A POS terminal (Point of Sale terminal) is an online terminal for cashless payment at a point of sale. It checks a debit card or credit card for blocking and reports the test result to the point of sale. A mobile device is called a “mobile point of sale” (mPOS).
When the triumph of ATMs became apparent, banks came up with the idea of replacing three cash handling processes with a single, cashless POS transaction: cash withdrawal, cash payments and cash delivery from points of sale. The transfer of money from the buyer’s account to the sales company’s account should be automated. Accordingly, a POS payment is defined as a payment in which the payee has a POS terminal, the payer uses a corresponding card as a payment medium, the authenticity of the cardholder is detected without disproportionate effort and with a relatively high level of security and the charge to the cardholder and the credit to the commercial and service provider is automated.
Basics of POS terminals
Today’s POS terminals, which support both cards with a code (mostly debit cards) and cards with a signature (mostly credit cards) as well as payment by electronic wallet, go back to the debit card world, where the POS terminal is a transaction terminal.
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POS terminals coming from the debit card world were expanded to include a credit card transaction, thus evolving into universal POS terminals capable of processing both PIN-based and signature-based transactions. This marked the second generation of POS terminals on the market.
With the advent of chip cards since the mid-1990s, third-generation POS terminals are also able to verify card authentication more reliably. Thanks to a smart card reader, such universal terminals can process not only PIN transactions (usually debit card transactions on a pay now basis) and signature transactions (usually credit card transactions on a pay later basis), but also those from an electronic wallet located on a chip (on a pay before basis).
These third-generation POS terminals continue to work with the magnetic stripe, but also with the chip (hybrid terminals). Today, many cash withdrawal cards – such as the Visa, Mastercard and Maestro card are equipped with a chip. With regard to the EMV specification, which includes payment cards such as Europay, Mastercard and Visa products, as well as for the terminals intended for them, it can be assumed that in 5 years almost all cash withdrawal cards will be equipped with a chip in addition to the magnetic stripe (hybrid cards).
While the first hybrid terminals were equipped with two separate readers – one for the chip and one for the magnetic stripe – hybrid readers are becoming more and more popular for reasons of practicality. They have a slot into which the card is inserted. After that, the card is read according to the programmed sequence.
With the increasing success of third-generation POS terminals, certain industries (e.g. restaurants, mobile traders, market stalls) complained about the location-based nature of the POS system, which is a consequence of its line connection (online transaction). To remedy this shortage, mobile POS terminals based on GSM have been developed and are being used more and more.
Dynamic Currency Conversion (DCC) is an extension to a POS terminal that allows foreign buyers to receive the amount to be paid from a third-party provider in their home currency during the payment process. This service often leads to the use of significantly worse conversion rates than those of the issuing bank, effectively increasing the costs for the customer.
Components of POS terminals
The hardware components of a POS terminal include a central processing unit (CPU), touchscreen display, card reader (for processing credit/debit card payments), barcode scanner, receipt printer, and cash drawer. Modern POS terminals may also feature additional peripherals such as customer-facing displays and contactless payment terminals.
POS software is the brain behind the operation of a POS terminal. It encompasses a range of functionalities, including sales processing, inventory management, reporting and analytics, employee management, and customer relationship management (CRM). POS software can be customized to suit the specific needs of different industries and businesses, from retail stores and restaurants to hospitality and healthcare providers.
Payment processing is a critical function of POS terminals, enabling merchants to accept various payment methods, including credit cards, debit cards, mobile wallets, and electronic funds transfers (EFT). POS terminals communicate with payment processors and acquirers to authorize transactions securely and efficiently, ensuring compliance with industry standards and regulations such as the Payment Card Industry Data Security Standard (PCI DSS). POS terminals require reliable connectivity to communicate with external systems and networks. They may connect to the internet via wired Ethernet, Wi-Fi, or cellular networks, depending on the environment and requirements of the business. Connectivity ensures real-time synchronization of sales data, inventory updates, and software updates across multiple POS terminals and locations.
Benefits of POS Terminals
POS terminals automate and streamline various aspects of retail operations, including sales processing, inventory management, employee scheduling, and reporting. They help reduce manual errors, save time, and improve efficiency in day-to-day tasks.
They provide a seamless and convenient checkout experience for customers, with quick transaction processing, multiple payment options, and digital receipts. They can also integrate with loyalty programs, gift card systems, and customer relationship management (CRM) software to personalize the shopping experience and foster customer loyalty.
As the acceptance of the card for payment at the checkout increases, POS terminal functions are integrated into the checkout. In this way, errors can be avoided and the speed of the card payment process at the checkout can be increased. During integration, the security-relevant functions are covered by a certified separate PIN pad with card reader, which is connected to the cash register as a peripheral device. The existing resources of the cash register – e.g. the cash register printer for printing payment receipts, the display elements for operator and customer guidance or the network functionality of the cash register for the transmission of payment-relevant data to the banking system – can also be used by the card payment system.
POS terminals track inventory levels in real time, providing businesses with valuable insights into stock levels, product performance, and reorder needs. They help prevent stockouts, minimize overstocking, and optimize inventory turnover, leading to cost savings and improved profitability.
Some of them can capture and analyze sales data, customer behavior, and other metrics to generate actionable insights for business decision-making. They generate reports on sales trends, product performance, employee productivity, and customer demographics, empowering businesses to make informed strategic decisions and drive growth. POS terminals also protect from the risks of carrying bank notes.
In most cases, the interface between the POS software and the terminal must be approved – i.e. subjected to testing – before it can be used productively. In many cases, the acceptance of the solution is carried out by representatives of the payment transaction provider. Productive operation is usually not possible without testing.
