Scanning Technology - Check Data Readers and Check Imagers

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 in the case of an RCK item (NSF Returned Check), 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 (60 checks per minute)

Depending on the check processing application, imaging the check may not be necessary. Currently, only Lockbox and Accounts Receivable Truncation applications require imaging. In addition, some Point-Of-Sale applications find imaging an important factor. In most cases, Federal Reserve or NACHA requirements dictate whether an image is needed.  Memory and Storage requirements depend mostly on check payment volume.  Also, it is important to note that most check scanners connect to PCs, enabling the download of information into a file. For small volume or Point-Of-Sale transactions, merchants may choose to dial into an online data storage center and upload the images for storage.

Affirmative Technologies' software supports MICR line only Check Data Readers and Check Imagers that gather MICR line information, creating the data file for subsequent processing via the ACH Network.  Affirmative's Internet applications will also support the same Check Data Readers/Imaging equipment in the near future. Other check scanning functions include:

Electronic Check Presentment . Electronic check presentment (ECP) is a growing trend in the check processing industry in the United States and certain international markets. In some cases, small desktop check scanners are utilized in ECP to provide MICR line data used for presentment as well as check images which can be sent for processing before the actual paper items arrive at the correspondent bank or center for processing.

Lockbox Processing. Both retail and wholesale lockbox applications are making increasing use of check imaging technology and small, desktop check scanners. Corporate and business customers benefit from the accelerated access to payments, lower processing costs, and increasing benefits of check image access provided in image based lockbox applications.

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.

Check 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.

Split Data Sources . Imaging is a separate process unto itself, since image storage is not part of the check information-payment processing database. The check image is stored elsewhere, to be retrieved only when needed by referring to the MICR line information already stored in Affirmative's software. To clarify confusion related to the separate processing of the check data and check image; in the physical world the paper check and check data is one of the same. In the virtual world, only check data is needed for electronic processing, and the image is only retrieved to resolve disputes or for NACHA compliance.

Check Data and Imaging Capture Applications

RCK (Electronic Redeposit of an NSF or Uncollected paper Check)

A scanner is used to capture the MICR line information at the bottom of the check.  Since a returned check is already encoded, the check amount can be captured as well as the normal MICR line information (ABA Routing Number, Account Number, Check Serial Number).

How it Works:
Check imaging can speed up the data entry process. Since the Check Writer's name is not required to initiate an RCK item, checks can be scanned in bulk where two types of files are created:

• The MICR line data file to be imported later into Affirmative's software, and
• An images file to store locally or remotely (Online) for archival and future retrieval

Two Processing Scenarios:

(1) Merchants processing their own NSF Checks:

Qualifying Checks (NSF / Uncollected) are Scanned / Imaged, and MICR Data file imported into Affirmative's Software. Image files are saved locally or uploaded to a web site where file names can be a combination of the ABA, Account and Check number for linking into Affirmative's image retrieval portal. The MICR line check data is gathered into an ACH file, submitted to the Originating Depository Financial Institution (ODFI) for processing, and optional Check Writer NSF Fees charged.  Affirmative's software creates the file that is processed through the ODFI through and ACH Network, automatically debiting consumer's accounts and crediting the Merchant's account.

(2) Check Recovery Company or Bank processing RCK on behalf of their Merchants.

Qualifying Checks (NSF / Uncollected) are Scanned / Imaged in bulk in a service bureau environment. The operator/processor enters pre-assigned account identification numbers for each Merchant. A file containing the check images is saved locally or uploaded to a web site where file names can be a combination of the ABA, Account and Check number for linking into Affirmative's image retrieval portal.  The MICR line check data is gathered into an ACH file, and submitted to the Originating Depository Financial Institution (ODFI), and optional Check Writer NSF Fees charged.  Affirmative's software creates the file that is processed by the ODFI through the ACH Network, automatically debiting consumer's accounts and crediting the Merchant's account.

ARC/Accounts Receivable Truncation (Paper checks mailed to be processed electronically)

A scanner is used to capture the MICR information at the bottom of the check. Since checks are not encoded, the amount has to be entered manually or OCR (Original Character Recognition) software can be used to read the amount field and add it to the MICR information.

How it Works:

Check imaging speeds up the data entry process. Since the Check Writer's name is not required to initiate an ARC transaction, checks can be scanned in bulk where two types of files are created -- The MICR data file to be imported later into Affirmative's software, and the images file to store locally or remotely (Online) for archival and future retrieval.

Two Processing Scenarios:

(1) Merchants  processing their own NSF Checks:

Qualifying Checks (Consumer checks drawn on a U.S. Financial Institution) are Scanned / Imaged, and MICR Data file imported into Affirmative's Software. Image files are saved locally or uploaded to a web site where file names can be a combination of the ABA, Account and Check number for linking into Affirmative's image retrieval portal. The MICR line check data is gathered into an ACH file, submitted to the Originating Depository Financial Institution (ODFI) for processing, and optional Check Writer NSF Fees charged.  Affirmative's software creates the file that is processed through the ODFI and ACH Network, automatically debiting consumer's accounts and crediting the Merchant's account.

(2) Check Recovery Company or Bank processing RCK on behalf of their Merchants .

Qualifying Checks are Scanned / Imaged in bulk in a service bureau environment. The operator/processor enters pre-assigned account identification numbers for each Merchant. A file containing the check images is saved locally or uploaded to a web site where file names can be a combination of the ABA, Account and Check number for linking into Affirmative's image retrieval portal.  The MICR line check data is gathered into an ACH file, submitted to the Originating Depository Financial Institution (ODFI) for processing, and optional Check Writer NSF Fees charged.  Affirmative's software creates the file that is processed through the ODFI and ACH Network, automatically debiting consumer's accounts and crediting the Merchant's account.

Equipment/Software/Technical Support Pricing:

Check Scanning  -  MICR Technology

Harbinger of Change . The way bankers and consumers perceive the payment system may never be the same; the disruption from the terrorist attacks illustrated the payments system dependence on moving paper checks. Checks that had to be flown across Federal Reserve districts were delayed, while items presented electronically were collected on time.

Efforts to improve the payment system today generally eliminate the need to transport paper checks. Although models differ, the idea is to replace the paper check with an electronic substitute early in the payment process, thereby allowing the electronic substitute to suffice for settlement, adjustments and payment disputes. Imaging is the preferred method right now of capturing check information at the first entry point; it is easier and less expensive to transport the image than the document itself.

Check Truncation Act. Several Fed initiatives center on imaging technology that may ultimately lessen dependence on physical items. Over the past year, Federal Reserve staff has worked extensively with representatives of the banking industry and consumer groups to develop draft legislation to legalize substitute checks. Known as the Check Truncation Act, the bill would allow banks to accept an image as a substitute check in lieu of the paper check for dispute resolution and general processing. The substitute check would have the legal weight of the actual check.

Originally designed to automate the check handling process, MICR technology, alone or in conjunction with a check authorization service, is now recognized as an effective deterrent to check fraud. The use of MICR check readers at the point of sale (POS) has grown dramatically in recent years. This document is designed to introduce this very effective technology to potential new users. Written in non-technical language, it covers the basics of MICR technology for both retail POS and banking applications.

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 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 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

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 itaccording 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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