This article will cover the history of the MICR line and the technology associated with how the signal is read and understood, including a glossary of all terms used in the MICR industry.
MICR (Magnetic Ink character Recognition) was developed to utilize the benefits of computer technology in the banking industry. Prior to the use of a MICR line check sorting by account number was a manual process. Two systems were previously used to handle the large numbers of checks processed in the banking industry -- "Sort-A-Matic" and "Top Tab Key Sort."
Sort-A-Matic included 100 metal or leather dividers numbered 00 through 99. Each check was placed in the corresponding divider by the first two numbers of the account. The sorting process was then repeated for the next two digits of the account number, etc. When the process was complete, the checks were grouped by account number.
Under the top Tab Key Sort System, small holes punched at the top of the checks indicated the one's, ten's, hundred's, etc. digits. A metal 'key' was inserted through the holes, thereby separating all the checks with a corresponding 100's, 200's, etc. This step is repeated for each digit until all the checks were sorted.
Both of these systems worked, but were time-consuming. With the advent of the computer and its movement from the laboratory into the business world, a sorting and matching task seemed ideal. Stanford University and Bank of America were the first to successfully use computers to sort and match checks. They developed what is now known as MICR (Magnetic Ink Character Recognition).
Why the Increase in Check Usage?
Prior to the 1950's checks were only used by a small percentage of bank customers in the United States. Most people used banks for savings and paid for goods and services with cash. As the country grew and more goods were purchased from distant companies, some form of payment other than cash was required. Sending cash via parcel post was not (and still is not) a safe way to do business. As a result, individuals turned to money orders as the only means to pay for those goods. It was inconvenient to say the least. Banks adapted to the demand for an alternative payment method by creating the checking account, which allowed the writing of a payment note on demand. Leaping forward, banks subsequently experienced difficulty manually processing the overwhelming numbers of checks written.