What Is an Automated Teller Machine (ATM)?

An automated teller machine (ATM) is an electronic banking outlet that allows customers to complete basic transactions without the aid of a branch representative or teller. Anyone with a credit card or debit card can access most ATMs. Certain credit cards however, may have more trouble.

The first ATM appeared in London in 1967, and in less than 50 years, ATMs spread around the globe, securing a presence in every major country and even tiny little island nations such as Kiribati and the Federated States of Micronesia.

ATMs are convenient, allowing consumers to perform quick, self-serve transactions from everyday banking like deposits and withdrawals to more complex transactions like bill payments and transfers.

Understanding Automated Teller Machines (ATMs)

Since the first ATM appeared in 1967, the popularity of these machines has steadily been on the rise. There are more than 3.5 million ATMs in use across the world. They are also known in different parts of the world as automated bank machines (ABM) or bank machines.

There are two primary types of ATMs. Basic units only allow customers to withdraw cash and receive updated account balances. The more complex machines accept deposits, facilitate line-of-credit payments, transfers, and report account information. To access the advanced features of the complex units, a user must be an account holder at the bank that operates the machine.

Analysts anticipate ATMs will become even more popular and forecast an increase in the number of ATM withdrawals. ATMs of the future are likely to be full-service terminals instead of or in addition to traditional bank tellers.

The average amount withdrawn from an ATM is $60.

Parts of an ATM

Although the design of each ATM may be different, they all contain the same basic parts:

  • Card reader: This part reads the chip on the front or the magnetic stripe on the back of the card.
  • Keypad: The keypad allows the consumer to input information like the PIN, the type of transaction he or she intends to do, and the amount of the transaction.
  • Cash dispenser: Bills are dispensed through a slot in the machine, which is connected to a safe at the bottom of the machine.
  • Printer: If required, consumers can request receipts which are printed here. The receipt records the type of transaction, the amount, and the account balance.
  • Screen: The ATM issues prompts that guide the consumer through the process of executing the transaction. Information is also transmitted on the screen such as account information and balances.

Key Takeaways

  • Automated teller machines are electronic banking outlets that allow people to complete transactions without the help of a bank representative or teller.
  • ATM transactions can be as simple as a deposit or balance inquiry, or more complex like a balance transfer or bill payment.
  • In order to use an ATM, consumers need to have a debit or credit card, and a personal identification number.

Special Considerations: Using ATMs

Banks place ATMs in and outside of their branches. Other ATMs are located in high traffic areas such as shopping centers, grocery stores, convenience stores, airports, bus and railway stations, gas stations, casinos, restaurants, and other locations. Most ATMs that are found in banks are multi-functional, while others that are offsite tend to be those that provide simple services.

ATMs require consumers to use a plastic card—either a bank debit card or a credit card—to complete a transaction. Consumers are authenticated by a personal identification number (PIN) before they can execute any transactions.

Many cards come with a chip, which transmits data from the card to the machine. These work in the same fashion as a bar code that is scanned by a code reader.

ATM Fees

Account holders can use their bank's ATMs at no charge, but accessing funds through a unit owned by a competing bank usually incurs a fee. According to MoneyRates.com, the average fee to withdraw cash from an out-of-network ATM was $4.66 as of February 2019. Some banks may reimburse consumers the fee, especially if there is no corresponding ATM available in the area.

ATM Ownership

In many cases, banks and credit unions own ATMs. However, individuals and businesses may also buy or lease ATMs on their own or through an ATM franchise. When individuals or small businesses such as restaurants or gas stations own ATMs, the profit model is based on charging fees to the machine's users.

Banks also own ATMs with this intent, but in addition, the convenience of an ATM is a service that banks use to attract clients. ATMs also take some of the customer service burdens from bank tellers, saving banks money in payroll costs.

Using ATMs Abroad

ATMs make it simple for travelers to access their checking or savings accounts from almost anywhere in the world. When travelers use foreign ATMs, they receive a better exchange rate than they would at most currency exchange offices. Additionally, using an ATM is easier than cashing traveler's checks, and arguably, it makes travel safer, as the traveler doesn't have to carry a lot of cash.

However, the account holder's bank may charge a transaction fee or a percentage of the amount exchanged. Most ATMs do not list the exchange rate on the receipt, making it challenging to track spending.