The How ATMs work.


How do ATMs work?

Just about everyone has found themselves at some point needed to use an automated teller machine, better known as an ATM. In the past, these machines were used primarily for depositing and withdrawing money however, ATMs are becoming a preferred way of banking, with people transferring between accounts and paying bills all through the ATM. But how exactly do these machines work? How can you be across the world from your local branch and still be able to make transactions on your account through an ATM? Only a few basic parts of the ATM and some technology are all it takes to make the entire process happen within seconds!

ATMs use an access card along with a number that is usually determined by you, which is referred to as a pin number. Many people often confuse check cards with ATM access cards or use them interchangeably but the truth is, the two are quite different. A check card is given to a customer through a bank and a credit card company. These types of cards are also sometimes called debit cards because in place of giving you the money, as a credit card would, the credit card companies are taking the money from you by taking it directly out of your account. An ATM access card also gives you money directly out of your account but there is no third party involved in this. ATM access cards can also generally only be used at an ATM machine or certain grocery stores, check cards can be used virtually anywhere that credit cards are accepted.

An ATM starts working on the transaction as soon as it can read the access card. The ATM itself is a simple computer terminal that is comprised of six devices, two for input and four for output. This computer terminal is connected to a hosting company processing computer, which will connect the ATM terminal to the bank’s terminal. The hosting company’s processing computer will allow the bank terminal and the ATM terminal to speak to each other. The host’s processing computer will be one of two types of machines: leased-line or dial-up. Both types are used quite commonly and have their own pros and cons. Leased-in lines have a direct connection to the hosting company through one telephone line dedicated to that purpose. ATMs that are connected through dial-up are connected to a standard land telephone line that uses a telephone number to connect to the hosting company.

Locations that have many people using the ATM generally choose a leased-line machine because of the capability these machines have for processing many transactions very quickly. However, because this is the more expensive option, it makes sense that ATMs in quieter locations forego the high cost of leased-line machines and use the dial-up system instead of paying for unnecessary speed. Dial-up machines are significantly cheaper than leased-line machines. The initial installation cost is half that of a leased-line and the monthly bills are a small portion compared to their more expensive counterparts.

The ATMs themselves can be owned by a bank or they may be owned by an independent retailer. There are generally different hosting companies for each type. The banking hosting companies will usually only support machines that are owned by a bank and the independent hosting companies likewise support only the independent retail ATMs.

A basic ATM machine is comprised of six parts. Two of those parts are input devices and four are output devices. The two input devices are the card reader and the keypad. The card reader will read the black strip on the back of the card and will send it to the hosting company so that it may be routed back to the consumer’s bank. The keypad is used by the cardholder to tell the machine what type of transaction they want to make, and also so they can verify their PIN. The PIN is then encrypted and sent to the hosting company.

The four output devices are the speaker, the display screen, a receipt printer, and a cash dispenser. The speaker will allow the cardholder to choose the option of hearing what is happening on the machine. The display screen allows the cardholder to see what they are required to do next for each step of the transaction. The receipt printer will give the cardholder a receipt showing details of the transaction and the cash dispenser is of course, what gives the cardholder any requested cash. The cash comes from a safe, which is generally in the bottom of small machines and in the back of larger machines.

The machine also has a special device that knows what bills are going out. This device is an electric eye that counts each bill leaving the machine. This information is then documented in a journal, along with the details of every transaction. From time to time, these journal entries will be printed out and kept by the ATM owner. The ATM owner is required to keep the copies for two years in case of dispute with a cardholder. If there is a dispute, the ATM owner will then be able to refer to the journal entries. Working with the electric eye is the sensor, weighing each bill as it’s about to exit the machine. The sensor will determine if a bill seems too heavy, indicating that there are two bills stuck together. If a bill is deemed unfit to leave the machine it will then be delivered to a reject bin. Other bills that may appear in the reject bin are bills that are very old and worn, bent, folded, and sometimes counterfeit bills. What is distributed into the reject bin is also documented in the journal. This is useful to the ATM owner so they can quickly handle any problems with the dispenser or electric eye.

Although there are many steps involved in one transaction, the entire process takes just a few seconds to complete. This is because ATMs are equipped with advanced technology such as the electric eye and sensor pads. When using ATMs, remember that your card is your account. Protect it as though it is cash. Store your card in a place where it will not become damaged and don’t ever let anyone find out your PIN.


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