What is the Magnetic Ink Character Recognition (MICR) Line?
The term Magnetic Ink Character Recognition (MICR) refers to the small digital characters at the bottom of a check or a financial document. The MICR line is a set of digital numbers that represent the bank routing number, account number, and check number.
The MICR digital numbers are sensitive to the magnetic field and are printed using technology with a special ink recognition line to allow the readability of characters. The printed information can only be read by specific computers.
- The Magnetic Ink Character Recognition (MICR) line is a set of digital numbers that represent the bank routing number, account number, and check number.
- Magnetic ink character recognition uses magnetic ink or toner contained in a clear band to draw a set of digital numbers.
- The main advantage of the MICR line is that it facilitates the use of routing numbers, as well as detecting and preventing fraud.
How the Magnetic Ink Character Recognition Line Works
Banks and financial institutions use MICR technology to facilitate the processing of checks. It was established in the late 1950s by the American Bankers Association. The American National Standards Institute later adopted the MICR line as the standard industry tool for proofing.
The MICR number provides the means of converting the image of documents into a digitized format that allows computers to process and store the account number, routing number, check number, and numbers found in other financial documents. The MICR line is grouped in a specific order from right to left into six filed lines that include the amount, transaction code, domestic or account number, bank state branch (BSB) code, auxiliary domestic, and extra auxiliary domestic.
Magnetic ink or toner is used to print the MICR line on a check. The line contains a clear band – usually less than an inch deep and positioned along the bottom of a document. Specific computers can read and internalize the characters with magnetic ink even if they are covered with marks, such as bank stamps, signatures, or cancellation marks.
Banks usually use MICR line numbers to minimize exposure to check fraud by sending them to the central processing system at the close of a business day. The MICR fonts are either CMC-7 or E-13B, which are used globally. The former is commonly used in parts of South America and Europe, while the latter is mostly used in North America, the U.K, and Australia. Both inks can help computers recognize forged and counterfeit checks by failing to respond to the magnetic field.
The use of magnetic ink character technology has other uses and is not limited to printing information on checks. For example, MICR technology is also used to print numerous financial documents in the U.S. Some of the financial documents that are printed using the MICR line include coupons, credit card invoices, and direct email.
An accreditation system is used to protect the efficiency of the clearing system. It is necessary because of the large volume of MICR printers in the market. If the MICR is not acceptable, the vast number of documents with MICR encoding can lead to serious financial security breakdown. The accreditation criterion focuses on page description language (PDL), magnetic toner, the print engine, the CMC-7 or E-13B fonts, and the operating system.
Advantages of the MICR Line
One of the most notable benefits of the MICR line is its ability to facilitate the use of routing numbers. In the U.S., banks and financial institutions use a specific nine-digit numerical code to process checks and clear funds.
The routing number is indicated on the front side of a check to represent the custodian bank with the account from which funds are to be drawn. Routing numbers are commonly applicable to direct deposits and wire transfers.
Using the MICR Line to Detect Fraud
The financial services sector is plagued with major cases of fraud. Fraud is internationally recognized as the deception and unlawful acquisition of money through deception or criminal activity.
There are numerous types of financial fraud, including tax fraud, pyramid schemes, tax fraud, counterfeit cards, identity fraud, bankruptcy fraud, and securities fraud. However, the MICR line comprises unique magnetic ink characters designed to detect and curb fraud. For example, the use of unique fonts and special magnetic ink in the MICR line makes it hard to forge checks.
One of the common bank criminal fraud laws is Section 3-407 of the Uniform Commercial Code (UCC). Financial contracts are regulated by the set of business laws provided in the UCC. The statute contains nine articles that tackle each aspect of banking and loans.
Losses caused by different types of fraud can be detected and reduced by using the MICR line. For example, a bank may incur a loss when it fails to verify the legitimacy of a photocopied check encashed by a fraudster.
CFI is the official provider of the Commercial Banking & Credit Analyst (CBCA)™ certification program, designed to transform anyone into a world-class financial analyst.
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