Checkout and billing counters take different forms depending on the type of store. In a grocery store, the counter might be in the middle of the shop, whereas in a clothing store, it’s typically located in a corner, and in a restaurant, you might pay at your seat. These differences exist because different transaction standards apply across business industries.
The point at which a customer pays a business for their purchase is called the point of sale. This includes a POS system setup (hardware and software used to process payments), and the transactions are referred to as POS transactions.
In this guide, we will talk about POS transactions in detail, including their types, benefits, how they work, and how to effectively track them.
What is a POS transaction?
A POS transaction is any sale that occurs through a POS or point of sale system. The steps involved in processing a payment, which include scanning products with a barcode reader, calculating the total amount due using software, displaying the bill on a desktop screen, storing cash in the cash register, processing card payments through a card machine, and generating a receipt with a printer, are all part of a POS transaction.
POS systems handle all types of payment methods, including cash, credit cards, debit cards or digital wallet payments. Secure payment gateways and other digital solutions can replace physical hardware in online POS transactions.
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How do POS transactions work?
We have divided the workings of POS transactions into three major parts. Let us take a look at each step in detail.
Step 1: Initiation of the POS transaction
A POS transaction begins when a customer decides to pay for a product or service. It could be any type of payment, including cash, a card or a digital wallet. Depending on the mode of payment, the point of sale system collects the relevant data.
In the case of cash, the customer simply hands over the payable amount to the cashier and collects the receipt. However, the POS system requests information like a credit card number and PIN in case of cashless transaction options. This data is then sent through an encrypted channel to the payment processor to check the cardholder’s account for funds and verification.
Step 2: Data processing and verification
The payment processor communicates with the bank to confirm the availability of required funds. Meanwhile, it also keeps a record of the relevant transaction details. This back-and-forth communication between the business and the customer’s banks creates a digital proof that the transaction took place.
Step 3: Completion and confirmation
With funds approved and data processed, it’s finally time to seal the deal. The bank releases the approved funds to the business’s account, a step that typically happens in a matter of seconds.
At this final stage, the POS system sends a confirmation message to the payment terminal, signalling to the customer and cashier that the transaction has been successful. If the payment terminal displays “Approved,” the customer is free to go, and the business has its sales in the books.
But that’s not the end, Each POS transaction triggers automatic updates to inventory records, sales data and even customer accounts in loyalty systems.
The role of POS bank transactions in ensuring security
POS bank transactions play a central role in protecting both businesses and customers’ data Each time the system communicates with the customer’s bank to verify funds, it’s also working to prevent fraud. It does that by using encryption and card tokenisation.
Types of POS transactions
Let’s now discuss the main types of POS transactions.
1. POS transaction in credit card processing
In credit card POS transactions, the customer’s bank (or card issuer) essentially “lends” the money to complete the payment. After the customer swipes their card, the payment terminal sends an authorisation request to the bank, which checks with the customer’s credit limit and verifies the account. Once authorised, the bank transfers the funds to your business’s account and the customer’s bank balance is updated accordingly.
The twist here? Unlike with cash or debit card transactions, the actual payment doesn’t leave the customer’s bank account immediately. Instead, the card issuer pays your business on behalf of the customer, and the customer repays the issue later.
2. POS bank transaction
A POS bank transaction occurs when a customer pays using a debit card directly linked to their bank account. This process is typically quicker and more secure than credit card transactions because it involves direct access to the customer’s funds.
In a POS bank transaction, when the customer swipes their debit card, the payment terminal sends an authorisation request to their bank. The bank verifies the availability of funds, approaches the transaction and immediately deducts the amount from the customer’s account.
Other types of POS transactions include in-store POS transactions, where the customer walks up to the counter, selects an item and uses a payment terminal to pay; a mobile POS transaction, where the customer pays using a tablet or mobile phone; and an online POS transaction, where the customer pays while sitting at his home or at a cafe through virtual points of sale.
Credit vs Bank POS transactions
| Feature | Credit card POS transaction | Bank POS transaction |
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Processing time |
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Transaction fees |
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Chargeback risk |
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Customer spending |
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How to track a POS transaction?
Businesses need to understand how to track POS transactions to monitor daily sales, revenue, inventory, and customer data effectively.
- POS system reporting: Modern POS systems come with in-built reporting features that automatically log sales, inventory updates and transaction details. You can customise reports to see daily summaries and track busy times.
- Bank statements and online banking: Checking your bank statements daily or weekly is a great habit to catch any discrepancies between your POS reports and bank records.
- Accounting software integration: Many types of POS systems seamlessly integrate with accounting software, automatically syncing sales and transaction data.
Benefits of POS transactions
- Efficiency and speed: POS transactions streamline the checkout process, saving both the customer’s data and the business’s time. With quick payments like contactless, Apple Pay and other digital wallets, a transaction can be finalised in seconds.
- Accurate record-keeping: Each transaction is logged, tracked and synced with the business’s accounting and inventory records. This means that with every sale, stock levels are updated in real-time, invoices are logged and sales data is automatically captured.
- Improved customer experience: A well-functioning POS system can enhance the customer experience, leaving them with a favourable impression of the business.
- Enhanced security: Cash-only operations feel like a thing of the past. Modern POS systems encrypt payment data, reducing fraud risk and securing sensitive financial information.
Cost breakdown of POS transactions
A key aspect of POS transactions is understanding the costs involved.
| Fee Type | Description |
|---|---|
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Transaction Fees |
Per-transaction fees paid to the payment processor, often a percentage of the sale amount. |
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Monthly Software Fees |
Fees for POS software, usually billed monthly. |
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Hardware Costs |
Upfront or monthly costs for devices like card readers, printers, and cash drawers. |
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Maintenance and Upgrades |
Costs for software updates or hardware maintenance, depending on the provider and POS type. |
How to Choose the Right POS System for Your Business
Choosing the right POS system means finding a solution that aligns with your needs, scale and customer preferences.
- Start by assessing your transaction volume and the types of payment you’ll accept.
- Look for a system that integrates seamlessly with our accounting software and provides detailed sales reports.
- Don’t overlook security. Opt for a system with high encryption to protect sensitive data.
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FAQs
A POS (Point of Sale) transaction refers to the process when a customer makes a payment for their purchased goods or services at any business. This can occur in a physical store using a card and payment machine, as well as through online shops. POS transactions typically include the use of credit or debit cards, cash payments, or mobile wallets and are recorded in the business’s POS system.
A POS transaction using a credit card means the customer is making the payment by borrowing money from their credit card provider. The cardholder then repays the balance later, usually through monthly instalments. Credit card POS transactions are commonly used for both physical and online purchases.
When a POS transaction is made with a debit card, the payment amount is directly deducted from the customer’s bank account. This means the customer must already have enough funds for the purchase to go through. Debit card POS transactions are a popular option for everyday purchases and don’t involve monthly repayments.
