ATM Business Basics Part I: How ATMs Work

Running an ATM business is a relatively simple endeavor. However, there’s some ground level knowledge that you need to be a successful ATM owner. A big part of that knowledge base is how ATMs work.

While you don’t need to be an ATM technician (you can always pay one to service your ATMs if you need), it’s important to have basic working knowledge of your ATMs. That way you can identify and solve minor problems, and quickly add cash or refill the receipt paper. This makes your ATM business more efficient in terms of both time and expenses.

So, welcome to our two-part guide that will give you a solid foundation of information on which to build your ATM business. We’ll start with the basics of how ATMs work.

How ATMs work

As the name suggests, an ATM (Automatic Teller Machine) a banking terminal where users can perform a variety of banking activities, depending on the capabilities of the ATM machine itself.

Inserting a debit card or credit card that offers cash advances activates the ATM. The ATM authenticates the debit or credit card using a PIN number, electronically debits the cash amount from the user’s account, and dispenses that withdrawal as cash.

On the backend, the bank reimburses the ATM owner for the cash taken from the ATM, plus a transaction fee, which is paid by the ATM user. This is handled electronically by the ATM processor.

That’s the basic process. These are the parts involved in this process.

The parts of an ATM machine

We’ll cover these quickly in two groups: the parts that the user sees, and the parts that you, the ATM owner, need to know.

These are the user-facing parts involved in an ATM transaction:

Display (LCD or LED): The display is where the prompts and instructions are shown to the ATM user. ATM machines are equipped with braille and audio devices (speaker or headphone jack) for blind customers.

Keypad: The keypad is simply a grid of buttons that accepts input from the user. Many ATM machines also have buttons on the sides of the screen for making certain selections

Card reader: This accepts the user’s debit or credit card and reads the information on it.

Cash dispenser: This is where the magic happens. The cash dispenser gives customers their cash. The cash dispenser also checks notes for proper size and thickness and ensures that the correct number of bills are given.

Receipt printer: This part prints the receipt that verifies the transaction, and sometimes shows the user’s account balance.

These are the parts of an ATM that the customer interacts with. You as the ATM owner need to be familiar with these parts. However, the ATM owner also needs to know their way around the internals of an ATM machine, even if they’re not an expert in repairing or replacing those parts.

These are the internal parts of an ATM machine:

ATM mainboard: The mainboard is the central “computer” for the ATM. The CPU, RAM, and connection interfaces for the other components live here.

Power supply: Connects to an external power source and provides power for all the ATM machine components.

Modem: The modem performs all the internet communications required for transaction processing. This can be wired or wireless. It depends on how the ATM connects to the internet.

I/O board: The I/O board is in charge of communicating with the ATM processor, and ensuring that the correct information is sent to the correct parties.

Cassette: The cassette is an important part for the ATM owner. The cassette holds the cash. When you stock an ATM with money, this is where the bills go. The cassette can be fixed or removable. Each type of cassette has pros and cons. Which one you use depends on your business and the ATM location.

With all the parts covered. Here’s a more detailed look at how an ATM works:

1. The user activates the ATM by inserting their card.
2. The customer enters their PIN and selects how much cash they want using the keypad and display.
3. The mainboard collects the information and sends a unique EMV transaction code to the I/O board.
4. The I/O board packages up the transaction information for the ATM processor and the modem transmits it to the appropriate ATM processing networks. Your card’s supported networks are printed on the back. Every card is required by law to have two accessible networks. The transaction is completed through the secondary network if the first network fails.
5. The ATM processor sends the withdrawal request to the bank. The bank approves or denies the request. If the transaction is approved, the message is sent back through the ATM processor to the ATM. Then, the selected amount gets debited from the customer’s account. Associated transaction fees are usually paid from the customer’s account.
6. The modem and I/O board receive the approval. And, the mainboard initiates the cash dispensing. The cash dispenser checks each bill to ensure that it’s the proper size and thickness and that the correct number of notes gets dispensed. Notes that are not the proper size or thickness get sent to the reject bin. This happens occasionally with old or torn bills. The cash dispenser automatically dispenses a different bill any time a note is sent to the reject bin.
7. The customer takes their cash and has a great day!

Those are the nitty-gritty details of how ATMs work.

It’s helpful to know these fine details as an ATM owner. Being more familiar with the machine helps with basic troubleshooting, and makes life easier if you get technical support over the phone.

However, you should be very familiar with the cassette and user interface. Inspect these each time you restock your ATM. You need to fix your machine ASAP if the user interface is malfunctioning or cash is being dispensed incorrectly. You lose money whenever your ATM isn’t working.

Whenever you fill your ATM with cash, it’s best to perform a transaction to verify that your machine is working correctly.

Front to back

That’s the frontend of an ATM business. In the next part, we’ll talk about what happens on the backend and where all the transaction fees go. Stay tuned. Or learn more about building your own ATM business (and how you make money).