Working of an Automated Teller Machine (ATM)

ATM is an abbreviation for Automated Teller Machine. It is a computerized device that only bank customers use to process account transactions. Users gain access to their accounts by using a special type of plastic card with user information encoded on a magnetic strip. 

 

The strip contains an identification code that is sent via modem to the bank's central computer. Users insert the card into ATMs to access their accounts and process transactions. John Shepherd-Barron invented the automated teller machine in 1960.

 

What is an Automated Teller Machine?

 

We can perform various financial transactions such as cash deposits, withdrawals, transfer funds, account information, ATM PIN change, and also linking the Aadhaar number to the bank account to reduce interaction between the bank staff and the customer by using an automated teller machine or ATM.

 

The automated teller machine (ATM) is a type of automatic banking machine (ABM) that allows customers to complete basic transactions without the assistance of bank personnel. Automated teller machines are classified into two types (ATMs). The basic one allows the customer to only withdraw cash and receive an account balance report. Another is a more complex machine that accepts deposits, accepts credit card payments, and reports account information.

 

Customers can use an ATM to access their bank accounts in order to make cash withdrawals, credit card cash advances, check account balances, and purchase prepaid cell phone credit. 

If the currency withdrawn from the ATM differs from the currency in which the bank account is denominated (for example, withdrawing Japanese Yen from a bank account containing US Dollars), the money will be converted at a wholesale exchange rate. As a result, ATMs frequently provide the best possible exchange rate for foreign travelers and are widely used for this purpose.

 

A person does not usually have to travel far to find an automated teller machine. One can frequently be found in a bank, grocery store, pharmacy, hotel lobby, airport, convenience store, hospital, shopping mall, or just about any other location where someone may require quick cash. When a checking or savings account is accessed via an automated teller machine, the money withdrawn is automatically deducted from the account of the individual.

 

How does Automated Teller Machine Work? 

 

In most cases, you use an ATM by inserting a debit card, ATM card, or credit card into the machine's slot. Regardless of location, the ATM electronically connects with your bank account via the internet or phone line.

 

An ATM can be found in a bank branch, a grocery store, a convenience store, a shopping mall, a restaurant, a bar, or another location. If an ATM is located in a bank, it should be owned and operated by that bank. If an ATM is located elsewhere, it may be owned and operated by a company that is not directly affiliated with a bank. Many nonbank ATMs are owned by the businesses that house them. Some of the parts of the ATM Machine are:

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Parts of ATM Machine 

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1. Automated Teller Machine Block Diagram:

 

The automated teller machine's block diagram consists primarily of two input devices and four output devices. Card readers and keypads are examples of input devices, while speakers, display screens, receipt printers, and cash depositors are examples of output devices.

 

2. The reader of Cards:

 

Card readers are input devices that read data from cards. The card reader is used to identify your specific account number, and the magnetic strip on the back of the ATM card is used to connect with the card reader. 

 

The card is swiped or pressed on the card reader, which records your account information; the data from the card is then transmitted to the host processor (server). As a result, the host processor uses this data to obtain information from cardholders.

 

3. Keypad:

 

The card is recognized after the machine requests additional information such as your identification number, withdrawal, and balance inquiry. Each card has a unique PIN, making it difficult for someone else to withdraw money from your account. 

 

There are separate laws in place to protect the PIN code while it is being transmitted to the host processor. The PIN is usually sent encrypted. The keyboard has 48 keys and connects to the processor.

 

4. Cash Machine:

 

The ATM's heart is the cash dispenser. This is the ATM's central system, from which the required funds are obtained. The user can withdraw money from this portion. The cashier must count each bill and give the correct amount. If the money is folded in some cases, it is moved to another section and becomes the reject bit. High-precision sensors perform all of these actions. The ATM uses an RTC device to keep a complete record of each transaction.

 

The automated teller machine is nothing more than a data terminal with two inputs and four outputs. These devices communicate with the processor. The ATM's processor is its beating heart. All ATMs in operation around the world rely on a centralized database system. The ATM must establish a connection and communicate with the host processor (server).

 

Also Read | What is Digital Money? Types, Working, Benefits, & Risks

 

Types of ATM Machines:

 

There are several types of ATMs on the market, including the following. The majority of host processors can support leased-line or dial-up machines.

 

1. White Label ATM:

 

White Label ATMs are those that are set up, owned, and operated by entities other than banks. To promote financial inclusion and ATM penetration, the Reserve Bank of India has approved the launch of White Label ATMs (WLAs), which allow private non-bank companies to set up, own, and operate their own brand of ATMs in the country. These white-label ATMs will not display any bank's logo. Under the brand name Indicash, TATA launched the first white-label ATM in India.

 

2. Dial-Up ATM Machines:

 

Dial-up ATMs communicate with the host processor via a standard phone line and a modem. These require a standard connection and have a low initial installation cost. When compared to leased line machines, the operating costs of these machines are low.

 

3. Offsite ATM:

 

These machines are arranged separately, which means that if the bank has a location with only an ATM machine, this becomes an offsite ATM. This can be done to ensure that the bank reaches out to more geographical locations so that people can use its services even if there is no branch of the bank in the region. As a result, these machines will be operating outside of bank locations.

 

4. Leased Line ATM Machines:

 

The leased line machines communicate with the host processor directly via a four-wire point-to-point dedicated telephone line. In place, these types of machines are preferred. These machines have a high operating cost.

 

The automated teller machine is nothing more than a data terminal with two inputs and four outputs. These devices communicate with the processor. The ATM's processor is its beating heart. All ATMs in operation around the world rely on a centralized database system. The ATM must establish a connection and communicate with the host processor (server).

 

Ways to ATM Security:

 

Some ways to ATM Security are:

 

• An ATM card is safe as long as the PIN number is kept private. The PIN number on your card cannot be obtained because it is encrypted by strong software such as Triple Data Encryption Standard. There are several methods for keeping your PIN number secure.

 

• Choose your own PIN number. Choose an easy-to-remember PIN number. It should not be anything related to your birth date, phone number, or anything else personal. Do not write your PIN on the back of your ATM card.

 

• Your ATM card should be kept in a safe place, not scratched or bent. Keep it in your purse or another secure location.

 

• Before approaching the ATM, take the card from your purse. If you are standing in front of the ATM, you are more vulnerable to an attack.

 

• Close the door after entering the ATM counter and then turn around to face the screen. Place yourself directly in front of the keypad so that no one else can see what number you are pressing.

 

• Do not begin counting the money immediately after receiving it. Place the money in your purse all at once. Keep the card safe as well.

 

• There may also be instances where you do not receive the funds due to a faulty ATM machine. In such cases, don't forget to bring your ATM card.

 

• If you are ever forced to withdraw money from an ATM by a stranger, simply enter the number in reverse order. If your real PIN number is 1234, enter it as 4321. This will alert the nearby police control room. As a result, you will receive assistance as soon as possible.

 

The automated teller machine is nothing more than a data terminal with two inputs and four outputs. These devices communicate with the processor. The ATM's processor is its beating heart. All ATMs in operation around the world rely on a centralized database system. The ATM must establish a connection and communicate with the host processor (server).

 

The internet service provider is being communicated with by the host processor (ISP). It serves as the cardholder's access point to all ATM networks. When a cardholder wants to use an ATM, the user enters the necessary information using a card reader and keypad. This information is forwarded by the ATM to the host processor. The transaction request is sent to the cardholder's bank by the host processor.

 

ATMs are located both inside and outside of banks. Other ATMs can be found in high-traffic areas such as shopping malls, grocery stores, convenience stores, airports, bus and train stations, gas stations, casinos, restaurants, and other public places. Most ATMs in banks are multifunctional, whereas those found off-site are primarily or entirely designed for cash withdrawals.

 

To complete a transaction at an ATM, customers must use a plastic card—either a bank debit card or a credit card. Before any transaction can be completed, consumers must be authenticated using a PIN.

 

Many cards include a chip that sends data from the card to the machine. These function similarly to a bar code that is scanned by a code reader. ATMs allow travelers to access their checking or savings accounts from virtually anywhere in the world.

 

Travel experts advise consumers to use foreign ATMs as a source of cash when traveling abroad because they generally receive a better exchange rate than most currency exchange offices.