Point-Of-Sale Terminal

A point-of-sale terminal is the hardware and software combination that accepts payment from a customer at the moment and location of a sale. It reads the customer's card through a swipe, dip, or tap, communicates with the payment network, and returns an approval or decline within a few seconds. Modern point-of-sale terminals do far more than just process payment: they manage inventory, record sales data, generate receipts, and integrate with accounting systems.

The terminal is the physical junction between a customer's bank account and a merchant's bank account.

How a Point-of-Sale Terminal Processes a Transaction

The process runs through four parties in a matter of seconds.

1. The customer presents their card at the terminal. The terminal reads the card data via magnetic stripe, EMV chip, or near-field communication technology.
2. The terminal sends the encrypted transaction data to the merchant's payment processor.
3. The processor routes the authorization request to the customer's card network, which forwards it to the issuing bank.
4. The issuing bank approves or declines based on the customer's available balance and fraud rules, and the response travels back through the same chain in under three seconds.

Types of Point-of-Sale Terminals

Point-of-sale hardware comes in several forms to match different business environments.

• Traditional countertop terminal: A fixed device connected by ethernet or Wi-Fi, typically used at a retail checkout counter. Brands like Verifone and Ingenico dominate this market.
• Mobile terminal: A card reader that attaches to a smartphone or tablet. Square's card reader and Stripe's Terminal are the most recognized examples. These serve food trucks, contractors, market vendors, and any business where payment moves with the seller.
• Integrated point-of-sale system: A full combination of hardware and software including a register, receipt printer, barcode scanner, cash drawer, and customer-facing display. Lightspeed, Toast, and Clover are major providers in this space.
• Unattended terminal: Self-service payment kiosks in gas stations, parking lots, vending machines, and transit systems where no human operates the device.

What EMV Did to Point-of-Sale Terminals

The shift from magnetic stripe to EMV chip technology, which the United States completed in 2015, fundamentally changed what a point-of-sale terminal must do. Magnetic stripe transactions transmitted the actual card number, which thieves captured using skimming devices. EMV chips generate a unique, one-time transaction code each time they are used. Even if a thief captures that code, it is worthless for any future transaction.

The liability shift that accompanied the EMV rollout meant any merchant still using a magnetic stripe only terminal was now responsible for fraud costs resulting from counterfeit cards. This accelerated terminal replacement across the industry.

Settlement and Funding

Approved transactions are not settled immediately. They are held in a batch. The merchant sends a batch of the day's approved transactions to their processor at the end of each business day in a process called settlement. The processor then moves the funds from the card networks to the merchant's bank account, typically within one to two business days. The amount deposited is the sale total minus the merchant discount rate, which is the fee the processor, card network, and issuing bank collectively deduct for handling the transaction.

Sources

• https://www.pcisecuritystandards.org/standards/point-to-point-encryption-p2pe/
• https://squareup.com/us/en/the-bottom-line/managing-your-finances/what-is-a-pos-terminal