What is MICR (Magnetic Ink Character Recognition) Code on Cheque? In the previous articles, we have given What are the (Know Your Customer) KYC Documents? and How to Check Your Income Tax Refund Status. Today we are providing the complete details of MICR. Magnetic Ink Character Recognition is the full form of MICR. It is a technology used to verify the legitimacy or originality of paper documents, especially checks. Special ink, which is sensitive to magnetic fields, is used in the printing of certain characters on the original documents. Information can be encoded in the magnetic characters.
The use of MICR can enhance security and minimize the losses caused by some types of crime. If a document has been forged – for example, a counterfeit check produced using a color photocopying machine, the magnetic-ink line will either not respond to magnetic fields, or will produce an incorrect code when scanned using a device designed to recover the information in the magnetic characters. Even a legitimate check can be rejected if the MICR reader indicates that the owner of the account has a history of writing bad checks.
Retailers commonly use MICR readers to minimize their exposure to check fraud. Corporations and government agencies also use the technology to speed up the sorting of documents.
It refers to the formulation of toner used to print the specialized font at the bottom of checks and other negotiable documents. Unlike regular laser toner, MICR toner contains iron oxide, which is required by the Federal Reserve to make the check-clearing process more efficient.
Now, Let us consider a cheque of Axis Bank, & know about MICR in detail
For example, if you have an account with Axis Bank, New Delhi (Defence Colony) then its nine-digit MICR code will be 120121003 where:
120, the first three digits representing the city code
121, the next three digits representing the bank code
And 003, the last three digits representing the bank branch code for Defence Colony.
Apart from being a security bar code to protect your transaction, the MICR code is also an indispensable part for online money transfers. Every bank branch is given a unique MICR code and this helps the RBI to identify the bank branch and speed up the clearing process.
With the MICR code present, the reading machine or a cheque sorting machine reads through a cheque when inserted and identifies the branch the cheque belongs to and activates the automation clearing process.
The MICR code is so clear and fine that the machine could read it even if the MICR code isn’t visible due to other marks or stamps on it.
Since every bank branch has a unique MICR code, it not only enables easy identification and ease of transactions but also act as a fine tool for authentication of cheques and plays an important role in securing the account of an individual.
Breaking Down ‘Magnetic Ink Character Recognition Line – MICR’
MICR (often pronounced micker) is used mainly by the banking industry. A benefit of MICR over other computer-readable information such as bar codes is that humans are able to read MICR. The two MICR fonts that are used worldwide are E-13B and CMC-7. These unique fonts are used to help computers recognize the characters and limit check fraud.
Is MICR line Quality so Important?
Once a check is deposited into the bank, it is sent to a central location for processing, where high-speed readers/sorters read the MICR line information by sending a magnetic charge to the paper and reading the routing number and the account numbers there. The checks are then sorted based on the MICR line information. Checks are usually sorted multiple times and then sent to internal holding, clearing houses, the Federal Reserve, or other destinations. Misread or unreadable MICR lines are repaired at this stage and the repair process adds costs and delays for the financial institution. These costs are often passed to the company that printed the check.
Checks where the payee and payor accounts are from the same institution, are referred to as “on-us” checks, which get processed and stored internally. Checks drawn on other institutions are dispatched to other clearing agencies for further processing. The clearing agent also utilizes reader/sorter equipment to read and sort the checks by the payor banks, where they are typically processed again by high-speed reader/sorter equipment. Checks must withstand multiple passes through the equipment and the MICR line must remain durable and legible.
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