Point of Sale
Point of sale is where a sale is completed — the till, the counter, the checkout — and, in payments usage, the system that does it: the terminal that accepts the card and the software that records the sale, manages inventory, prices and staff. The terminal and the till were separate for decades; the integrated POS system is now the product, and the payments are the revenue that funds the software.
- Also known as
- POS, POS system, POS terminal, Till
- Used at
- every physical merchant; the POS terminal is the card-present acceptance device; the POS system is the business software it is part of; "POS" in a payments contract usually means the terminal, in a retail one the whole system
- Binding
- EMV and scheme certification for the terminal, PCI DSS for the environment (P2PE to take the POS software out of scope), and for the software, the merchant's own integration and data obligations
- Typical architectures
- standalone terminal (payments only, receipts keyed to the till by hand); integrated (the till sends the amount to the terminal and receives the result); cloud POS (a tablet app running the shop with payments built in — Square, Lightspeed, Toast, Shopify POS); enterprise POS with a payments integration layer
- Typical economics
- the cloud POS vendors sell software subscriptions and earn most of their revenue on payments processed through the system at a blended rate — the "software plus payments" model that priced their IPOs; traditional terminal vendors (Ingenico, Verifone, PAX) sell hardware and services to acquirers
- Parties
- the merchant, the POS software vendor, the terminal manufacturer, the acquirer or facilitator behind the payments, the schemes, and the customer at the counter
How point of sale works in practice
A restaurant runs a cloud POS on tablets. A server enters the order; the kitchen display shows it; the bill is presented on a handheld terminal that is part of the same system; the customer taps a card; the terminal authorises through the POS vendor's payment facilitation; the sale, the tip, the tax and the payment are one record. At close, the system reconciles the day's sales to the payments, reports the staff's hours and the stock consumed, and pays out the card takings the next morning. The restaurant pays a monthly subscription for the software and 2.5% on the payments; the vendor earns most of its revenue from the second.
The merger of POS and payments changed the industry's structure. When the till and the terminal were separate, acquirers competed on rate and the POS vendor sold software; once the POS vendor became the payment facilitator, it owned the merchant relationship, the data and the payments margin, and acquirers became wholesale suppliers behind it. The vertical POS platforms — for restaurants, salons, gyms, retail — are payments companies dressed as software, and their valuations reflect both: software multiples on the subscriptions, payments multiples on the volume.
For payments M&A, POS is where the merchant is captured: the acquirers buying POS vendors, the POS vendors becoming acquirers, and the terminal makers selling to both.
Example
A restaurant POS vendor has 60,000 locations paying €120 a month in subscriptions — €86m — and processing €18bn a year at a blended 2.4%, of which it keeps 0.7% net: €126m. Its costs of hardware (handhelds at cost), onboarding and support are covered by the subscriptions; the payments margin is its profit. A rival acquirer with better wholesale rates offers the vendor 0.15% lower processing costs to move its volume — €27m a year; the vendor moves, its acquirer of five years learns from the press release, and the vendor's valuation, at 8× net revenue, rises by €200m on a decision its merchants never noticed. The acquirer that lost the volume buys a POS vendor of its own the following year.
Common mistakes
- Buying POS software and payments from different vendors and reconciling by hand forever. - Terminals integrated with the till by a cable and a prayer, so every software update breaks the payment. - POS environments in PCI scope because the card data passes through the till. - Vendors pricing software cheaply on the assumption the payments margin will hold as merchants learn to negotiate. - Acquirers reading the POS vendor as a channel partner when it is the merchant's owner.