How Does a Point of Sale Terminal (POS Terminal) Work

What is a POS terminal and how does a Point of Sale terminal work exactly? Read this article and find out everything you need to know!

 POS terminals or Point of Sale terminals experienced a huge growth, after following the withdrawal of currency notes, even as the number of new devices installed has increased. Here is how everything works:

 A POS terminal or Point of Sale terminal is a digitalized replacement for a traditional cash register which can process debit and credit cards. The customer has to enter his card PIN in order to complete the transaction and use the POS terminal successfully.

If you are interested in installing a POS terminal, you can request the bank where you have an account to install POS devices at your store. When it comes to the charges, the end-user doesn’t have to pay anything for using his credit or debit card, while the merchant has to pay the bank MDR or merchant discount rate. In practice, even though customers don’t have to pay anything, the sellers usually increase the price of the products or services they offer, so they can balance the charge and pay the issuer bank.

 There are separate charges for debit and credit cards. MDR for debit cards at 0.75% of the transaction amount for value up to 2000 and 1% for value above 2000. For credit cards, MDR can vary between 1.5% and 2.5%. By following the withdrawal of tender status to the previous currency notes, RBI has asked the banks to lower the MDR. In this period, MDR is capped at 0.25% for debit cards for transactions up to 1000 and 0.5% for transactions above 1000.

 The accounts are usually settled at the end of each workday, once the merchant is done and ready to close the store. The bank credits the total amount to the account of the merchant, after deducting charges.

The MDR that every merchant is obligated to pay is divided among 3 entities – the payment gateway, the acquirer bank (the bank that installs the Point of Sale terminal) and the issuer bank (the bank that issues the debit or credit cards. The issuer bank receives the maximum share.

 Now that you know how POS terminals work and how you can install one, don’t hesitate and take an action now. Your customers will thank you!