What Is ATM and How Does It Work?

These days, it’s tough to find someone who has never used an ATM. For more than 50 years, these machines have served as a daily connection between people and their money. But an ATM is more than a cash dispenser. In a fast-digitizing financial world, ATMs are being reimagined: integrated with online services, equipped with biometric logins, supporting tap-to-use NFC, and increasingly linked to the digital asset ecosystem.

So what exactly is an ATM? How does it work? What types are out there, and why does it still matter in the global financial system? Let’s dig in.

The State of ATM Market

The global installed base of ATMs has at times exceeded 3.5 million machines, according to Astute Analytica. While the count has begun to drift lower in some mature markets, the worldwide total still remains well above 3 million. ATMs are especially common across emerging economies.

India is a telling example. The country’s ATM footprint has grown about 32% over the past decade. In 2024, a single ATM served a little over 5,000 people on average, whereas as recently as 2019, only about 5% of villages in India had access to one.

Financial regulators in many jurisdictions are introducing requirements and various incentive programs to preserve broad access to cash. Even though the use of fiat currency is gradually declining as economies digitize, cash still plays a dominant role in many parts of daily life. ATMs remain the primary piece of infrastructure that lets people quickly turn account balances into physical money.

Since their introduction, ATMs have moved from single-purpose mechanical machines to multifunction self-service terminals. A newer branch of the family — crypto ATMs (sometimes called “cryptomats”) — extends beyond traditional banking rails, giving users a way to transact with digital assets and linking these devices to the wider Web3 ecosystem.

Types of ATMs

The basic look of most ATMs hasn’t changed much in decades, but what they can do has expanded a lot. Today, you’ll find everything from traditional cash-dispensing machines to more advanced units tied into FinTech services and even blockchain infrastructure. Below are the main categories of ATMs available to users today.

Cash Dispensers

These are the machines that started it all. Their core jobs: dispense cash using a bank card and show your account balance. They’re “cash-out only” devices — beyond withdrawing money and checking balances, they typically don’t do much else.

Despite their simplicity, classic ATMs remain widespread. In countries with lower levels of digitalization, most cash transactions still flow through these basic machines, especially in rural and suburban areas. According to the Gitnux Report 2025, an average ATM worldwide handles about 50,000 transactions per year.

Full-Service Machines

As technology advanced, ATMs evolved into mini bank branches. Modern full-service machines can dispense and accept cash and may also let users:

• Pay utility and government bills
• Scan documents
• Top up e-wallets
• Access personalized bank offers

In South Korea, many modern ATMs include biometric sensors — fingerprint authentication can be enough to sign in. In China and Japan, ATMs with face-ID and built-in video links to a live operator are common.

Crypto ATMs

Perhaps the most dynamic and fast-growing segment, crypto ATMs enable users to:

• Buy cryptocurrencies with cash
• Convert digital assets to fiat
• Send transfers using crypto

Data from CoinATMRadar shows that as of July 2025, more than 38,700 crypto ATMs were active across 67 countries, with the largest concentrations in the United States, Canada, Spain, and Australia. 

What Happens Behind the Scenes in Traditional ATMs

Using an ATM almost always starts the same way: insert your card, enter your PIN. From the user’s side, it’s just a couple of quick steps. Behind the scenes, though, those actions trigger a fast, tightly coordinated exchange among hardware modules, data networks, and bank security protocols. Let’s walk through that process step by step.

Step-by-Step ATM Operation Cycle

Step 1: Card Authentication

You insert your card or tap a contactless device. The ATM reads the card’s identifying data, extracts the encrypted Primary Account Number (PAN), and gathers other required fields. You enter your PIN, which is encrypted locally — typically under the Triple DES (3DES) standard — and is never sent in plain text.

Step 2: Data Transmission

Once your input is captured, the ATM assembles a transaction message in the standardized ISO 8583 format used for financial messaging between ATMs, processors, and banks. An ISO 8583 message generally includes:

• Card number (PAN)
• Transaction/processing code
• Transaction amount
• Trace (audit) number
• Terminal (device) ID
• Currency code

The message is sent over a secure link — most often via VPN or a dedicated MPLS line — to a communications gateway and then on to the processing center for authorization.

Step 3: Processing & Verification

The processing center (which may be the issuing bank or a third-party processor) receives the encrypted message and:

• Validates the card data
• Matches the entered PIN against the bank’s records
• Checks available balance, account status, and any limits or restrictions

If everything is in order, the processor returns an approval code to the ATM.

Step 4: Execute the Transaction

The ATM receives the approval and carries out the requested operation (for example, dispensing cash). It then sends a completion message — again in ISO 8583 format — back to the processor, where the full transaction record is stored.

Who Services and Supports ATMs?

Most banks don’t maintain their ATMs entirely on their own. Instead, they contract specialized outsourcing providers that handle day-to-day support, including:

• Software updates
• Remote device monitoring
• Cash handling (cash collection, replenishment, and loading new notes)

Transaction processing is usually handled by a processing center — this may be the bank itself or a third-party processor. The processor is responsible for routing transactions, authorization, transaction logging, data protection, and regulatory reporting. In cross-border transactions, a request can flow from the ATM to the processor, then through an interbank network gateway, and finally to the issuing bank for approval.

Most ATMs are connected to a real-time monitoring system. If a unit freezes, goes offline, runs out of cash, or shows signs of tampering or attack, an alert is automatically pushed to the support center so technicians (or cash-in-transit teams) can respond quickly.

ATM Security Protocols

ATMs operate in a high-risk environment, so protecting transactions, data, and the hardware itself happens in layers — from tamper-resistant components and encrypted PIN pads to secure networks and real-time monitoring. Here are the core security protocols and technologies commonly used in ATM ecosystems:

• Triple DES (3DES) — encryption standard used to protect PINs. The PIN is encrypted inside the secure PIN pad and is never transmitted in clear text.
• AES (Advanced Encryption Standard) — symmetric encryption used to protect card data, other sensitive information, and session keys.
• SSL/TLS (Secure Sockets Layer / Transport Layer Security) — secures the communications channel between the ATM and the processing center, shielding ISO 8583 messages from interception.
• MAC (Message Authentication Code) — included in ISO 8583 messages to verify authenticity and integrity, helping prevent data tampering.
• HSM (Hardware Security Module) — a dedicated, tamper-resistant device that generates, stores, and manages cryptographic keys and performs encryption operations. Deployed both inside ATMs (or attached security modules) and in processing centers.
• EMV (Europay, MasterCard, Visa) — a global chip-card standard that combats card cloning and injects dynamic data into each transaction.
• PCI DSS (Payment Card Industry Data Security Standard) — industry rule set governing how cardholder data must be stored, processed, and transmitted across systems that handle payment cards.
• VPN/MPLS Network Protection — ATMs connect to banking systems over encrypted VPN tunnels or dedicated MPLS circuits to reduce exposure to unauthorized access.
• Logging & SIEM (Security Information and Event Management) — all operations are logged; real-time analytics and anomaly detection help surface fraud attempts, malware activity, or device tampering quickly.

From the moment you enter your PIN to the moment cash is dispensed typically takes about 4–8 seconds — enough time for the full authorization cycle, which can include checks across international payment networks.

What Is the Difference Between Crypto ATMs and Traditional ATMs?

They may look similar, but the tech stack and transaction logic behind a crypto ATM are very different from those of a bank-run, fiat ATM. The gap goes beyond which assets they handle; it touches identification flows, how transactions are routed, what data is stored, and how security is enforced.

Below is a high-level comparison:

All of the above differences can be grouped, roughly, into three broad categories, which we’ll explore next.

Technological Differences

Unlike traditional ATMs, crypto ATMs don’t connect to card networks like Visa or Mastercard. Instead, they plug into cryptocurrency exchanges, OTC swap services, or FinTech payment APIs, and route transactions over the internet, typically through a browser-based interface that talks to backend services via REST or WebSocket protocols.

Crypto ATMs can:

• Generate a QR code so you can send crypto to a specific address
• Detect an incoming blockchain transaction to the operator’s address
• Dispense fiat once the transaction is confirmed on the network

User Experience Differences

Unlike a traditional ATM — where you insert a card, enter a PIN, choose an amount, and collect your cash — a crypto ATM usually involves a few extra steps.

Depending on the jurisdiction and the operator, a crypto ATM may ask for:

• Passport or other government ID scan
• Selfie holding that document
• SMS confirmation (one-time code)
• Integration with an external KYC/identity service

A typical flow might look like this: you first enter your mobile phone number, which the machine uses for basic identification and to confirm actions via SMS. You may then be prompted to complete KYC — upload or scan an identity document, take a live photo, or satisfy other verification requirements set by the operator.

After successful identification, you can insert cash to buy digital assets. The machine automatically calculates how many tokens you’ll receive for the amount deposited, factoring in the current exchange rate and any fees.

Next, you scan the QR code for your crypto wallet — the destination address for the purchase. The operator’s backend then initiates the blockchain transfer (in some setups, this may involve a smart contract; in others, a custodial service). Once the required number of network confirmations is reached, the crypto is credited to your wallet address.

Limitations of Crypto ATMs

Crypto ATMs come with a set of constraints that set them apart from familiar bank-run machines. Key differences include:

• Transaction Speed. A traditional ATM dispenses cash almost instantly once approved. With a crypto ATM, settlement time depends on the blockchain network load and confirmation speed. A transaction can take anywhere from a few minutes to around half an hour.
• Volatility. Fiat ATMs dispense an exact amount in a stable currency. Crypto prices, by contrast, can move while a transaction is in progress. Most operators lock in an exchange rate for a short window, but sharp price swings can still affect the final amount of crypto you receive (or cash you get back when selling).
• Fees. Conventional ATMs charge a relatively fixed fee (or a bank-/region-dependent surcharge). Crypto ATM pricing is more variable: you pay the operator’s service fee plus the underlying blockchain network (gas) fee, which can spike when the network is busy.
• Limits. Many crypto ATMs cap transaction amounts. Traditional ATMs do this too, but crypto limits often scale with the level of identity verification (KYC) you’ve completed and the rules in the local jurisdiction.

It’s important to understand that a crypto ATM isn’t just a “new kind of bank ATM.” It’s a different piece of infrastructure that typically operates outside traditional card networks and core banking rails.

Bottom line: ATMs, simple as they may seem, remain one of the foundational layers of financial infrastructure. Even with the rapid growth of online banking and digital wallets, they still play a crucial role in the global financial system by keeping cash in circulation and within reach. And like any technology, ATMs continue to evolve: from single-purpose cash boxes to devices that bridge traditional finance and Web3, creating a new class of user-facing access points for digital assets.