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A Closer Look at How ATMs Work

Updated: Feb 28

An automated teller machine or ATM can be found virtually anywhere there is a cluster of business establishments, making it easy to get fast cash without having to go into a bank. Despite their commonplace, few people understand how they work. Here’s a closer, behind-the-scenes look at these machines.


What Are the Key Parts of an ATM?

An ATM is a data terminal connected to a host processor, which receives and sends out information to process a transaction. Before the machine does this, it makes use of the following input and output features:

  • Card Reader: As a type of input device, the card reader recognizes the chip or magnetic strip where account information is stored. Once read, the host processor directs the transaction to the cardholder’s bank.

  • Keypad: The keypad is essential for inputting information, such as the PIN, type of transaction, and amount. When sent to the host processor, the PIN is encrypted for security purposes.

  • Screen: As an output device, the screen displays prompts and instructions for the user to follow. It’s also where account information, such as outstanding and withdrawal balances, are shown.

  • Cash Dispenser: For withdrawal transactions, the bills are released through a slot via the dispensing mechanism. The cash dispenser is connected to the safe, located at the bottom of the machine.

  • Printer: If you requested a copy of your transaction, the printer will dispense a receipt. Receipts give a summary of the transaction, including the type, time, and amount, as well as account balance.

  • Speaker: Most ATMs have speakers providing auditory feedback and sound prompts during transactions.

How an ATM Transaction Works

No matter the type, ATM transactions start by providing account information via the card and PIN. Once the card is swiped and PIN is entered, the host processor receives this data, serving as an intermediary by forwarding the transaction request to the cardholder’s bank. If approved, the host server allows the ATM to complete the requested transaction.


For withdrawals and deposits, the money moves electronically either from or to your account through the host processor, using an automated clearing house (ACH). The ACH then facilitates the transfer of funds to or from the bank account of the ATM owner and is usually completed on the next banking day.


Ensure your customers have access to cash with an ATM from Heath ATM. Email or call us at (800) 849-3029 for a custom quote. Or take advantage of our free ATM placement program.