The overdraft issue
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In 1728, Scottish Merchant William Hogg faced a unique problem. As a merchant of good standing, Hogg always ensured his suppliers were paid on time. However, all too often, his bills were due before he himself had been paid, leaving him in quite a difficult situation. Without having received proper payment, through no fault of his own, Hogg was left without enough funds in his accounts to cover his debts.
The Royal Bank of Scotland, seeing the bind Hogg was in, and knowing he was consistent in paying his bills, worked with the merchant to find a solution.
The answer? The creation of the overdraft.
At any time, Hogg would be permitted to withdraw more funds than were currently in his account, allowing him to pay his suppliers on time—for a small fee to the bank, of course. This new method worked for both parties as Hogg no longer had to fret over his account’s standing while he waited to be paid, and the bank—who knew Hogg would eventually have the money—could profit from the transaction. It was a win-win scenario.
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