The process of cheque clearance, involving data matching and verification, is done using digital images instead of paper copies.
This process would take several days, as the cheques had to be transported to the central clearing location, from where they were taken to the payee bank.
In the 1960s, machine readable codes were added to the bottom of cheques in MICR format, which speeded up the clearing and sorting process.
However, the law in most countries still required cheques to be delivered to the payee bank, and so physical movement of the paper continued.
Some countries decided that the effort to implement truncation could not be justified for a declining payment method, and instead phased out the use of cheques altogether.
New laws needed to address ways to make sure that the digital image was a true and accurate copy of the original cheque, as well as a mechanism to enable the process to be audited to protect consumers.
Banks and financial institutions use cheque truncation systems (CTS) as part of this process.