What Is a POS System, and How Does It Work?

What Is a POS?

A POS, or point of sale, is a device that enables merchants to process payments and log transactions. It is essentially a computer-based cash register with software capable of tallying up orders, taking payments, monitoring inventory and buying trends, creating invoices, and collecting marketing data.

POS technology includes countertop terminals and apps that let people or businesses take payments with connected devices such as smartphones. A POS may be a physical device in a brick-and-mortar store or a checkout point in a web-based store.

How a POS Works

The chief job of the POS is to calculate the total cost of an order, take payment, and log the transaction.

The process starts by recording the items to be purchased. In a supermarket, for example, this would involve entering the items into the POS with a barcode scanner. The software will record all the data, including the name and quantity of the items being purchased.

Once all the items have been added, it’s time to pay. Normally, there are two options: pay with cash or a card. Cash payments involve either inserting the relevant notes or coins into a machine or handing them over to the cashier. Card payments, on the other hand, could require either swiping, inserting, or tapping the card (physical or virtual) onto the card reader.

At this stage, the POS will connect to the cardholder’s bank, potentially ask for a PIN code, check if there are enough funds to clear the transaction, and then confirm whether the payment has been completed or rejected. This all happens in a matter of seconds and ends with the generation of a receipt that confirms the conclusion of the card transaction.

With online transactions, the process is slightly different. Usually, once you are ready to order, you need to click on the checkout option and then insert, if they haven't already been automatically saved, your payment details. That includes entering information about your card, such as its number(s), and your address.

Before completing the transaction, your bank may also contact you to confirm if you want to proceed with the payment.

POS Placement

Points of sale (POSs) are an important focus for marketers because consumers tend to make purchasing decisions on high-margin products or services at these strategic locations. Traditionally, businesses set up POSs near store exits to increase the rate of impulse purchases as customers leave. However, 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. The designated staff can actively promote products and guide consumers through purchase decisions rather than simply processing transactions. Similarly, the format of a POS can affect profit or buying behavior, as this gives consumers flexible options for making a purchase.

Benefits of POS Systems

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

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

POS Innovation

Modern POS systems are commonly programmable or allow enhancement with third-party software programs. These systems can be tailored to meet specific needs. For example, many retailers use POS systems to manage membership programs that award points to frequent buyers and issue discounts on future purchases.

Cloud-based POS systems are increasingly in use, particularly for large online merchants, to track and process numerous purchases. Cloud-based systems can greatly reduce the upfront costs of implementing a POS system for many businesses.

Customers can also interact directly with POS systems, particularly in the hospitality industry. Often referred to as location-based technology, these systems can process transactions at customer locations. For example, at many restaurants, customers can view menus and place orders on terminals located at their table. In hotels, customers use similar terminals to place orders for room service or to pay hotel bills.

To stay competitive and aid brand owners in promoting their products, POS display manufacturers are focused on improving aesthetics and creating innovative product designs. Also, the intensifying competition in the retail industry and resulting use of POS displays for enticing customers to purchase products have encouraged retailers to demand different custom-made displays capable of serving specific needs across different retail facilities. Customization offered in terms of aesthetics, capacity, and mobility can greatly impact a company’s brand identification.

Further innovation keeps happening all the time. For example, Amazon experimented and rolled out for a while a cashierless "Just Walk Out" option at Fresh grocery stores, which enabled customers to pay for an item simply by leaving the store. The tech giant has since ditched this option in favor of "Dash Carts", which let you scan items as you place them into your shopping cart and then leave the store without queuing at checkouts.

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.