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Banking Special Issue: Check Processing 101

Table of Contents


The Future of Bank Imaging

The green wall

Relationship Banking

Proof of Deposit

POD Case Study

Designing Forms for a Banking Environment

File Folders

Thrashing Folders

Staging Folders

Using COLD (a case study)

Check Processing: The need for Speed

Printing Your Own Checks

Check Processing 101

Images from the Fed

First National Bank & the Fed (case study)

Glossary of Bank Image Technology


by Joe Devlin


Step One: Proofing

For decades, the workhorse of check processing has been a machine called a proof machine. These are big typewriters with paper handling mechanisms that feed checks, deposit slips and other items into the system as fast as a clerk can read them. As each item slides into place, the clerk reads the courtesy amount of the check (the face value of the check) and types that number in. The proof machine types that face value on the bottom of the item in MICR ink so that no one has to type the number in again. Most proof machines also have an MICR reader that allows them to read the bank number and item number from the pre-encoded MICR information. This allows the machine to balance out the transactions automatically and catch typing errors. For example, if a deposit slip shows deposits of $5.00 and $10.00 followed by checks that have been keyed in at $5.00 and $11.00, the operator knows there is a problem and can correct it before the account becomes unbalanced.

Step Two: Sorting

The other major type of workhorse of this business is the reader sorter. Reader sorters read the MICR line on the bottom of a check and then sort checks into pockets provided for their capture. There have always been endless variations on these two types of basic machines.

For example, proof machines can also include MICR readers with many pockets and sorting capability. Sorters can include proof capability; they may allow the face value of the item to be entered as part of the sorting process. The addition of imaging cameras adds another layer of complexity and introduces the concept of power proofing.

Power Proofing

Most power proof machines are considerably more sophisticated than our description implies. For example, many provide a feature called suggestive balancing, which helps find transposition errors and numerous other combinations of data entry errors. Most of them can also sort items, automatically bundle checks going out to the same institutions together and print wrappers that summarize the contents of each bundle or cash letter.

Proofing machines may be able to put items that can't be read because they are crushed torn or otherwise mangled into a separate pile to be repaired and re-passed through the system until all the items in the entire batch balance properly. Although expensive, power proofing equipment can provide significant cost savings, with savings of up to 50 percent in labor costs not unusual.

Power proofing can also be wed with a CAR engine (a recognition engine that will try to read the amount of the check without manual intervention).

Image-enabled Sorting

An image-enabled sorter has a camera addition. Once an image is created, the original can be discarded. Users can perform on-screen queries asking for items by, for example, check number or face value.

Of course, you can't just attach the camera with spit and duct tape. Image-enabled sorters are not inexpensive pieces of equipment. Only four image-enabled sorter vendors enjoy any real market share (NCR, BancTec, Recognition, and UNISYS). Prices for mid-range (500-600 DPM) sorters with image cameras currently run just over 100,000.

Imaged checks spare data entry clerks eye strain from peering at checks and deposit slips all day. Images can simply be enlarged to a more readable size when displayed on-screen. And that is what power-encoding does: put the data on screens on which clerks can read enlarged versions of the items they need to encode. The items are usually displayed three at a time. The data entry operator electronically enters the amounts into the system. The amounts permanently stay with the captured item.

Sometimes, the MICR code for the face value of the item is printed on the item as soon as the clerk types it in. In other cases, the system records the item number and amount the clerk types in and the MICR is printed later power-encoded) when the stack of items is read back through the machine.

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