Ever wondered what goes into making a sale from start to finish? When a customer swipes, taps or dips their card at a checkout counter, there’s a whole world of processes happening behind the scenes to make that transaction possible. That moment of payment isn’t just about enhancing money; it’s about finalizing a complex digital handshake.
Welcome to the world of point of sale (POS) transactions.
What is a POS transaction?
In simple terms, a POS transaction is any exchange of goods and services for payment that occurs at a point of sale. Think of it as the “last mile” in your sales journey; where the customer, product and payment all come together to make the magic of commerce happen. It includes hardware, such as cash registers or tablets, and software for processing the transaction.
In today’s world, POS transactions take place not just in traditional stores but also through various channels like online stores, mobile devices and even at curbside pickups. All that’s needed is a payment terminal – the digital equivalent of a cashier’s desk.
Whether it’s cash, card or contactless, every POS transaction leverages a secure pathway to complete a sale, verify the transfer and update unique business records.
According to Statista, the number of POS terminals in the UK amounted to 2.3 million in 2022.
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How do POS transactions work?
From the moment a credit/debit card is tapped to the instant approval notification process, there’s a fast-paced dance of data and digital approvals that brings a POS transaction to life. Let’s go behind the curtain to see what a POS bank transaction entails in this process.
Step 1: Initiation and authorisation
Every POS transaction begins with a simple, familiar act: the customer initiates the transaction by presenting a payment method – be it a card, cash or a digital wallet. They may tap, swipe or insert their card into the payment terminal.
At that moment, the point of sale system goes to work. It captures the customer’s payment data, whether it’s a credit card number, PIN or other security details, and sends it through an encrypted channel to the payment processor. The processor checks the account for funds and verifies the transaction is legitimate.
Step 2: Data transfer and processing
At this stage, the processor communicates with the bank to confirm the available funds. The bank’s system verifies the buyer’s account and ensures the required funds are available. Meanwhile, the processor keeps a secure record of all transaction details. This creates a digital paper trail, ensuring that should any issue arise, like a disputed charge or incorrect billing, both business and customer have a clear record of what occurred.
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.
Credit vs Bank POS transactions
| Feature | Credit card POS transaction | Bank POS transaction |
|---|---|---|
|
Processing time |
Slight delay; funds transferred after approval |
Immediate; funds deducted instantly |
|
Transaction fees |
Higher fees due to credit processing |
Lower fees; direct bank-to-bank transfer |
|
Chargeback risk |
Higher risk; customers can dispute transactions |
Lower risk; typically fewer chargebacks |
|
Customer spending |
Higher; allows customers to spend beyond balance |
Limited to available bank balance |
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.
How to track POS transactions?
There’s no one-size-fits-all solution, but here are some tried-and-true methods to keep tabs on every sale.
- 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 business’s time. With quick payments like contactless, Apply 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’s 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.
According to an updated 2024 report by Hotel Tech Report, 86% of restaurants use POS data to inform discounting, loyalty programs and marketing strategies.
POS Transaction Fees and Costs
A key aspect of POS transactions is understanding the costs involved.
| Fee Type | Description |
|---|---|
|
Transaction Fees |
Per-transaction fees paid to the payment processor, often a percentage of the sale amount. |
|
Monthly Software Fees |
Fees for POS software, usually billed monthly. |
|
Hardware Costs |
Upfront or monthly costs for devices like card readers, printers, and cash drawers. |
|
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 robust encryption to protect sensitive data.
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