How do ATMs function internally?

Quite a few things take place from the very moment you insert the card into an ATM.

First and foremost the ATM awakens. Most modern ATMs go into a power saving mode, but the very second the card is inserted, the ATM is now fully awake (from a power point of view).

ATMs (or Automated Teller Machines) are what are known as Alternative Delivery Channels.

• Alternative, because they are alternative to the human teller.
• Delivery because they are programmed to deliver a specific set of services, and
• Channel because in the banking world, all delivery mechanisms need a channel via which the delivery would be made.

ATM CONNECTIVITY

To understand how the ATMs work, it is a good idea to know how they connect:

Needless to say all ATMs connect to some server. This is called the Host Server or Host Switch (for the ATMs):


These Host Servers may be of your own bank or another bank. Whatever the case maybe, their connectivity would usually look something like this:

ATMs on another bank network, connect to your bank's network through a network known as interbank networks (networks that connect different bank). [See: Interbank network]

A more singular connectivity diagram would look like this:

(Images from EZswitch® | CSF International (CSFi))

CHANNEL MANAGER

It is imperative that one understands the channel manager in the whole scheme of things. It has a very important function.

A typical channel management manager (or switch) is a middle layer app controller.


The above is what a multi-channel manger would look like. Again, this is nothing more than a software, middle-layer app server that is essentially doing a very crude form of financial routing.

BASIC CHECKS

When you insert a card into the ATM, the following (more or less) is checked for:


In the channel manage diagram, you will see something called the HSM, that is the Hardware Security Module (see: Hardware security module).

This is where the PIN is kept (encrypted) and from where the PIN is confirmed.

Once the PIN is confirmed, the middle-layer will request access to the core-banking server and here (like with any transaction, the user's bank account would be locked, till such time the transaction is completed, so double-spend does not occur).

If all the validation checks for you being able to withdraw money from your account are good, then the money will be dispensed by the ATM.