Learn about how MICR and IFSC codes are used to easily transfer funds online and make payments through cheques.
Accessing banking and financial services has become extremely easy nowadays. You can access your bank account details and perform financial transactions from a plethora of platforms. In fact, you don’t even need an internet connection to perform some basic transactions, all thanks to the reforms introduced by the government to strengthen the banking and financial industry.
Netbanking and the widespread adoption of smartphones have worked positively for the industry. For example, if you want to transfer money to a friend or family member in need, you no longer need to visit a branch and then make a deposit in cash. Instead, you can take advantage of the online payment systems. You can opt to use National Electronic Funds Transfer (NEFT), Real Time Gross Settlement (RTGS) or Immediate Payment Service (IMPS) and transfer the required funds online. The Indian Financial System Code (IFSC) enables such online transfers.
In case of NEFT transactions, the money is deducted immediately from the bank account of the sender and is credited to the bank account of the receiver in 1 – 2 working days. In case of RTGS and IMPS transactions, the money is not only deducted immediately from the bank account of the sender but is also credited to the bank account of the receiver almost instantly.
Additional Reading: Getting Started with Money Transfers
IFSC codes explained
An IFSC code is an alphanumeric code (11 characters) that plays a very important role in the financial system of our country. It helps in identifying the bank and the particular branch of that bank. It is used to facilitate online transfers through RTGS or NEFT. The first 4 characters represent the name of the bank and the last 6 characters represent the branch of that bank. The fifth character is 0 and it is reserved for future use. For example, ICIC0000021 is IFSC Code for Gurgaon branch of ICICI Bank.
In this case, the alphabetic code ICIC represents the bank and the numeric code 0000021 represent the Gurgaon branch of the bank. Thus, the IFSC code is very important in processing online fund transfers as it helps in accurately identifying the bank account that is to be credited and the account from which the money is to be debited.
Fast transfer of funds is now possible because of this alphanumeric code as participating banks can be identified electronically, reducing the turnaround time for processing such transfers. Although fund transfers through banks are becoming more and more popular, the use of cheques as a means of payment is still quite common.
This is where the MICR code plays an important role. In the case of a cheque, payment amounts are deducted from your bank account once the cheques are processed. The Magnetic Ink Character Recognition Code (MICR Code) helps in the recognition, processing, and clearance of such cheques.
The Importance of MICR Codes
Similar to the IFSC Code, the Magnetic Ink Character Recognition Code (MICR code) also plays an important role in the financial system of our country as it helps in processing payments made through cheques. As its name suggests, it is part of a character recognition technology that is used by the banking industry for clearing and processing cheques.
The MICR code is provided on each cheque leaf and is printed at the bottom of each cheque leaf. It is a 9-digit numeric code that helps in identifying the bank, the branch of the bank where the account is maintained, and other details needed to process cheque payments. The use of MICR Code has helped reduce the time taken to clear cheque payments and has also helped bank employees get rid of the burden of entering details of cheques manually for the purpose of processing them. Unlike barcodes, the characters present in an MICR Code can be easily read by humans without a lot of effort.
Additional reading: All about MICR codes
With the help of MICR and IFSC codes, you can easily transfer funds online and make payments through cheques. These codes are a boon to both customers and financial institutions. The MICR Code is printed on the bottom of every cheque and is used by financial institutions. In the case of an online fund transfer, you will need an IFSC code. You can usually easily find this on the website of your bank or on any third-party financial website.
Psst…you don’t have to worry! We have all the IFSC and MICR codes consolidated in a directory just to make banking transactions simple for you.