How Do ATM Machines Work?

Author Justin Gilmore

It’s a little ironic if you think about it. Most of us know how to use an ATM but few of us have any idea how it actually works. We merely trust that when we need to, we can get money from them. Let’s take a closer look at what happens inside an ATM to see if we can make a little sense of how they actually work.

As you know, it all starts when you swipe or insert your ATM card into the machine. This prompts the user to enter their pin number. Assuming the correct pin is inserted, the machine confirms the ID of the user and transmits information from the ATM card to the host server, which is what allows a transaction to take place.

After the user’s ID is confirmed and they use the display screen to request a transaction, the machine contacts the host server with the transaction request. The host server acts as an intermediary for contacting whatever bank issued the ATM card. This process use to be done via phone but can now be done using the Internet, which helps make everything go a little faster.

The host server is responsible for contacting the bank to get permission to transfer the funds. Once they get permission from the bank, the server sends the ATM approval codes, allowing the machine to dispense the money requested by the user. The ATM can also share the balance of the account being accessed by the user, as well as issue a receipt if requested.

Inside the machine, there are sensors that count each bill in order to distribute the correct amount of money to the user. The sensors count bills based on their size, so if any of them are folded, wrinkled, or stuck together, they can be moved to a rejected bin. This helps to explain why the money you get from ATMs are often crisp and new. There is also a device inside the ATM that tracks every transaction so there is a record of how much money has left the machine and how much remains inside.

The final step is for the host processor to use an automated clearing house (ACH) to transfer funds from the account of the person using the ATM to the person who owns the ATM. This ensures that the person or business that filled the ATM is reimbursed for the money that has been withdrawn from the machine. However, this transaction isn’t typically completed until the next business day.

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