There are numerous terms in finance and banking that will make anyone’s head spin, especially people who are new or oblivious to finance and banking industries. One such term is MICR, almost everyone who owns a bank account might have come across it but only a handful know what it is or where it’s found. So if you are looking to know more about this term then you are at the right place as this article will cover everything that you should know about MICR.
What is MICR?
MICR is short for Magnetic Ink Character Recognition. It is a technology mainly used in the banking industry to verify the legitimacy of documents. It helps in streamlining the processing and clearance of various banking documents such as cheques. MICR on cheques can be found at the button left in the form of a string of characters and unlike barcodes, MICR can be read by humans without the need for any special equipment. It is made up of three important groups of numbers that include the bank code, the account number, the cheque number and a control indicator. The format of MICR printed on your cheque can vary from country to country. For example:- In India, the first three digits of the MICR represent the city (city code), the next three digits represent the bank (bank code) and the last three digits represent the branch of that bank (branch code). While in the US, the MICR consists of the routing number, account number and cheque number. So depending on the country, you might see a little change here and there in the MICR.
How does MICR technology work?
MICR or Magnetic Ink Character Recognition is the name of the technology using which this code is printed on every cheque available on earth. You can find MICR in two different fonts (depending on the country where that cheque came from) E1-3B (Australia, Canada, the United Kingdom, the United States, Central America and many Asian countries) and CMC-7 (Europe and South America). The MICR code is printed using a special kind of ink or toner that contains some magnetic material. This magnetic ink can be easily read by the bank’s computer even if it’s covered with a signature, stamp or any other non-magnetic ink. Thus the computer can easily detect which branch the cheque belongs to without any human intervention. This significantly decreases the time and manpower required as well as the possibility of human error.
Benefits of MICR
Some of the benefits associated with MICR are mentioned below: * The processing of MICR information is fast and less prone to errors. * Forging MICR documents is next to impossible resulting in a decrease in cheque frauds. * It offers much greater security compared to the older OCR technology as once the characters are printed they can’t be altered. * Even after tons of run-ins with signatures, stamps and ink (non-magnetic), MICR can be read as clear as day. * Reading accuracy of MICR is pretty easy even after rough handling.
MICR cheque scanner
Almost every cheque goes to a clearinghouse or a bank and sometimes both for processing and clearance. These institutions validate the cheques and finalize the transactions, so the banks can deduct the correct amount from the correct account and deposit the same in the account provided. Cheques are often processed several times at different banks as well as Federal Reserve Centres. Earlier this process was done manually by humans which made them prone to errors but MICR has mechanised the process and significantly decreased the workload on these financial institutions while also making the process less prone to error. It is done by a scanner or a computerised reader that can easily recognise and read details such as account number, routing number and cheque number. MICR has decreased cheque processing and clearance time by up to 1/1000th of a second meaning the bank can now process and clear millions of cheques without any problem.
A brief history of MICR
The United States was the first country to adopt MICR as the standard for negotiable documents and it was done by the American Banker’s Association in 1958. But cheques with magnetic ink were first printed not before 1959. The American Banker’s Association or ABA set MICR as its standard because these codes were easy to read and could be printed using the technology available at that time. Apart from that, these codes were immune to signatures, stamps and marking and could be easily read by a machine. Then in 1963 ABA’s MICR standards impressed the American National Standards Institute (ANSI) which lead to MICR becoming the new norm to determine the acceptable quality of negotiable documents. Any institution, bank or government that didn’t follow ANSI’s MICR standards were imposed with heavy charges.
Back to the current time
Even in this day and age, MICR is still being used extensively for the processing and clearance of cheques even after almost 6 decades. MICR has helped combat cheque fraud and many other digital frauds that were common earlier. Apart from manufacturing, printing, issuing and clearing cheques, MICR technology is also used to print financial forms as well as other important documents that include negotiable orders of withdrawal, bank control documents, credit card invoices, image replacement documents (IRD’s) and many others.
Bottom line
Magnetic ink character recognition is a key component in detecting and separating legitimate cheques from the lot while also decreasing the time and effort taken to do this. The MICR might vary from country to country but it has the same applications and the same working no matter where you are. Although these special digits won’t look much different from a textbook print what makes it unique is the material used to make it. It has a number of uses and benefits that have already been covered in this article.
Now that you have read this article, you are now ready to add this word to your financial dictionary and impress your friends with your vast knowledge of financial terms. The next time you see a cheque, MICR will be the first word that will come to your mind.
