From the perspective of the average cardholder, ATMs are relatively simple machines. They input their card and PIN, and money comes out. While this is an accurate description of how ATMs work, there is much more going on behind the scenes. The average person may not realize it, but ATM processors are the key to making these machines function properly.
A Bit About ATMs
Automatic teller machines (ATM) were one of the most meaningful breakthroughs in modern banking. Twenty years ago, they were rare conveniences offered by major banks and forward-thinking merchants, but now ATMs are found on just about every corner in the U.S. This is because of the long list of obvious benefits offered by these convenient machines.
ATMs provide a win-win situation for both the customer and the merchant who owns the machine. For the cardholder, ATMs provide convenient access to the cash in their bank accounts at any time of day. For the merchant, the ATM creates a stream of passive income through the small surcharges that accrue on every transaction. If the machine is inside a retail location, it also increases sales for the merchants, as customers spend frequently spend some portion of their withdrawal inside the location of the ATM.
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.
What is an ATM Processor?
To understand what an ATM processor is and how it can benefit merchants, it is important to first understand how ATMs work. While the customer only sees a small bit of how ATMs, there is a large network of information that has to be exchanged before the machine can provide cash to the cardholder. This is where an ATM processor comes in.
An ATM is essentially a data terminal that takes information from the customer and provides them with cash. In order to access the information necessary to provide this cash, the data terminal must communicate with the bank through a host processor. This ATM processor then exchanges information between the cardholder’s bank and the machine itself.
Think of an ATM processor like an internet service provider (ISP). ISPs provide a link between a person and the world of information on the internet. An ATM processor provides a similar link, in that it is the gateway through which all the ATM networks are made available to the cardholder. With that link, customers have access to the information (and thus the cash) that is available in their account without actually being at the bank.
In order to provide cash to the customer, the ATM must first access the customer’s bank account. The customer enters his or her card and necessary information on the ATM keypad, and this information is forwarded to the ATM processor. The processor then routes a transaction request to the bank or institution that issued the card.
Assuming the requested amount is available to be withdrawn, the ATM processor will create an electronic funds transfer from the cardholder’s bank (or issuing institution) and the processor’s account. After the funds are transferred, the ATM processor will send an approval code to the machine, authorizing the cash to be dispensed.
Some time later (usually the next business day), the ATM processor will transfer the funds from the cardholder’s account into the account of the merchant or owner of the ATM. This is how the merchant is reimbursed the cash that is dispensed from the machine.
Simply put, the ATM processor acts as a middleman between the cardholder, the financial institution, and the merchant. The ATM processor may be owned by the bank, in which case only bank-owned ATMs can be used. Or it may be owned by an independent service provider, in which case a wide range of merchant-owned ATMs can be used.
How ATM Processors Make Money
In the case of independent ATM processors, they make money by charging a small fee for each transaction called an interchange. Because the processors have to act as the middleman between so many institutions, banks, and financial institutions are happy to pay this small fee in exchange for the convenience ATM processors provide.
This fee could also be passed onto the merchant, who in turn passes it onto the cardholder in terms of “convenience fees.” This is why some ATM transactions will charge two fees– one from the owner of the machine and one from the host processor. Either way, the host processor makes a small amount on each transaction that is created on their network.
It is important for merchants to look for ATM processors that do not charge large fees. The benefits of low fees are obvious for both merchants and consumers. The better ATM processor may actually charge zero fees for their processing services.
Free ATM Processing not only guarantees zero processing fees, they also provide the most reliable machines, the most secure network and excellent customer service.