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How Do ATM Processors Work?

Almost all of us have used an ATM at some point. Not much thought goes into these transactions. From the perspective of the cardholder, this transaction is quick and simple. You insert your card, enter your pin, select the amount you need and money pops out. Have you ever thought about how this machine gets money out of your bank account? This is able to happen thanks to ATM processors.

ATM Basics

Years ago, automatic teller machines (ATM) were typically only available at your bank. Today you see ATM at every turn. This is partially due to the profit success that can be seen for the ATM owner, however it is also a win-win for the merchant-consumer relationship. For the consumer, an ATM provides the access to cash straight from their personal bank account when they need it. No extra trips to an out of the way bank. If the merchant at the ATM location site is a retail store, it provides their consumer with cash flow for purchases. Lastly, the owner of the machine has a stream of passive income due to the small convenience fees that accrue on each transaction.

Where Does an ATM Processor Fit in?

Obviously, if the ATM that you use is owned by the bank it is directly linked to the money in your bank account. If the ATM is owned by a private third-party, the ATM processor provides the necessary link between the customer and the money in their bank account. To better understand all of this, let us first look at how an ATM works.

ATM processors also provide an important service for banks. By providing cash to the cardholder without the need of a human teller, the bank saves an untold amount of manpower time and money. If the ATM is owned by the banking institution, there is a direct link between the cardholder and the money in their account. If the ATM is owned by a third-party, the ATM processor provides this link between customer and cash. The simple transaction the customer sees is actually a complicated network of data exchange between the machine and the customers bank account through a host processor. Then the ATM processor exchanges information between the customer’s bank and the machine itself.  Think of it like a cell phone vs service provider for cell service. You can use the same phone but choose a different provider. You can also change the ATM Processor to ATM Transaction Processor on the title.

How the ATM Processor Works

The first thing that happens behind the scenes is the ATM must access the customer’s bank account. When the customer enters the card and enters their personal identification number (PIN), this information is forwarded to the ATM processor. Then, the processor sends a transaction request to the issuer of the card.

The processor confirms that the funds are available for withdraw and the ATM processor creates an electronic funds transfer (EFT) from the customer’s bank and processor’s account. Once the funds are officially transferred, the ATM processor issues an approval code to the machine. This provides the authorization necessary to dispense the requested cash amount.

The customer walks away happy but the ATM processor is still hard at work. Sometime before the end of the next business day, the ATM processor will transfer the funds from the customer’s bank account into the account ATM owner’s account. This reimburses the owner of the machine for the cash that was dispensed.

How Does the ATM Processor Make Money?

Independent ATM processors make money by charging a small transaction fee. This fee is known as an interchange fee. Many banks and institutions are fine with paying this small fee. The convenience and automation save the bank money by not paying a teller for the transaction. Often times the interchange fee is passed on to the ATM owner. This is the reason some ATM transactions list two service fees. The ATM owner will pass along the interchange fee in addition to the convenience fee if they are responsible for paying the ATM processor.

As an ATM owner, it is important for merchants to look for processors that don’t charge late fees. Free ATM processing not only guarantees zero processing fees, they also tend to provide the most reliable machines, the most secure network and a higher level of customer service.