How ATMs Work?


The automated teller machine (ATM) is an automatic banking machine (ABM) that allows the customer to complete basic transactions without any help from bank representatives. There are two types of automated teller machines (ATMs). The basic one allows the customer to only draw cash and receive a report of the account balance. Another one is a more complex machine that accepts the deposit, provides credit card payment facilities and reports account information.

It is an electronic device that is used by only bank customers to process account transactions. The users access their accounts through a special type of plastic card that is encoded with user information on a magnetic strip. The strip contains an identification code that is transmitted to the bank’s central computer by modem. The users insert the card into ATMs to access the account and process their account transactions. The automated teller machine was invented by john Shepherd-Barron in the year of 1960.

Automatic Teller Machine
Automatic Teller Machine

Automated Telling Machine Block Diagram:

The automated teller machine consists of mainly two input devices and four output devices that are;

Input Devices:

  •       Card reader
  •       Keypad

Output Devices:

  • Speaker
  • Display Screen
  • Receipt Printer
  • Cash Depositor
Automatic Teller Machine Block Diagram
Automatic Teller Machine Block Diagram

Input Devices:


  • Card Reader:

The card reader is an input device that reads data from a card.The card reader is part of the identification of your particular account number and the magnetic strip on the backside of the ATM card is used for connection with the card reader. The card is swiped or pressed on the card reader which captures your account information i.e. the data from the card is passed on the host processor (server). The host processor thus uses this data to get the information from the cardholders.

Automatic Teller Machine Card Reader
Automated Teller Machine Card Reader
  • Keypad:

The card is recognized after the machine asks further details like your identification number, withdrawal, and your balance inquiry Each card has a unique PIN so that there is little chance for some else to withdraw money from your account. There are separate laws to protect the PIN code while sending it to the host processor. The PIN is mostly sent in encrypted form. The keyboard contains 48 keys and is interfaced to the processor.

Automatic Teller Machine keypad
Automated Teller Machine keypad

Output Devices:

  • Speaker:

The speaker provides audio feedback when a particular key is pressed.

  • Display Screen:

The display screen displays the transaction information. Each step of withdrawal is shown by the display screen. A CRT screen or LCD screen is used by most of the ATMs.

Automatic Teller Machine LCD Display
Automated Teller Machine LCD Display
  • Receipt Printer:

The receipt printer prints all the details recording your withdrawal, date and time, and the amount of withdrawal and also shows the balance of your account in the receipt.

  • Cash Dispenser:

The cash dispenser is the heart of the ATM. This is a central system of the ATM from where the required money is obtained. From this portion, the user can collect the money. The cash dispenser must count each bill and give the required amount. If in some cases the money is folded, it will be moved to another section and becomes the reject bit. All these actions are carried out by high precision sensors. A complete record of each transaction is kept by the ATM with the help of an RTC device.

Automatic Teller Machine Cash dispenser
Automated Teller Machine Cash Dispenser

ATM Networking:

The internet service provider (ISP) also plays an important role in the ATMs. This provides communication between ATM and host processors. When the transaction is made, the details are input by the cardholder. This information is passed on to the host processor by the ATM. The host processor checks these details with an authorized bank. If the details are matched, the host processor sends the approval code to the machine so that the cash can be transferred.

Automatic Teller Machine Networking
Automated Teller Machine Networking

2 Types of ATM Machines

Most of the host processors can support either leased-line or dial-up machines

  • Leased line machines
  • Dial-up machines

Leased Line ATM Machines:

The leased line machines connect directly to the host processor through a four-wire point to point dedicated telephone line. These types of machines are preferred in place. The operating cost of these machines is very high.

Dial-Up ATM Machines:

The dial-up ATMs connect to the host processor through a normal phone line using a modem. These require a normal connection their and their initial installation cost is very less. The operating cost of these machines is low compared with leased line machines.

ATM Security:

The ATM card is secured with a PIN which is kept secret. There is no way to get the PIN from your card. It is encrypted by strong software like Triple data Encryption Slandered.

Automated Teller Machine Working Principle:

Automatic Teller Machine Circuit Diagram
Automated Teller Machine Circuit Diagram

The automated teller machine is simply a data terminal with two inputs and four output devices. These devices are interfaced with the processor. The processor is the heart of the ATM. All the ATMs working around the world are based on a centralized database system. The ATM has to connect and communicate with the host processor (server).  The host processor is communicating with the internet service provider (ISP). It is the gateway through all the ATM networks available to the cardholder.

Automatic Teller Machine Architecture
Automated Teller Machine Architecture

When a cardholder wants does an ATM transaction, the user provides necessary information through card reader and keypad. The ATM forwards this information to the host processor. The host processor enters the transaction request to the cardholder bank. If the cardholder requests the cash, the host processor takes the cash from the cardholder account. Once the funds are transferred from the customer account to the host processor bank account, the processor sends the approval code to the ATM and the authorized machine to dispense the cash. This is the way to get the amount on ATMs. The ATM network is fully based on a centralized database environment. This will make life easier and secure the cash.

Advantages of Automated Teller Machine:

  •  The ATM provides 24 hours service
  •  The ATM provides privacy in banking communications
  •  The ATMs reduce the workload banks staff
  •  The ATM may give customer new currency notes
  •  The ATMs are convenient for banks customers
  •  The ATM is very beneficial for travelers
  •  The ATM provides services without any error

Features of Automated Teller Machine:

  • Transfer funds between linked bank accounts
  • Receive account balance
  • Prints recent transactions list
  • Change your pin
  • Deposit your cash
  • Prepaid mobile recharge
  • Bill payments
  • Cash withdrawal
  • Perform a range of features in your foreign language.

Now you have got an idea about how ATM works so if any queries on this topic or the electrical and electronic projects leave the comments below.

Photo Credit

  • Automatic Teller Machine by Renome
  • Automatic Teller Machine Block Diagram by st
  • Automatic Teller Machine Card Reader by kicteam
  • Automatic Teller Machine LCD Display by zesty
  • Automatic Teller Machine Cash Dispenser by 4.bp.blogspot
  • Automatic Teller Machine Networking by media.developeriq



  2. How does triple data encryption works?

  3. Why cash dispensor is called an heart of ATM

  4. Naushad Malik says:

    nice information

  5. pls send me pdf to my mail

  6. chukwuma joshua says:

    i am given a project topic on atm machine,is a research work to correct d issue of bank debiting a customer tru atm transactions witout disperssing cash.the ploblem to solve here is to fink of instants fieldbck to our various banks of such issues witout allowing d customer to bck to d bank to mk report.

  7. Thank you for the useful knowledge. I want to acquire the skill to install and maintain ATMs, I will appreciate any further information in this area.

  8. Excellent l received the required information in a well defined manner henceforth if l require any latest information l would be contacting you only thanks.

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