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ATM Machines: How Do They Work

Automated teller machines, or ATMs, are machines that are strategically placed around the world to allow people easy access to their bank accounts. ATMs have not always been as ubiquitous and as efficient as they are today, however. With the invention of the Internet and other computer networking software, banks were able to create ATMs that can access an individual’s bank account information from anywhere in the world.

ATMs today are essentially just computers. They accept your bank card, read the information on the card, and ask you for a password. An ATM is what is known as a data terminal in computer lingo. It has two input devices and four output devices. The ATM is then connected to the ATM’s host server and then on to the bank’s computer.

The host server can be owned by the bank, but it can also be owned by a third party that does ATM processing. Each user is charged a small fee for using the machine if it is not linked directly to a bank (or if it is linked to a bank that is not the user’s bank). Many banks share agreements about the price of using another bank’s ATM as a way of keeping fees for their customers low.

There are two basic types of ATM networks. The first is called a leased-line ATM. These ATM network systems are much faster than their dial-up counterparts, but they are much more expensive to maintain, as well. These types of ATMs are often used by banks or in high-traffic areas. Dial-up ATMs, on the other hand, can be used in low-traffic areas like businesses. They are slower to use and operate, but the costs of maintaining them are much lower.

All ATM machines share a few basic features. The first is that they all have a card reader. The card reader reads the magnetic strip present on the bank card. The magnetic strip on a bank card contains all the information pertaining to an individual bank account. ATMs dispense cash to the user, so each ATM is fitted with a cash dispensing slot. They also have a keypad, which is used to input the Personal Identification Number, or PIN number. All ATMs will also have a screen to display instructions and information about the account being accessed.

Similarly, ATM machines will often have a deposit slot where an individual can deposit money into his or her account. Sometimes this feature is not present, like on certain non-bank ATMs. However, for convenience, it is commonly present on many ATM machines.

How does an automated teller machine works? Here is the basic flow:

  • The customer inserts his bankcard in the ATM and requests a withdrawal.
  • The ATM dials a toll-free number to contact the appropriate network such as Star® Plus® or Cirrus®, which then contacts the customer’s financial institution.
  • The customer’s funds are verified by his financial institution.
  • If funds are verified, the transaction is approved and the customer receives cash from the ATM.
  • The withdrawal amount and the surcharge are debited from the customer’s account.
  • The transaction is processed through the Federal Reserve’s automated clearing house.
  • Both the surcharge and the withdrawal amount are electronically deposited in the ATM owner’s account.

Today, ATM setup is a fairly painless process. A business or building owner can set up an ATM in a high-traffic area of his or her building or business and make a decent profit off the fees from the machine. If the business owner chooses, he or she can even have another company handle the processing of the ATM to make it easier.

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