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Check Processing - Tutorial

Check Imaging/Archival. Desktop check scanners have been used in a range of check archiving applications. This application is often driven by the need for security, quick access to images for research or improved customer service, and remote access to images by customers or multiple users within an organization. The software application manages the scanned images and indexes them via the associated MICR line data so the images can be retrieved at a later date.

check scanner Check Scanning Technology. Check Scanning equipment is designed to capture check data required for electronic payment processing via the ACH Network, i.e., Bank Routing Number (ABA), Account Number, Check Number, and the dollar amount.

Check Scanners are designed for two purposes; to capture the check data (aka/MICR Line data which stands for Magnetic Ink Character Recognition), and capture an image if required. They function as follows:

  • Check Data Readers read the MICR line data only.
    • Check Data Readers are used to reduce data entry errors, and are typically stand-alone machines connected to a PC keyboard wedge or Point-Of-Sale terminal. They simply read the MICR information as if it was keyed in. No memory, or storage requirements.
  • Check Imagers capture an image of the check in addition to reading the MICR line data.
    • Check Imagers capture an image of the check for storage and subsequent retrieval. Check Imagers also read the MICR line data at the bottom of the check, and either reads it on to a Point-Of-Sale terminal or PC, in addition to capturing an image for archival purposes.
  • Check Scanning Equipment varies in size and price based on the functionality, memory, data storage and check volume required.
    • Check Scanners are typically desktop models ranging from single-feed low-speed Check Data Readers, to bin-fed high-speed models (100+ checks per minute)

screen capture Remittance Processing. Remittance and payment processing (remittance stub and check) is increasingly utilizing high and low speed check scanning equipment to lower operational costs and offer new customer services. The image of both the remittance stub and the check can be captured and used for processing of the transaction.

What is MICR?
MICR, or magnetic ink character recognition, is a process in which magnetic ink and special fonts are used to create machine-readable information on documents. The most common application for MICR is automated check processing. In 1999, more than 68 billion checks and related financial documents were processed using MICR technology. Consumers wrote 37 billion checks and $12 to $14 billion of those were personal check deposits from Point-Of-Sale transactions.

MICR

MICR technology was developed in the 1950s to address the growing volume of checks being used in the United States. The American Banking Association (ABA), in cooperation with Stanford University, developed a set of fourteen unique characters called the E-13B MICR Font, which was accepted as the standard by the ABA in 1959.

The American National Standards Institute (ANSI) followed suit in 1963, adopting E-13B as the American standard for MICR printing. Several other countries, including Canada, Japan, Australia, Columbia, Venezuela and the United Kingdom have adopted E-13B, as well.

How MICR Readers Work
E-13B characters are printed in magnetic ink or toner that when magnetized, will emit a magnetic signal that identifies each unique character. The shape of the signal is developed from the character's horizontal/vertical attributes, and the amount/distribution of magnetic material in the ink or toner from which the character is formed. MICR check readers measure the strength of the magnetic signal emitted and reject the check if the shape and/or magnetics of the characters do not meet the specified standard.

Why Magnetic Ink?
As the quality of computers and color printers has improved, so has the ease with which fraudulent checks can be created. A good quality color copy of a payroll check, for example, is often impossible to detect with the human eye.

A MICR reader, however, detects and rejects the fraudulent check because no magnetic signal is created. Similarly, changes to the MICR line using standard black ink will be ignored, and the original account number will be transmitted to the database or check service. Changes to the MICR line are generally used by forgers to prevent the detection of bad accounts.

MICR Line Data
Bank item processing systems use the information in the MICR line to route the checks through the posting and clearing process run by the Federal Reserve and regional clearing house associations. Each group of numbers in the MICR line represents a field, and includes specific information about the account and the bank from which it was issued.

MICR

MICR fields (from left to right) include:

Auxiliary On Us: This field is optional and does not exist on a personal check. It does, however, contain the check serial number on a business check.
EPC External Processing Code: The EPC is seldom used, but, if present, will be found one character to the left of the transit field.
The Route and Transit field: Contains the Federal Reserve district and branch serving the bank on which the check is drawn (4 characters), that bank's ID number (4 characters) and a one character check digit.
The On Us field: Contains the customer account and check serial number. This field can be up 19 characters long. The bank on which the check is drawn (the "On Us" bank) is free to encode the customer's account number and the check serial number in any manner it wishes. Some banks place the serial number first and the account number second, while others do just the opposite. There may be "dashes" and spaces as well. This field is flexible because only the "On Us" bank needs to process the item based on this information.
Amount: The Amount field contains the face amount of the check in MICR font. Encoding is done by the "bank of first deposit," the payee retailer, or the payee company prior to deposit. This field is 10 characters, right justified and zero filled.
Special Symbols: All the fields listed above are delimited by special E-13B symbols. The Transit field begins and ends with a transit symbol; the "On Us" field may (or may not) begin with an "On Us" symbol and may (or may not) end with one. The Amount field always has an amount symbol at each end. There is a dash symbol that may (or may not) be embedded in the account number.

MICR Technology in Retail Applications
Check Retailers are faced with accepting checks as a form of tender and processing them in a quick and efficient manner that does not offend the customer or delay the transaction. Capturing MICR information at the Point-Of-Sale and passing it to an authorization service (or subsystem) dramatically reduces both the risk and the time required for a "check tender." A check reader is able to parse the information, which means the reader is able to separate pieces of the MICR data string, in the above mentioned fields, and format it according to the exact requirements of the authorization provider. Authorization is typically accomplished by comparing the data to a positive or negative database (or both) to determine whether the customer is known to the retailer and whether the account has been closed or overdrawn in the past. This gives the retailer greater control over the check tendering process and reduces the probability of accepting a bad check.

 
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