Working of Automatic Teller Machine (ATM)

Nowadays, people do not carry money for shopping. Instead, they carry an automated teller machine card, also known as ATM Card. When money is needed they go to the nearby ATM machine, insert their ATM card, and take the required amount. As these ATM machines are found in most of the supermarkets, towns, and even hotels. Do you have any idea how your bank money is received from any part of the country? In this post we will describe briefly on how the ATM is networked with the bank and the working of an ATM machine.

Difference between ATM card and Debit card

  • ­­Although both these cards serve the same purposes, most of the banks favour in the issue of credit cards. When you purchase something with a debit card, the money is automatically deducted from your savings account. This is different from the way a credit card works. For a credit card, you get a monthly bill for the amount you have spent. You can take money directly with the help of an ATM card. But, with a debit card, you can only purchase things. You can use ATM cards for some direct purchase as well, but it is limited.
  • Debit cards can be used in different fields like grocery stores, hotels, booking tickets, pharmacies and so on.
  • As credit cards are easier to use, some hotels and rental services often do not accept debit cards. Credit cards also bring in lesser risk and are also cheaper.
  • There is a difference when using a credit card and a debit card when checking into a hotel. In the case of a credit card, the original amount will be billed in your account. When a debit card is used, a certain amount of money which includes the cost/rent of the room and an additional amount which may be a percentage of the total fee will be kept as an “on hold” bill in your bank account. The additional money is kept as a precaution as a damage money. When you check out of the hotel, you will be billed the original amount of your stay. But the difference between the “on hold” money and your actual money will be released back to your account.
  • The next difference comes in the way you bill the amount. If it is a debit card, you will have to enter your unique pin number. If it is a credit card, you will have to sign a slip. Some banks even put a fee for your debit card.
  • There is also a difference in appearance between an ATM card and a debit card. A debit card has the users name, the company’s logo, the bank’s logo and also written “Check card” in front of it. An ATM card, on the other hand has the user name, account number and also the bank logo. Both the cards have a common strip on the back of the card, so that the user can sign on it.

How ATM Works?

There are mainly two types of ATM’s which differ according to the way they operate. They can be called as

  1. Leased-line ATM
  2. Dial-up ATM machines

Any ATM machine needs a data terminal with two inputs and four output devices. Of course, for this to happen there should also be the availability of a host processor. The host processor is necessary so that the ATM can connect and also communicate with the person requesting the cash. The Internet Service Provider (ISP) also plays an important role in this action. They act as the gateway to the intermediate networks and also the bank computer.

A leased-line ATM machine has a 4-wire, point to point dedicated telephone line which helps in connecting it with the host processor. These types of machines are preferred in places where the user volume is high. They are considered high end and the operating costs of this type of a machine is very high.

The dial-up ATM machines only has a normal phone line with a modem and a toll free number. As these are normal connections their initial installation cost is very less and their operating costs only become a fraction of that of a leased-line ATM.

The host is mainly owned by the bank. It can also be owned by an ISP. If the host is owned by the bank only machines that work for that particular bank will be supported.

Parts of ATM machine

As told earlier, there are mainly two input devices and four output devices for an ATM. The input devices are

  • Card Reader – This is a part of the identification of your particular account number. For this the magnetic stripe on the back of the ATM card is either swiped or pressed on the card reader so that it captures your account information. To understand the account information of the user, the data from the card is passed on to the host processor. The host processor thus uses this data to get the information from the card holder’s bank.
  • Keypad – After the card is recognized, the machine asks further details like the type of withdrawal you prefer, your balance enquiry, and your personal identification number (PIN) and so on. Since each card has a unique PIN number, there is very little chance for someone else to withdraw money from your account. There are also separate laws to protect the PIN code while sending it to the host processor. So, the PIN number is mostly sent in encrypted form.
Parts of an ATM machine
Parts of an ATM machine

If your pin number is correct the ATM makes the necessary transactions for the required amount.

For this transaction, there are mainly four outputs. They are

  • Speaker – When a particular key is pressed, the speaker provides the feedback as audio.
  • Display Screen – The questions asked by the ATM machine regarding the transaction and the input from the user is all displayed on the display screen. Each step of withdrawal is shown by the display screen. A CRT screen or even an LCD screen is commonly used as an LCD screen.
  • Receipt printer – All the details regarding your withdrawal like the date and time and the amount withdrawn and also the balance amount in the bank is also shown in the receipt. Thus a paper receipt of the current transaction is obtained by the user.
  • Cash dispenser – This is the central system of the ATM machine. This is from where the required money is obtained. From this portion the person can collect the money.

Functions of the Cash Dispenser

­As the whole mechanism is regarding the withdrawal of cash, the cash dispenser should be highly efficient.  ­These are the main functions that are to be carried out by the cash dispenser.

It is the duty of the cash dispenser to count each bill and give the required amount. If there are cases where the bills are stuck together they should be rejected and instead new notes should be taken. If the money is worn, or even folded, they will be moved to another section called the reject bin. All these actions are carried out by high-precision sensors.

There may be cases where the sensors may go wrong. To know this, the person responsible for the machine checks the number of rejected notes at a certain interval. If the numbers of notes are a lot than expected, then it would indicate that either the quality of the bills is not good or there is a problem with the cash dispenser.

A complete record of each transaction made by a particular ATM machine is recorded each day and is kept as a journal. This journal is later collected and then printed out at times. This information regarding the transaction is kept by the authorities for a period of 2 years. As there may be cases regarding a particular transaction going wrong, the account owner or also the bank officers have a right to see the transaction. With this printout the account holder can contact the host processor.

ATM Networking

When a transaction is made, the details are inputted by the card holder. This information is passed on to the host processor by the ATM machine. The host processor checks these details with the authorized bank.  If the details are correct, the requested cash by the card holder is taken with the help of an electronic fund from the customer’s bank account to the host processor’s account. After this function is carried out, the processor sends an approval code to the ATM machine so that the cash can be transferred.

ATM Security

  • An ATM card is secured as long as the PIN number is kept as a secret. There is no way to get the PIN number from your card as it is encrypted by strong software’s like Triple Data Encryption Standard. To keep your PIN number secure, there are a number of ways.
  • Select your own PIN number. Select a PIN number which is easy to remember. It should not be anything that is associated to your birth date, phone number or anything personal. Do not write down the PIN number on the back of your ATM card.

Here are some tips on how to keep your ATM card safely.

  • Your ATM card should be kept safely without being scratched or bent. Keep it in your purse or somewhere else safe.
  • Take out the card from your purse before reaching the ATM counter. There is more chance for an attack if you are standing in front of the ATM.
  • After entering the ATM counter close the door and then only turn around to the screen. Stand directly in front of the keypad, so that no one else sees the number you are pressing.
  • After receiving the money, do not start counting the money right away. Put the money inside your purse at once. Keep the card also safely.
  • There may also be cases where you may not receive the money because of a faulty ATM machine. In such cases, do not forget to take the ATM card.
  • If you are ever forced to take the money out of an ATM machine by a stranger, just enter the number in the reverse order. For example, if your real PIN number is 1234 enter it as 4321. This will send a signal to the nearby police control room. Thus you can get help at the earliest.

Uses of ATM

  • Since ATM machines are found almost everywhere, you need not have to carry a huge amount in your hand. Whenever you need money, you can take it from the nearby ATM counter. All you have to do is carry the ATM card wherever you go. Sine the ATM card has a unique password, no one can access it even if it is stolen.
  • An independent ATM host can access any bank. It also supports a large number of ATMs placed with different merchants.
  • There is also Braille equipped ATMs that provide access of money even to the blind and visually impaired people.
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