FAQ: How Does ATM Transaction Processing Work?

Author Justin Gilmore

Explore More ATM FAQs

Most people of a certain age know how to use an ATM without a problem. But few people have a great understanding of the process that happens behind the scenes that make bank transactions via an ATM possible. Fortunately, transaction processing is not as complicated as you might think and not all that hard to understand.

First, the user will swipe his or her ATM card and enter the pin number associated with that card. This confirms the cardholder’s identity and allows him or her to request a bank transaction, usually a withdrawal of money. The machine then contacts a host server with the cardholder’s information and transaction request. Years ago, this would be done through a telephone line. That is still the case for some machines, although more modern ATMs connect with host servers via the internet nowadays.

The host server acts as an intermediary for contacting the bank or financial institution that issued the ATM user his or her card. Once the user’s bank is contacted, the host server is able to facilitate an electronic transfer of the funds being requested by the cardholder, assuming the user’s home bank approves the transaction. The host server will then send the ATM an approval code that enables the machine to dispense the funds the cardholder requested. If requested, the ATM will also be able to share with the cardholder the balance in his or her account.

Finally, the host processor uses an automated clearing house (ACH) to transfer funds from the cardholder’s account into the account of whatever entity owns the ATM, whether it be another bank or a business. This will typically happen the next business day and ensures that the party responsible for filling the ATM machine is reimbursed for the funds the cardholder just took out of the machine.

Essentially, when you request money from an ATM, the money moves electronically from your account to the host server and then to the party that owns or operates the ATM. All of this happens within a matter of seconds, with important information like your pin and account number encrypted during the process for security reasons. When it’s all over, you get your ATM card back and take your cash with you. Not so complicated, right?

Contact National ATM Wholesale to learn more about our ATM transaction processing.

Explore More ATM FAQs