 1972).
- 29.
Schramm interview. Confirmed in Brooke (11 August 1971).
- 30.
This was actually not the first or last time a joint system was proposed. As NBI was forming, Bank of America and American Express proposed developing a joint system to which they would then sell access, but found few takers. The ABA Monetary and Payments System (MAPS) planning committee also proposed a centralized system run by the large commercial banks, but also failed to generate any action. See Hock (2005), pp. 164–165 and Brooke (3 May 1971), p. 1.
- 31.
National Authorization Joint Feasibility Study Final Report (29 January 1971).
- 32.
Hock (2005), p. 165.
- 33.
Brooke (4 November 1971), p. 1.
- 34.
‘Card groups take own authorization paths’, American Banker (29 June 1971), p. 1.
- 35.
Unfortunately for Omniswitch, CSI was given the contract to build the Interbank National Authorization System (INAS). According to Schramm, the reasons were “entirely political.” FNCB, who was part-owner of Omniswitch, had also designed their own competing system that they wholly-owned. FNCB represented both Omniswitch and their own system in the selection process, and their conflict of interest caused them to downplay Omniswitch in favor of their system, which was not even operational at the time. CSI eventually won the contract because their system was functioning, and their leader was also leading the overall selection process. Omniswitch was eventually abandoned once INAS became operational.
- 36.
Brooke (4 November 1971), p. 1.
- 37.
Brooke, NBI Plans.
- 38.
Brooke, NBI Plans.
- 39.
Brooke (21 August 1972), p. 1.
- 40.
Hock (2005), p. 171.
- 41.
Hock (2005), p. 171. Although it was risky, Russell agreed with Hock, provided they hired the right people to build and operate it (Russell interview).
- 42.
Tootelian interview. A biographic sketch may also be found in Brooke (21 August 1972), p. 1.
- 43.
For a treatise on scheduling techniques for software projects, see Brooks (1995). Although Brooks encouraged developers to be more aggressive about defending how long it takes to write a program properly, he also acknowledged that shorter schedules with clearly defined milestones greatly increased the chances of staying on schedule and delivering something genuinely useful.
- 44.
Derman and Tootelian interviews. See also Brooke (21 August 1972), p. 1. Hock had originally requested that the computer be installed in a closet near his office in the BofA building, but was eventually convinced that this would be impractical (Totten interview).
- 45.
Brooke (21 August 1972), p. 1.
- 46.
Only four banks had direct interfaces when BASE began operating. See Brooke (29 August 1973), p. 1.
- 47.
Fojtik and Derman interviews. Eventually, these message formats were changed and standardized through ANSI and ISO. See Chap. 7.
- 48.
Brooke (21 August 1972), p. 1. The article makes no mention of who was connected in this way, just that some were. It should be noted, however, that these were not the major department stores, as they did not accept bankcards at this time.
- 49.
- 50.
Tootelian and Derman interviews. See also, Brooke (21 August 1972), p. 1.
- 51.
Not surprisingly, this created some tension between NBI and the various third-party processors. Organizations such as NDC already offered after-hour services to card centers, and they considered NBI to be encroaching on their business. NBI eventually discontinued this service when processors like NDC and First Data Resources offered to handle calls for both Master Charge and BankAmericard authorizations, something NBI could not do.
- 52.
For Hock’s recollection see, Hock (2005), pp. 172–173.
- 53.
See Chap. 6. Tootelian also remarked that DEC could deliver the hardware when they needed it, while IBM could not, and that the DEC was a simpler, yet perfectly adequate computer at the time. Derman added that DEC was also adept at real-time data transmission, which is primarily what they needed.
- 54.
Hughes actually predicted that when a reverse salient occurs, historians will often find cases of multiple independent inventions. See Hughes (1983), p. 80.
- 55.
Tootelian interview. Other sources involved in the BASE design had never even heard of Omniswitch, or considered it inconsequential. Keep in mind that BASE was developed in a very different world: Omniswitch served members of the Interbank system, and mostly those on the East Coast.
- 56.
Whether this was actually technically feasible is debatable. NDC was a processor for many issuers, but not for an entire system. The computer technology of the time may not have been capable of handling all data related to the BankAmericard program, and even if it could, it would have limited the system’s ability to grow, causing yet another reverse salient.
- 57.
‘BankAmericard sales’, American Banker (1 February 1973), p. 2 and ‘Word bankamericard volume sets record’, American Banker (2 May 1973), p. 3.
- 58.
- 59.
Hock (2005), pp. 173–174.
- 60.
Totten, Derman, Goldsmith interviews.
- 61.
- 62.
Totten interview. Note that this horizontal bar expression of a PERT model is often referred to as a Gantt chart.
- 63.
- 64.
Totten interview.
- 65.
Personal correspondence with Tom Honey, 9 December 2006.
- 66.
Derman interview.
- 67.
By internal, I mean the NBI staff, and by external, I mean the association of members.
- 68.
Brooke (11 May 1973), p. 1. See also O’Neil (1973, 116ff). Key caps story from BankAmericard World (June 1973), p. 2.
- 69.
‘BASE unveiled in S.F.’, BankAmericard World (June 1973), p. 1.
- 70.
Brooke (11 May 1973), p. 1. Note that for transactions involving issuers that did not have a direct CPU interface to BASE, the average authorization time was closer to a minute and a half.
- 71.
Nocera makes a similar point when he says “…it was the difference between deciding to use a credit card and deciding that it was easier to use cash” (Nocera 1994, p. 103).
- 72.
I first used this term in 1995 when designing a software library for accessing databases. When we needed to determine our success criteria for performance, I realized that most of our consumers would have a threshold of indifference—any library that met that threshold would be sufficient, as the library would then have little effect on the overall performance of the consumer’s application. Once we reached that threshold, our development time would be better spent on other tasks.
- 73.
Rochlin makes a similar observation regarding consumer expectations of reliability. See Rochlin (1993), p. 17.
- 74.
Perception of speed is also as important as any sort of objective measurement of performance. Today, many grocery POS terminals will encourage the cardholder to swipe their card while the checker is still adding items to the total. By doing so, the POS terminal can capture the card information, prepare an authorization message in memory, and open a connection to the acquirer, all while the clerk finishes dragging your items over the scanner. By overlapping these tasks, the consumer perceives the overall authorization time to be shorter.
- 75.
The merchant was required to check the number against the warning postcards, but as noted in earlier chapters, this was commonly ignored.
- 76.
Floor limits were not entirely removed until after the development and mass-adoption of inexpensive dial-up POS terminals, which I will discuss in Chap. 7.
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Stearns, D.L. (2011). Automating Authorization: BASE. In: Electronic Value Exchange. History of Computing. Springer, London. https://doi.org/10.1007/978-1-84996-139-4_4
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