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A POS (Point of Sale) transaction happens whenever a customer buys products or services from your business. Imagine a customer picking up an item in your store and paying with cash, swiping their credit card, or tapping their smartphone. A POS transaction also occurs online, through invoices, via SMS or email, or through virtual terminals.
No matter how or where these transactions take place, they all get processed and recorded through your POS system.
What are the different types of POS transactions?
POS transactions can be categorized into in-person and online transactions, based on where they occur.
1. Cash
When the customer is physically at the store to make a payment, they can use cash to pay for their purchase. The customer hands over cash to the cashier, who enters the amount into the cash register. The POS system calculates the total and provides the change if any.
According to the Federal Reserve Bank, the cash usage of consumers with a bank account decreased from 25% to 17% in 2022. This indicates a decline in cash usage compared to other forms of payments, such as credit and debit cards.
2. Debit card transactions
A debit transaction happens when your customer uses their debit card to pay for something. The POS system sends the transaction details to their bank, which checks the card and account balance before approving the payment. Once approved, the money moves from their bank account to your account.
Another type of debit card transaction is a POS withdrawal, where the customer can withdraw cash while making a purchase. For example, if they’re buying $50 worth of groceries, they might ask for a $20 cash withdrawal. The customer will then pay a total of $70 with their debit card, and you hand them $20 in cash along with their groceries and receipt.
3. Credit card transactions
When customers use their credit cards for purchase, the customer's bank pays the merchant. The customer then repays the bank, either in full or through monthly payments with interest.
According to the Board of Governors of the Federal Reserve System, 82% of adults in the US had at least one credit card in 2022. This statistic highlights the widespread popularity of credit card usage for both in-person and online transactions.
Another form of credit card transaction is a hold transaction. For example, if a customer checks into a hotel and uses a credit card to pay a $200 security deposit, the hotel places a hold of $200 on their card to cover any potential charges, like room service or damages. The customer may see a pending transaction of $200 in their bank app, even though they haven't spent that money yet.
When the customer checks out, if there are no additional charges, the hotel releases the $200 hold, and the pending credit transaction disappears. However, if there are charges for room service or damages, the hotel will charge the card accordingly, and any remaining amount from the hold will be released.
4. ACH transactions
ACH (Automated Clearing House) payments are electronic bank-to-bank transfers that enable customers to transfer money directly from their bank accounts. The ACH transfer network is managed by NACHA, the National Automated Clearing House Association, a not-for-profit organization that connects around 11,000 financial institutions across the United States.
What are examples of a POS transaction?
In-Person POS transaction example
A customer is shopping at a local clothing boutique.
Step 1: The customer browses the store and picks out a few items they want to buy. They bring their selections to the checkout counter.
Step 2: The cashier scans each item's barcode using a barcode scanner that's connected to the POS system. If an item doesn’t have a barcode, the cashier can manually enter the item code or select it from the register screen.
Step 3: The POS system automatically calculates the total cost of $90, including any sales tax and discounts.
Step 4:
- If the customer pays with cash, they hand over $100 to the cashier. The cashier enters the cash amount into the POS system, which then calculates the change due back to the customer.
- If the customer decides to pay with a credit card, they insert or tap their card on the card reader.
- The customer can also use Apple Pay or Google Pay by tapping their phone. They select the saved debit or credit card in their mobile wallet to complete the payment.
Step 5: After the payment is processed, the receipt printer prints the receipt, and the POS system updates the inventory to reflect the sale of the purchased items.
Online POS transaction example
Digital invoicing: Imagine a consultant sending an invoice to a client via email. The client clicks on the payment link, chooses a credit card, and easily enters their name, card number, expiration date, and CVV on the online form. Just like that, the transaction is complete!
Subscription transactions: A customer signs up for a gym membership using ACH payment. During their visit, a sales associate helps them set up the start date and payment intervals, entering the bank details like transit number, bank ID, and account number. On every billing date, the POS system automatically transfers the money from the subscriber’s bank to the merchant’s bank, making the process smooth and effortless.
Virtual terminal: A customer calls a motorcycle dealership and shows an interest in buying a new bike. They need to pay a deposit before picking it up. Over the call, they provide their credit card details to the sales associate, who enters the info into the virtual terminal to process the deposit. Once approved, the associate emails the receipt and schedules the pick-up date. Easy and convenient!
Online checkout page: A customer adds items to their cart and heads to the checkout page. They enter their shipping info, choose to pay with a credit card, input their payment details, review the order summary, and click "Place Order." The customer gets a confirmation email with the receipt and tracking info.
How much does a POS transaction cost?
Credit card transaction fees
The processing fee for credit card POS transactions is from 1.5% - 3.5%.
Here are the top processors with the lowest processing fees for Canadian businesses:
Processor | Online fees | In-person fees |
---|---|---|
Helcim | 2.39% (avg) + $0.25 | 1.76% (avg) + $0.08 |
Moneris | 2.85% + $0.30 | 2.65% + $0.10 |
Square | 2.90% + $0.30 | 2.65% |
Stripe | 2.90% + $0.30 | 2.90% + $0.30 |
Clover | 3.50% + $0.10 | 2.30% + $0.10 |
Here are the top processors with the lowest processing fees for U.S. businesses:
Processor | Online fees | In-person fees |
---|---|---|
Helcim | 2.49% (avg) + $0.25 | 1.93% (avg) + $0.08 |
Moneris | 2.85% + $0.30 | 2.65% + $0.10 |
Square | 2.90% + $0.30 | 2.60% |
Stripe | 2.90% + $0.30 | 2.90% + $0.30 |
Clover | 3.50% + $0.10 | 2.30% + $0.10 |
The processing fees are made of two primary components:
- Interchange fees: These are fees paid to the customer's bank for processing transactions. These fees vary based on the card brands, whether the transaction occurs in-person or online, and the pricing model employed by the payment processor.
- Processor margin: This is the fee charged by the payment processor for accepting and handling the transactions.
Flat rate and interchange plus are two common pricing models that payment processors use.
Flat (fixed) rate: Moneris, Square, Stripe, and Clover charge a fixed rate for all transactions, regardless of the card type or industry.
- Pro: Easier for businesses to understand and forecast transaction costs.
- Con: The rates are higher to ensure profitability for the processor, meaning you overpay on most transactions.
Interchange plus: Helcim charges the actual interchange fee set by the card networks plus a transparent markup.
- Pro: Businesses can access the true cost of each transaction and often save in the long run.
- Con: Fees can fluctuate with each transaction, making them harder to forecast.
Despite the fluctuating fees, Helcim's merchants save an average of 24% on each transaction, based on millions of transactions.
If you're interested in discovering how much you can save on fees with Helcim, submit your statement here. We'll provide an estimate of your potential savings.
Debit card transaction fees
Just like credit card transactions, debit card transaction fees also have two main parts: the interchange rate and the processor margin.
Debit card transactions tend to be cheaper than credit card ones because they involve a direct transfer of real funds from the customer's bank account to yours. This means the banks don’t have to lend money or worry about late payments or defaults.
Also, there's another fee called a POS signature decline fee. This is what the bank charges customers if their debit card transaction is declined because they don't have enough funds. The fee helps cover the costs of processing that declined transaction.
ACH transaction fees
ACH (Automated Clearing House) transactions are the electronic transfer of funds between bank accounts. They typically have lower processing fees compared to card transactions. ACH transactions often have a flat fee per transaction, typically ranging from 0.5% – 1.5%.
Processor | ACH fees | Fee is capped at |
Helcim |
0.5% + $0.25 (avg) + $0.25 | $6 |
Square | 1% | N/A |
Stripe |
0.8% | $5 |
What do you need to process a POS transaction?
To process a POS transaction, you need both the right hardware and software working together smoothly.
POS Software
POS software is like the brain of your POS system. It handles everything from processing payments to managing business operations, customer info, and inventory. Not only does it work for in-person transactions, but you can also use it for online transactions. Cloud-based POS systems like Helcim allow you to access all payment tools such as invoicing, virtual terminal, subscription manager, payment page, etc. right from your browser.
POS Hardware
Common POS hardware are:
- Credit card readers for taking in-person payments
- Receipt printers for giving customers their records
- Cash drawers for handling cash transactions
- Barcode scanners for quickly adding items to a sale.
All these tools come together to keep your business running efficiently. Depending on your business operations, the type of hardware you need can differ. For example:
Retail stores, coffee shops, and restaurants: These businesses typically require an extensive set of hardware to accept payments and operate. For example, card readers, receipt printers, and kitchen display systems to keep orders flowing smoothly. This setup helps handle various aspects of their busy operations efficiently.
Food trucks, contractors, or pop-up shops: For these on-the-go businesses, simplicity and mobility are essential. Modern payment terminals now combine a POS system, card reader, and receipt printer all in one device, saving these businesses space and making it easy to carry anywhere. Besides, with Tap to Pay on iPhone, merchants can accept payments directly on their phone without any extra hardware.
How long does it take for merchants to receive payment?
For credit and debit card transactions, you'll usually see your payments in your bank account within 1-3 business days. ACH payments take a bit longer, usually showing up within 3-4 business days.
Why do credit card transactions take so long to receive?
You might wonder why it takes 1-3 business days to get your credit and debit payments. It’s because your payment processor needs to work with their bank (acquiring bank) to move the money from your customer’s bank to yours.
Instead of depositing the money after each transaction, they group all credit and debit transactions of the day into batches. At the end of the day, these batches are sent to the acquiring bank, which then transfers the funds to your bank account. This whole process usually takes 1-3 business days for the money to land in your account.
Why is ACH payment taking so long to show up in your account?
ACH payments usually show up in your account within 3-4 business days because the payment data has to go through several banks and clearing houses for verification. As a result, ACH payments typically take longer than debit or credit card transactions to process.
Can a POS Transaction be tracked?
Keeping an eye on your POS transactions can help your business resolve customer disputes and spot any fraudulent activities.
Your payment processors will track all your POS transactions for you. You can access these records through a dashboard, where you'll find all the details you need about each transaction, like the amount, date, status, and payment method, etc.
Can customers chargeback a POS transaction?
Your customers can file chargebacks for credit card transactions if they think the purchase was unauthorized, fraudulent, or if there was an issue with the product or service.
Above is the diagram that shows the general process of chargeback:
- Cardholder: The customer who initiates the chargeback.
- Card Issuer: The bank that issued the customer's card.
- Card Network: The network (e.g., Visa, MasterCard) that validates the dispute and processes reimbursement.
- Card Acquirer: The payment processor that handles payments for the merchant and withdraws disputed funds.
Besides, the chargeback may also come from friendly fraud. This occurs when a customer makes a legitimate purchase but later disputes the charge, claiming it was unauthorized or that they did not receive the item. According to Visa, 62% of surveyed merchants have experienced an increase in friendly fraud over the past year.
Fortunately, you can decide whether to accept or challenge it. Consider these questions before making your decision:
- Do I have sufficient evidence to counter the chargeback?
- Can I convince the customer to withdraw the chargeback?
- Is the cardholder’s claim valid?
If you're using Helcim, you have tools to help you counter and track chargeback resolutions. You can provide context and detailed information about the disputed POS transaction. After you submit your response, Helcim will keep you updated on the status and let you know if you've won or lost the chargeback case.
How to prevent fraudulent POS transactions?
Fraudulent transactions are unauthorized purchases made with stolen credit card information. Since the real cardholders are unaware of these purchases, they will dispute the transactions, which can cause you to lose sales, especially if you've already shipped the product.
To help prevent fraudulent POS transactions, payment processors offer tools to reduce the risk of fraud. If you’re with Helcim, our Fraud Defender tool evaluates the risk of each transaction based on several key factors:
- CVV Security Code: Fraudsters using stolen card numbers typically won’t have the CVV code. Requiring the CVV helps ensure the card is physically present.
- Address Verification Service (AVS): AVS checks if the provided street address and postal/zip code match what the cardholder's bank has on file.
- Transaction Size: Fraudsters often buy items they can resell, like a large quantity of the same product.
- Billing & Shipping Address: Fraudsters might use the real billing address of the stolen card but a different shipping address.
- Shipping Location: It’s a red flag if the shipping destination is in a different country than the billing address.
- Bank BIN: This verifies if the cardholder's bank is in the same country as the billing address.
- IP Address Location: It confirms whether the customer's IP address matches the billing address's city, state, and country.
Helcim’s Fraud Defender gives each transaction a risk score, helping you decide whether to proceed with shipping the product. If a transaction has a high-risk score, you might choose to refund the payment and avoid shipping the product, reducing the chance of chargebacks and merchandise loss.
Process POS transactions securely with Helcim
Helcim offers a flexible solution for accepting both in-person and online transactions without any monthly fees, contracts, or hidden costs.
Helcim provides free Point-of-sale software and apps that you can easily download to your laptop, tablet, or phone. Just connect a card reader to your device and start processing payments immediately.
For businesses that are always on the move or at job sites, like food trucks, plumbers, or contractors, the Helcim Smart Terminal is an ideal solution. It comes with a built-in POS app, card reader, and receipt printer, allowing you to collect payments and run your business anywhere. Additionally, with Tap to Pay enabled on the Helcim Point-of-Sale app, you can accept contactless payments using just your iPhone.
With just one Helcim account, you get access to a suite of free tools for online payments:
These tools are great for businesses that operate online and don’t need hardware to collect payments, such as freelancers, accountants, consultants, lawyers, and marketing agencies.
Interested in exploring Helcim? Sign up for free here or contact our sales team for more information.
FAQ
What is POS data?
POS data is the information collected during customer transactions at the point of sale:
- Sales Data: Amount spent, quantity purchased, payment methods used, etc.
- Inventory Data: Stock levels, product details, etc.
- Transaction Data: Date, time, transaction status, and payment methods, etc.
- Customer Data: Name, email, address, saved credit card information, etc.
By leveraging POS data, you can gain valuable insights to enhance customer experiences, and drive sales.
What is a POS credit transaction?
A POS credit transaction refers to the use of a credit card to purchase goods or services. They either swipe their card, insert it into the chip reader, or enter their card details online. The payment provider then verifies if the card is valid and if there’s enough credit available. Once the transaction is approved, a small processing fee is deducted from the total sale amount.
What is a POS debit transaction?
A POS debit transaction is when a customer uses their debit card to purchase goods or services. The payment provider will check if there are sufficient funds available in the customer's bank account. Once the transaction is approved, the amount is directly debited from the customer's account.
What is a POS withdrawal transaction?
POS withdrawal, also known as cash back or cash withdrawal at the point of sale, allows customers to withdraw cash from their bank account while making a purchase using their debit card. This service is commonly available at grocery stores, supermarkets, and other retail locations.
What is a Credit Card Hold transaction?
A credit card hold transaction is when a merchant temporarily reserves a certain amount of money on your credit card to make sure you have enough funds for a purchase. This hold reduces your available credit by that amount but doesn't finalize the transaction yet. The hold usually lasts until the merchant charges your card. If there is no charge, the hold is lifted after a few days, and your available credit returns to normal.