Point-of-Sale (POS) Terminal
A point-of-sale (POS) terminal is a hardware or software system used to process credit and debit card transactions. The technology is roughly the card-based equivalent of a cash register — it records the sale and accepts payment for the purchase. POS terminals are used for in-person (card-present) payments; the card-not-present version is a payment gateway.
As technology evolves, some businesses are moving away from proprietary hardware and toward software-based POS systems loaded onto mobile devices like phones or tablets.
Most POS terminals have been upgraded to support both the legacy card-swiping procedure and also the new EMV chip reading process. The most modern devices also support near-field communication (NFC) or contactless payments.
POS Terminal FAQ
Payment industry terms are often confusing and challenging to understand. The following are some of the most commonly asked questions about POS terminals.
How does a POS terminal work?
When a cardholder attempts a transaction at a POS terminal — either by swiping the card, inserting the EMV chip, or using contactless payment — an authorization request is sent through the payment processor to the issuing bank.
If sufficient funds are available and the card is not reported as lost or stolen, the processor returns an approved response and the transaction goes through.
After authorizing the transaction, POS systems usually have the ability to print or send electronic receipts.
A POS system will use one of two methods to authenticate a transaction and try to verify the shopper is authorized to use the card:
- Requesting the shopper’s signature
- Requesting the personal identification number (PIN) associated with the account
PINs are the most secure form of authorization. If the merchant doesn’t require a PIN or the POS technology doesn’t support that authorization technique, the transaction is eligible for a chargeback.
Where do I buy a POS terminal?
POS terminals can either be purchased outright or rented as part of an agreement with a payment processor.
Modern POS options include fully integrated hardware and software setups or POS software that can be loaded onto mobile devices like iPads.
Do I need a POS terminal for online payments?
No. The online equivalent of a POS terminal is a payment gateway.
Do POS terminals increase my risk of chargebacks?
Not necessarily, but you must know how to use your POS correctly. For example, if a payment card is PIN-preferring but you only ask for a signature, you are susceptible to chargebacks.
How do I know if my POS terminal is NFC compatible?
Reach out to your POS provider or payment processor and ask.
Most EMV-compatible POS terminals also have NFC capabilities. If your current system doesn’t have NFC technology, there may be a hardware add-on available.