We live in a technology driven age which makes the idea of paper check printing seem antiquated, it is not.
The release of Check 21 in 2004 offered the ability to convert check payments into images for deposits and other transactions. Check 21 has led to the misconception that MICR is no longer needed.1 However, even with image-based processing innovations, the Federal Reserve still mandates the use of MICR for checks.2
MICR Toner Defined
MICR is short for Magnetic Ink Character Recognition and refers to the font and toner used to print the account, routing, and check number in the bottom left-hand corner of a check. The toner includes iron oxide which is magnetically charged and used by clearing houses and banks to validate and speed up the check clearing process. The magnetically charged iron in the toner is read by a MICR scanner when a check is presented for processing to help protect against check fraud. Checks printed without the MICR toner are considered suspected of fraud.
Who Is Printing Checks?
When I say, check printing, or MICR toner, I bet the first image that comes to mind is purchasing a cashier’s check or money order at your local community bank. Did you know that most businesses still depend on MICR technology to make payments via corporate checks?
Auto dealers also heavily rely on MICR when they purchase a car from a customer, or when a rebate check is printed and issued. Insurance is another industry that greatly depends on MICR checking printing. Typically, when a claim is approved a check is released from the insurance company to the consumer. These checks must meet federal check printing guidelines, and you guessed it…the MICR line must be printed with MICR toner. Grain Elevators paying farmers, Consumer Loan companies disbursing loans, payroll for temporary employees or contractors, and the list goes on. MICR toner is all around us and used every day in fact billions of transactions across the country are paid using checks annually. Some transactions are required to be made with a check like COD deliveries, good funds disbursements, or a business may simply want to float payments.
How does MICR Check Printing Protect Against Fraud?
There are two options when issuing a check; a company can either purchase preprinted check stock with the MICR line already encoded on it or they can purchase blank check stock without the MICR line and utilize a secure MICR printer with MICR toner and print checks on-demand using blank check stock.
Using check stock with the MICR line preprinted can present security concerns which can impose workflow inefficiencies. Let’s dig in; checks with the MICR line pre-printed are equal to an open checkbook, all a criminal needs to do to start issuing fraudulent checks on the account is to walk off with the check stock. A check with the MICR line on it has all the information required to issue a check. "In a survey of more than 5,000 respondents across 99 global territories in 2020, PricewaterhouseCoopers (PwC) found that 47 percent had suffered at least one form of fraud in the prior 24 months—averaging six per company”3. Because of this, security protocols such as chain-of-custody and audit controls are required to ensure checks do not get into the wrong hands and then verify that they have not. These security requirements slow down the process of issuing a check and are cumbersome to the staff by adding additional mundane tasks that are easily avoided by printing on-demand using blank check stock.
When a company prints checks on-demand (when they apply MICR line at the time of print), it increases security, saves time, saves money, and can improve employee and customer experience. Check stock without the MICR line imposes no risk; the paper is worthless without the company’s account number and routing number. In addition, when a company implements a secure MICR solution they gain the ability to add additional security features to the paper at the time of print that reduces the ability to alter the check once it leaves the printer tray. Threat reduction leads to time saved by eliminating the requirements for chain-of-custody and audit controls, which equates to reduced issuance and labor costs. Employees are happier with the eradication of tedious audit requirements and a waiting customer is happier with faster service.
The Future of MICR
Checks and Substitute Checks (IRDs) are legally required to include a magnetic code line in order to be treated as a “cash item” for processing in the U.S. Payment System based on Federal Regulation CC section 229.2(u)(4).1 Based on this regulation companies will be required to use MICR for their check printing needs, well into the future.
Who is Source Technologies?
Source Technologies is a Charlotte, NC based financial services company that has 35 years of manufacturing, software development, and software integration experience. Our primary mission is to empower financial institutions and retail businesses to become more efficient, secure, and customer centric by integrating our secure MICR printing solutions into the establishment. Schedule a discovery call with our team so we can work together to find a solution to your check printing needs.
1 https://x9.org/standards-advisory-magnetic-ink-required-checks
2 https://www.federalreserve.gov/paymentsystems/regcc-faq-check21.htm
