Encoding

Encoding is the process used to imprint or inscribe Magnetic Ink Character Recognition, or MICR, characters onto checks, deposit slips and other financial instruments, allowing them to be read automatically by machines during processing. Each check is encoded along the bottom edge with details including the routing number, account number and, after it is deposited, the dollar amount.

Because MICR characters are printed in a special magnetic ink that check-reading machines can scan with high accuracy and speed, encoding made it possible for banks to process enormous volumes of checks automatically rather than relying on manual reading and entry of every item.

Look at the bottom of a paper check and you will see a row of odd-looking numbers and symbols printed in a distinctive font — that is MICR encoding, designed specifically so that a machine, not a person, can read it quickly and reliably. The routing and account numbers are printed when the checks are made; the dollar amount is added afterward, at the point of deposit, in a step called encoding the amount.

An error at this stage — entering the wrong dollar amount during encoding — is an encoding error, and it is one of the more common sources of check-processing mistakes that banks must correct.

A blank check is pre-printed with the drawer's routing number, account number and check number in MICR characters; when the check is deposited, the depositing bank encodes the dollar amount along the same line, completing the information a reading machine needs to fully process the item.

If the dollar amount is encoded incorrectly — for example, keyed in as a different figure than the amount actually written on the check — the discrepancy is called an encoding error, and the responsible bank is typically liable for correcting the mistake and any resulting loss once it is identified.

With the rise of check truncation and image-based processing under laws such as Check 21, physical checks move through the system less often, but the underlying MICR data captured through encoding remains central to how check images and the associated payment data are matched, processed and settled.

MICR characters are printed in a specialized, stylized font specifically designed to be read reliably by magnetic scanning equipment even when a check is slightly soiled, folded or otherwise imperfect, a design consideration that matters considerably given how many checks pass through high-speed automated processing equipment handling enormous daily volumes.

When an encoding error is discovered, responsibility for correcting it and absorbing any resulting loss generally falls on whichever bank actually performed the faulty encoding, following established interbank rules that allocate liability based on which party in the processing chain introduced the mistake rather than leaving the account holder to sort out the discrepancy.

Businesses using remote deposit capture to scan checks from their own premises rather than visiting a branch still rely on accurate encoding data captured during the scanning process, and errors introduced at this stage can propagate through the same automated systems just as readily as an error made by a bank teller handling the item directly.

MICR encoding was developed in the 1950s specifically to cope with the rapidly growing volume of checks moving through the banking system, replacing slower manual sorting methods and enabling the high-speed automated check-processing infrastructure that banks worldwide subsequently built their clearing operations around for decades afterward.