The Infrastructure Behind ATMs
In reading this article, I mostly learned how little I know about the actual infrastructure behind payments. That said, there were a couple of interesting tidbits that broke through for me:
- a bank account is a form of loan to the bank
- ATM rails power the “debit” option you see at the grocery store
I found the backstory development of the ATM here instructive as well. Often innovation is accidental. The ATM was first created for internal use, to allow banks to take care of rather menial tasks without needing to hire more tellers, which were expensive. Originally, these only existed for a particular bank in a particular branch. However, the usefulness of the technology quickly became apparent. After a few years of figuring out how to get multiple banks to agree to be available in a single ATM (which requires come complex settling logic), the ATM as we know it was born.
That’s the first business pivot. The tricky part here is that ATMs themselves are not a great business. They require lots of up front capital, not for the machines themselves but because they technically loan people the money first and then the bank pays them back later. The real financial windfall here was then using the “rails” they built for interbank transfers to power the debit transactions at grocery stores.
When you choose credit vs debit at the grocery store, you are choosing between ATM and credit card rails. What is interesting here is that the ATM rails are much cheaper, yet no retailer has figured out how to incentivize customers to use them at scale. Apparently it would be super complex?
The last fun tidbit is that in Japan, most people are paid on the same day (25th) and take their paychecks out in the form of cash. Thus ATMs there are just stuffed with cash on the days leading up to the 25th. Sounds like a new heist movie just waiting to be made.
- a bank account is a form of loan to the bank
- ATM rails power the “debit” option you see at the grocery store
I found the backstory development of the ATM here instructive as well. Often innovation is accidental. The ATM was first created for internal use, to allow banks to take care of rather menial tasks without needing to hire more tellers, which were expensive. Originally, these only existed for a particular bank in a particular branch. However, the usefulness of the technology quickly became apparent. After a few years of figuring out how to get multiple banks to agree to be available in a single ATM (which requires come complex settling logic), the ATM as we know it was born.
That’s the first business pivot. The tricky part here is that ATMs themselves are not a great business. They require lots of up front capital, not for the machines themselves but because they technically loan people the money first and then the bank pays them back later. The real financial windfall here was then using the “rails” they built for interbank transfers to power the debit transactions at grocery stores.
When you choose credit vs debit at the grocery store, you are choosing between ATM and credit card rails. What is interesting here is that the ATM rails are much cheaper, yet no retailer has figured out how to incentivize customers to use them at scale. Apparently it would be super complex?
The last fun tidbit is that in Japan, most people are paid on the same day (25th) and take their paychecks out in the form of cash. Thus ATMs there are just stuffed with cash on the days leading up to the 25th. Sounds like a new heist movie just waiting to be made.