An automated teller machine (ATM) is an electronic telecommunication device that allows customers of financial institutions to make transactions, such as withdrawals, funds transfers, and deposits. This post will explain how ATMs work both from a technical and business perspective.
How technically does an ATM work?
An ATM is a machine where there is a slot that you can insert your debit or credit card. The debit card or credit card has a magnetic stripe that has the user’s account number. The user’s account information is routed to the ATM network associated with your account through a modem. There is a screen, a visual display unit (VDU), that requests a password, also known as a personal identification number (PIN) for an ATM, to access your account. Once you have entered your password into the available keyboard, you can work on transactions. There is generally an input cash slot with a sensor that can determine what sort of bills are inputted into the machine.
There is also a dispenser for cash that has rubber rollers that move each banknote at a time from a currency box to the dispenser area. The currency box can generally contain up to 2000 banknotes. There is a sensor that can determine if two bills are stuck together. If the bills are stuck together, they will be moved to a reject box for machine maintenance. There is a receipt printer that creates a hard copy of all transactions.
How does the ATM business work?
The ATM business is not a complicated business. The owner of ATMs generates a terminal ID number (TID) for the location they have selected to locate a machine. The TID is how the particular ATM is identified on the network. ATM transactions can use a standard telephone line to process transactions. An ATM is also able to use wireless networking through a wireless modem and router if wanted.
The ATM contacts the ATM network through the modem, and after authorization, the ATM dispenses cash or completes the requested transaction. There a couple of major ATM networks that are available in the United States. Cirrus is the ATM processing network of Master Card. The Plus network is the ATM processing network of Visa. The other ATM logos are smaller regional networks.
The owner of an ATM can charge a fee for processing transactions with his or her ATM. Certain ATM providers will deposit or withdraw funds to the ATM owner’s bank account the day after the transactions occur. ATM owners are able to purchase new machines with a 2-year warranty on parts. An ATM owner needs approximately $2000 per week of working capital to operate one machine.
Even though the ATM machine cost is not high. ATMs are required to be compliant with EMV standards. The compliance with EMV standards needed makes ATM obsolescence a substantial cost in the ATM business.
The future of the ATM business
Because of cashless transactions and other modes of payment such as Bitcoin, the number of ATMs is not increasing and might be slightly declining. Smarter functionality is definitely going to be important for ATMs going forward. Future ATMs will probably allow you to make credit card and loan payments through the machines. Future ATMs may also allow you to apply for short term loans directly at the ATM.
Future ATMs may also be able to handle cardless transactions and use your cellphone to initiate transactions. These ATMs may also allow you to buy and sell stamps, make donations to charity, and have biometric identification features. Help in using the ATM through video chat in the ATM is another development for future ATMs. Safe deposit box features through an ATM are also a future service that may be offered. Robotics may allow for customers to retrieve backups of car keys or cell phones at an ATM.
Overall, the ATM is a complicated machine that allows for quick transactions at all hours of the day. Like credit cards, technology has made ATMs better and safer over the last few decades. ATMs will become smarter over the next couple of decades and provide additional services.