How regular ATMs work. History of ATM machines
The history of banking goes back to 2000 BC in Egypt, where merchants started to give loans to farmers in the form of grain. Later, in ancient Greece and in the Roman Empire, lenders would give out loans similar to the ones in Egypt, but with two important differences: borrowers could make deposits and merchants from different regions of the world could trade one currency for another.
The origins of the banking system
The origins of the modern banking system come from the financial system of Italy that has developed in the fourteenth century, when powerful families of Bardi and Peruzzi established banking branches in many of the Italian cities. One of the most famous banks in Italy has been created in 1397. The bank that was the first one in the country of Italy to accept deposits opened in 1407.
Modern banking practices are very similar to the ones that have appeared in the seventeenth and eighteenth centuries, when merchants started to store their gold and other commodity currencies and valuables at banks and were receiving notes from the banks in exchange for their commodity currencies. In London, goldsmiths not only made items out of gold, but also owned secure vaults which they were renting to the merchants for a free.
Gradually, goldsmiths started to lend money that they were storing and changing a fee for doing so. They would pay interest on deposits and would charge a fee to give out a loan. The Bank of England began to issue official banknotes in 1695. By the beginning of the nineteenth century, England had a system that bankers from various institutions could use to clear the transactions. The family of Rothschilds was a pioneer of lending and financing on a large scale with one of its projects being financing of the purchase of the Suez Canal by the government of the Great Britain.
Early modern times and central banks
In the early modern times, the Dutch were the nation that has invented and implemented many of the financial instruments and innovations that later became the foundation of the global financial system. For example, the Bank of Amsterdam, founded in 1609, is one of the banks that functioned similarly to a modern central bank. The bank helped create the foundation for the development of the modern central banking system. The Bank of Amsterdam had many subsidiary local banks and processed both national and international payments. The bank has even launched the first in history international reserve currency. Eventually, many various countries in Europe copied the model of the Bank of Amsterdam, including the Bank of England and the Bank of Sweden.
Today, a central bank manages the currency of a country, including control over the supply of money and interest rates. Typically, central banks also oversee the banking system in the country. The difference between a regular commercial bank and a central bank is that a central bank is the only bank that can increase the supply of money in the country and is the only bank that can print new money.
At the same time, regular banks serve the role of payment middlemen. They allow customers to have checking and savings accounts, process check payments and enable their customers to accept and receive payments via a variety of methods. Banks borrow money from deposits that clients open with the banks and lend money by issuing loans and debt securities.
First ATM Machines
ATM or automatic teller machines allow customers to perform financial operations such as withdraw cash, check the balances of the accounts, transfer funds between accounts, and make deposits without having to interact directly with bank staff. In the Western countries, most ATMs are located in areas with 24/7 access, which makes it very convenient for bank customers to use them.
According to the data from the ATM Industry Association, there are about 3.5 million automatic teller machines in the world. Most of the machines identify customers by having a customer insert a plastic bank card and then type in personal identification number. The number must match the number that the card stores on the electronic chip, if it has one. If it doesn’t, the number must match the number in the database of the financial institution.
The idea for an automatic teller machine originally came from Japan, where the first machine started operating in 1966. In the 1960s, Adrian Ashfield patented the idea of a card that combines elements of financial information and user identity. Barclays Bank in North London installed the first machine in the United Kingdom in 1967. The machine needed paper checks issues by a clerk to operate and it was exchanging checks for cash.
The launch of the Barclays machine beat the launch of a machine from Sweden by nine days and the launch of a machine by Westminster bank by a month.
The devices that became operational in the United Kingdom and Sweden have quickly spread all across the world. The first automatic teller machine appeared in Australia in 1969. In the same year, the first ATM opened in Spain and in the United States.
The bank to open the first ATM in the United States was Chemical Bank in Rockville Centre, New York. The ATM could only dispense a fixed amount of cash, which means that customers did not have a choice as to how much money they wanted to withdraw. There was a card and a fixed amount that the card could get per transaction.