When an ATM customer wants to make an ATM transaction, he or she provides the necessary information via the card reader and the keypad. The ATM forwards this information to the switching company, which redirects the transaction request to the customer’s bank or the financial institution that issued his or her card.
If the ATM customer wants cash, the switching company issues an electronic funds transfer to take place from the customer’s bank account to the switching company’s account. Once the funds are transferred to the switching company’s bank account, the switching company sends an approval code to the ATM authorizing the machine to dispense the cash.
The switching company then debits the cardholder’s funds and credits the merchant’s bank account for the same amount (or the account of whoever cashes the ATM), usually the next business day. In this way, the merchant is reimbursed for all the money dispensed by the ATM.
So, when a cardholder asks for cash, the money travels electronically from the cardholder’s account to the switching company’s account to the merchant’s account.