What Is POS?

What Is POS?

Let me tell you directly: A POS, or point of sale, is what enables merchants like you to process payments and log transactions. It's essentially a computer-based cash register equipped with software that tallies orders, handles payments, monitors inventory and buying trends, creates invoices, and collects marketing data.

This technology covers countertop terminals and apps that allow people or businesses to take payments using connected devices such as smartphones. You might see a POS as a physical device in a brick-and-mortar store or as a checkout point in a web-based store.

How POS Technology Works

Point-of-sale technology typically uses barcode scanning to calculate the total cost of an order, take payment, and log the transaction. The software records the data, including the name and quantity of the items.

For cash payments, you insert notes or coins into a machine. Card payments require swiping, inserting, or tapping the card onto the reader. The POS system connects to the cardholder’s bank, might ask for a PIN code, checks funds to clear the transaction, and confirms if the payment is completed or rejected. E-commerce businesses use POS platforms to facilitate and track online sales, where consumers click checkout and input payment details.

Two key innovations—EMV chip and Near Field Communication (NFC) technology—help prevent fraudulent transactions for POS terminals. These systems read encrypted data in the card and detect and decline counterfeit cards. They wirelessly accept and authorize payment from a contactless card or payment data stored on a smartphone, ensuring the card data isn’t stored in the merchant’s system.

Warning

Be aware: The Federal Trade Commission recorded $1.8 billion in bank transfers and payments fraud in 2023.

Benefits of POS Software

Electronic POS software systems streamline retail operations by automating processes and tracking important sales data. Basic systems include an electronic cash register and software to coordinate data from daily purchases. You can increase functionality by installing a network of data-capture devices, including card readers and barcode scanners.

Depending on the software features, you can track pricing accuracy, inventory changes, gross revenue, and sales patterns. Using integrated technology to track data helps catch price discrepancies or cash flow issues that could lead to profit loss or interrupt sales. POS systems that monitor inventory and buying trends help avoid customer service issues like out-of-stock sales and tailor purchasing and marketing to consumer behavior.

Marketing and Innovation

Consumers use POS terminals as they check out from a store with their purchases. However, points of sale are an important focus for marketers because customers tend to make impulsive purchasing decisions on items placed near the register. Items near the checkout counter are usually enticing, convenient, and eye-catching for shoppers.

Varying POS locations can give retailers more opportunities to micro-market specific product categories and influence consumers at earlier points in the sales funnel. For example, department stores often have POSs for individual product groups, such as appliances, electronics, and apparel. Many retailers use POS systems to manage membership programs that award points to frequent buyers and issue discounts on future purchases.

POS systems use cloud-based technology to reduce the upfront costs of implementing a POS system for multiple businesses. With location-based technology, these POS systems can process transactions at customer locations. Amazon created a cashierless 'Just Walk Out' option at Fresh grocery stores, which enables customers to pay for an item simply by leaving the store. 'Dash Carts' let customers scan items as they place them into their shopping cart and then leave the store without queuing at checkouts.

What Was the First Point of Sale (POS) System?

The first point of sale (POS) system was the cash register invented in 1879 by James Ritty, a saloon owner in Ohio. Users recorded transactions on the register, allowing for better bookkeeping and capital management. Ritty sold his invention to National Cash Register (NCR) Corporation five years later.

How Do Retailers Help Prevent Fraud at POS?

Businesses commonly require customer verification. In-store debit card purchases usually require customers to input a PIN. Online or telephone orders commonly require customers to input the CVV code on the back of their payment card.

How Can Consumers Report POS Fraud Suspicions?

The Federal Trade Commission's Consumer Sentinel Network website is a database that receives reports directly from consumers, federal, state, and local law enforcement agencies, the Better Business Bureau, industry members, and non-profit organizations.

The Bottom Line

A point of sale (POS) device processes transactions by retail customers. Such a device may be physical, in a brick-and-mortar store, or virtual, as a checkout point in an online store. The software for POS devices allows retailers to monitor inventory and buying trends, track pricing accuracy, and collect marketing data.