How does a POS terminal work?

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A POS terminal (Point of Sale) is a device used to accept payments by bank cards in stores, restaurants and other retail outlets. It allows the seller to accept payment from the buyer, process the transaction and transmit the data to the bank or processing center. Let's consider how a POS terminal works, what components it consists of and what stages the payment processing process includes.

1. Main components of a POS terminal​

A POS terminal typically consists of the following parts:

1.1 Card reader​

• Chip reader: Reads data from the card's microchip.
• Magnetic reader: Reads information from the magnetic strip on the back of the card.
• Contact/contactless NFC module: Allows you to accept contactless payments (e.g. via Apple Pay, Google Pay or cards with PayPass/PayWave technology).

1.2. Screen​

• Displays transaction information (amount, operation status).
• Can be touch-sensitive for ease of data entry.

1.3. Printer​

• Prints receipts for the customer and the seller.

1.4. Keyboard​

• Used to enter a PIN code or payment amount.

1.5. Communication modules​

• GPRS/3G/4G: For mobile terminals.
• Ethernet/Wi-Fi: For fixed terminals.
• Bluetooth: For connecting to smartphones or other devices.

1.6. Processor and memory​

• Processes transaction data.
• Stores transaction logs (especially important for offline mode).

2. How does the payment process work?​

When a customer pays for a purchase through a POS terminal, several steps occur:

Step 1: Entering Data​

1. The seller enters the payment amount on the terminal.
2. The client provides a card:
   • Inserts the card into the slot (chip).
   • Places the card on the NFC reader (contactless method).
   • Swipes the card through a magnetic reader (an outdated method).

Stage 2: Authentication​

The terminal checks the authenticity of the card and the owner:

• If the card has a chip, the terminal reads the data from the microchip.
• If a PIN code is required, the client enters it on the terminal keyboard.
• For contactless payments, authentication can occur automatically (if the amount is below the set limit).

Step 3: Transferring Data​

The terminal sends transaction data to the bank's processing center via a secure connection:

• Information about the card (number, expiration date, CVV - not always).
• Payment amount.
• Terminal data (identifier, location).

Step 4: Authorization​

The processing center checks:

• Are there sufficient funds in the client's account?
• Is the card blocked?
• Whether the transaction complies with established security rules.

If everything is OK, the processing center sends confirmation to the terminal.

Step 5: Completing the transaction​

1. The terminal displays a message about successful payment.
2. Prints receipts for the customer and the seller.
3. If the transaction is rejected, the terminal reports an error.

3. POS terminal operating modes​

3.1. Online mode​

• The terminal is constantly connected to the Internet or mobile network.
• All transactions are transmitted in real time.
• This is the safest and most common mode of operation.

3.2. Offline mode​

• If the terminal is temporarily out of communication with the bank, it stores transaction data in its memory.
• After the connection is restored, the terminal sends the accumulated data to the bank.
• Offline mode is more often used in remote areas or during communication failures.

4. POS terminal security​

Security is a key aspect of POS terminals, as they handle sensitive card data. Here are the main security measures:

4.1. Data encryption​

• All card data is encrypted before being sent to the processing center.
• Protocols such as TLS (Transport Layer Security) are used.

4.2. PCI DSS​

• POS terminals must comply with the PCI DSS (Payment Card Industry Data Security Standard), which regulates the security of card data processing.

4.3. Protection against counterfeit cards​

• Modern terminals support the EMV standard (Europay, MasterCard, Visa), which uses microchips to protect against fraud.

4.4. Protection from hacking​

• The terminals are protected against tampering (e.g. physical opening or installation of malware).

5. Types of POS terminals​

5.1. Fixed terminals​

• Connected to the power grid and the Internet.
• Used in shops, restaurants, cafes.

5.2. Mobile terminals​

• Compact devices with battery and mobile communication support (GPRS/3G/4G).
• Used by couriers, taxis, and markets.

5.3. Virtual POS terminals​

• Software that runs on a computer or smartphone.
• Allows you to accept payments via the Internet.

6. Advantages of POS terminals​

• Convenience for customers: Possibility to pay by card instead of cash.
• Automation of accounting: The terminal is integrated with product and revenue accounting systems.
• Security: Secure protocols and standards minimize the risk of fraud.
• Flexibility: Supports various payment methods (chip, contactless, magnetic stripe).

7. Conclusion​

A POS terminal is an essential tool for modern businesses, simplifying the payment process and improving customer service. It works as part of an ecosystem that includes banks, processing centers, and payment systems, ensuring fast and secure transaction processing.

If you need more information about specific terminal models or how to set them up, ask and I'll help you figure it out!