Encoding(Banking) Law and Legal Definition

Encoding is the process of transforming information from one format into another. In banking, encoding is used to indicate MICR characters on checks, deposits, and other financial instruments. A character recognition technology adopted mainly by the banking industry to facilitate the processing of checks is known as Magnetic Ink Character Recognition (MICR). All checks are encoded at the bottom with the dollar amount of the check. Encoding errors occur when the information entered is incorrect.