POS Transaction: Example, Types, Key Features and Process

In today’s fast-paced world, Point of Sale (POS) transactions are essential for smooth, secure payments. Whether you’re a business owner or a consumer, understanding how POS systems work—from technology to process—can enhance your experience. This guide breaks down the key elements behind every transaction, providing valuable insights into the systems that power modern payments.

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What is a POS transaction?

A Point of Sale (POS) transaction refers to the moment when a customer makes a payment for goods or services at a retail location or online. This transaction is facilitated by a POS system, which integrates both hardware and software to process payments, manage inventory, and generate sales reports.

what is a point of sale transaction — What is a point of sale transaction?

POS transaction example

Here are some typical examples of POS transactions:

Retail Purchase: A customer buys a pair of shoes at a store, swipes their debit card at the POS terminal, and the system authorizes the payment to complete the transaction..
Restaurant Bill: A diner orders a meal at a restaurant, and after the meal, they pay the bill using a credit card at the POS terminal. The transaction is processed for the payment amount.
Online Retail Checkout: A customer shops on an online platform and proceeds to the checkout. They enter their credit card details, and the website’s POS system processes the payment, completing the transaction.
Gas Station Payment: A customer fills up their car at a gas station and uses a credit or debit card at the POS terminal at the pump to pay for the fuel.
Ticket Purchase: A customer buys a movie ticket at a cinema, swipes their credit card or uses contactless payment to complete the transaction at the POS terminal.
Subscription Service: A customer subscribes to a service (e.g., a gym membership), and the POS system processes the payment, often linking it to recurring billing.

>> See more: 10 Best eCommerce Subscription platform in 2025

Types of POS Transaction

POS transactions can be categorized based on various factors, including the method of payment and the context in which they occur. Here are the primary types of POS transactions:

Online Transactions (Card-Not-Present)

These transactions occur through e-commerce marketplace where the customer does not physically visit a store. Customers enter their payment details online to complete purchases. This type includes payments made via credit cards, debit cards, or digital wallets like PayPal or Apple Pay.

Offline Transactions (Card-Present)

Offline transactions happen in physical retail environments where customers pay for goods directly at the point of sale using a POS terminal. This includes payments made with credit cards, debit cards, cash, or mobile payments. The transaction is completed instantly, and a receipt is generated for the customer

Mobile Payments

These transactions utilize mobile devices to process payments, often through apps or mobile POS systems. Customers can pay using their smartphones by tapping them against a POS terminal that supports NFC (Near Field Communication) technology.

Mail Order/Telephone Order (MOTO) Transactions

MOTO transactions involve customers placing orders over the phone or through mail, where payment information is processed manually by the seller using a POS system. This method is common in industries like travel and services.

Return and Refund Transactions

These transactions occur when a customer returns a purchased item and receives a refund. The POS system processes this as a reverse transaction, updating inventory and financial records accordingly.

Cash Transactions

In this type of transaction, customers pay with cash at a physical location. The cashier enters the amount into the POS system to complete the sale.

Industry-Specific Transactions

Certain industries may have unique transaction types tailored to their specific needs, such as travel agencies processing ticket sales or sports venues handling ticket purchases at events.

The components of a POS system

Traditionally, a point of sale transaction processing system consists of point-of-sale hardware and software. But thanks to the development of technology, or more specifically, the cloud-based server gives merchants more mobility when it comes to using the POS system.

Common types of POS hardware

Depends on your business type, what you need to run a POS system can differ. But here are the most popular ones that most businesses would have:

POS terminal

A POS terminal is the device that the mobile POS software runs on.

Today, the terminal in a shop can be a laptop, desktop computer, smartphone, or tablet. In the past, the cash register was also the POS terminal. The new mobile devices allow staff to pick it up, move around the store, look it up for products and serve customers better.

Credit card reader

The card reader helps the payment to proceed securely when customers shop in-store. There are three ways that the device can accept credit cards: reading the card’s magstripe; reading the card’s chip through an EMV; or using NFC (near-field communication) to accept payments from mobile payment providers (e.g ApplePay, Samsung Pay).

Receipt printer

While a person can receive their receipt via email, a printed receipt is still pretty common for in-store shopping. The receipt allows a customer to keep a record of their purchase.

Barcode scanner

Merchants use the barcode scanner to manage their inventory. It also helps them to quickly find the information about an item when the customer asks for it. The scanner can be connected to the POS terminal by USB or Bluetooth.

Cash drawer

A cash drawer stores the cash paid by customers. It features several compartments for different coins and bills and connects to a POS terminal via USB or Bluetooth.

Key features of a POS system software

Payment processing

This is the core function of any POS software. Each time a customer pays for their products, the software will proceed with the transaction, and the business can receive their money. There are 6 payment types that a POS can accept: cash, online payment, magstripe credit card, chip card, contactless payment, and card-not-present transaction (when you have to manually enter a customer’s credit card info).

Inventory management

The software allows you to keep track of the available and already-sold products. If the reorder triggers are set up, the system can notify you when an item is running low. It simplifies your inventory management process and reduces the workload involved.

Customer relationship management (CRM)

You can create a profile for each customer from the POS CRM database. This way, you can keep a record of some information such as purchase history, payment information, and favorite products. Thus, you may analyze the data and plan a better way to serve your customers.

>> See more: 18 Best CRM Integrations for Magento 2 (Pros & Cons)

Employee management

Your staff can use this function to clock in and clock out of work. Moreover, you may schedule your employees’ shifts, track their working hours, and generate reports of their performance.

Omnichannel selling capabilities

Omnichannel is on the rise and it’s being adapted into the system by businesses, both online and offline. And to provide an integrated shopping experience, you should also pay attention to your POS system.

For instance, when a customer shops in-store and asks you to lookup an item’s price, you can easily get to them and check the information with a mobile POS terminal. You can tell them the price, the number of items left in stock, whether it’s on sale, or if it’s one of your store’s best sellers. These kinds of information can increase your conversion rate as well as help deliver a better shopping experience.

pos terminal — A shop uses a tablet as a POS terminal for more flexibility

Advanced reporting

Asides from management, advanced reporting is also a very useful feature of POS systems. The system can generate reports on all aspects of your business so that you can make decisions to improve your productivity and bottom line. There are usually several preset reports for multiple purposes, and several POS software even lets you customize the reports to your needs. The more insights you gain from these reports, the better you can allocate your resources and cut off unnecessary spendings.

POS transaction processing

Here’s a detailed overview of how POS transaction processing works, including its steps and components.

1. Transaction Initiation

In-Store: The transaction begins when a customer selects items for purchase. The cashier scans the items using a barcode scanner or inputs them manually into the POS system.
Online: In an online setting, the process starts when a customer adds products to their cart and initiates the checkout.

2. Payment Processing

The POS system captures the customer’s payment information through a card reader or payment gateway. The system then sends this information over the internet to a credit card network, which forwards it to the issuing bank for authorization.

After that, the issuing bank checks for sufficient funds and sends an authorization response back through the network to the merchant’s POS system, placing a hold on the payment amount in the customer’s account.

3. Inventory Management

When you sold items, the POS system automatically updates inventory levels in real-time, deducting sold items from stock. This prevents overselling and helps with stock replenishment.

4. Receipt Generation

After successful payment authorization, the POS system generates a receipt for the customer. The system then prints the receipt or sends it electronically via email or SMS, providing a record of the transaction.

5. Data Capture and Analysis

The POS system captures detailed data about each transaction, including purchase history and payment methods. You should store this information for analysis, helping businesses understand sales trends and customer behavior.

6. Transaction Settlement

Typically, businesses settle transactions in batches at regular intervals (e.g., daily). The issuing bank releases funds to the acquiring bank after deducting any interchange and processing fees. Then, the acquiring bank deposits the funds into the merchant’s bank account.

FAQs

What is POS in banking?

POS in banking refers to the comprehensive system that facilitates secure and efficient transactions at retail locations or online, playing a crucial role in modern commerce.

What is POS debit?

POS Debit, or Point-of-Sale Debit, is a transaction that involves using a debit card at a retail location or online to pay for goods or services. When the debit card is swiped, inserted, or tapped at the POS terminal, the funds are immediately deducted from the customer’s bank account, reflecting in real-time on their account balance.

Is ATM a POS transaction?

No, ATM transactions are not POS transactions. While both involve electronic payment processing, ATM transactions are specifically for cash withdrawals or balance inquiries, whereas transaction at POS pertain to purchases made at retail locations or online using a POS system.

Is PayPal considered a POS?

Yes, PayPal is a form of POS when used for online transactions. It acts as a payment processor that allows customers to complete purchases through e-commerce platforms or in physical stores that accept PayPal as a payment method

What is an international POS transaction?

An international POS transaction occurs when a customer makes a purchase at a merchant located in a different country than their own, typically involving currency conversion and cross-border fees. This can happen in physical stores or online when using international payment methods.

Is POS transaction safe?

Generally, POS transactions are safe when proper security measures are in place, such as encryption and compliance with PCI DSS (Payment Card Industry Data Security Standard). However, risks can arise from data breaches or fraudulent activities, so both merchants and consumers should remain vigilant.

How to track POS transaction?

You can track POS transactions through POS software, which records every sale and generates reports on sales data, inventory levels, and customer information. Many systems also offer real-time analytics and integration with accounting software for comprehensive tracking.

Takeaway notes

A POS system is essential for all business types, be it a small shop or a large brand. It helps the business keep a close track of their accounting and financial situation, eliminating errors made by humans, and support in other tasks such as inventory management or CRM.

There are many different POS systems out there, and each may offer specific features that serve your business better than the others. So make sure you’ve researched before opting for the final one. The right POS system would assist you in running your business smoothly and growing it in the future.