What is a POS system and how to choose one?

When a shopper is ready to make a purchase, you want to provide a smooth checkout experience — especially when they're in your store with a product in hand.

What is a POS system?

So, what is a POS system? A point of sale (POS) system is a platform businesses use to process and complete customer payments, whether online or in-store.

Before the internet age, the common system was a cash register. Now, portable and connected POS terminals, tablets, and monitors are popular alternatives. With this digital checkout technology, businesses can process contactless and secure transactions from almost anywhere.

How does a POS system work?

A point of sale system integrates all your transactions and customer data, helping you facilitate sales, gather customer insights, activate special offers and discounts, and manage product inventory all in one place.

When it comes to transaction processing, POS retail systems play a critical role in providing an easy checkout experience. Not only do they enable a range of payment methods, but they also calculate sales tax, log the transaction details (e.g., the date and time), adjust inventory records, and generate a receipt for the customer.

These features make point of sale systems particularly helpful for restaurants and brick-and-mortar stores. Cafes, for example, can use these comprehensive payment systems to send orders to their kitchens and track popular menu items, while retail shops can use POS technology to build customer databases and sales reports.

Point of sale example

Let's look at a point of sale example: Leo owns a record store called Chairman of the Boards, and he uses a tablet POS with advanced software. A shopper approaches the checkout counter to buy an album using her credit card.

Here's how the POS transaction would work from start to finish:

• A sales associate scans or selects the specific album on the store's POS-enabled tablet.

• The system software pulls up the album's price and adds sales tax, displaying the total amount owed.

• The customer swipes her credit card through the card reader hardware, which uses software to send a payment request from the Chairman of the Boards to her bank.

• The bank authorization is completed, and the record store's POS processes the payment.

• With payment received, Leo's POS software automatically updates his inventory data to show that a unit of that item was sold.

• The customer chooses to receive a digital copy of her receipt and provides her email address.

• The system emails the customer her receipt, and the transaction is completed.

POS hardware and POS software

A POS typically consists of both POS hardware and software. While every POS solution requires software, not all businesses may need dedicated hardware. For example, some businesses might opt for cloud-based or mobile POS that are accessible through smartphones or tablets.

Types of POS hardware

To understand what a POS system is, you should understand the types of hardware. With POS hardware, the primary role is to process transactions. To that end, businesses can choose from a range of hardware options, including:

• POS registers: A Wi-Fi-connected POS cash register can help you process transactions, accept different payment methods, and track sales data.

• POS terminals: These portable, all-in-one devices not only process different payment methods but also print receipts, accept tips, calculate taxes, and provide refunds.

• Tablets and monitors: Connected devices — like POS tablets and iPads — provide user-friendly, touchscreen interfaces for employees and shoppers while enabling checkout from anywhere in your establishment.

• Credit card readers: EMV card readers allow customers to quickly make purchases with a swipe, tap, or chip-enabled credit card securely.

• Receipt printers: For shoppers who prefer printed receipts over emailed receipts, dedicated receipt printers can fulfill their requests.

• Barcode scanners: With a barcode scanner connected to your POS, a customer or employee can pull product and price information instantly. Advanced barcode scanners will also support specialized scans, such as QR codes, for contactless checkout and redeeming special offers.

• Cash drawers: Customers who don't want to pay digitally or with a credit card should still have a fast option to make their purchases securely. Connected cash drawers can help protect your business's money and cash payments organized.

Types of POS software

Just like your phone or computer, POS systems run on software. Common types of POS software features include:

• Contactless payment processing: Securely accept payments from digital wallets and chip-enabled cards, making checkout quick and easy for shoppers.

• Data reporting: Access detailed reports about purchase trends and customer behaviors. Use these insights to create smoother customer experiences.

• Product and inventory tracking: Stay on top of your stock levels and keep your inventory updated, so customers always know what’s available.

Payment methods supported by POS systems

Payment processing is one of the most important features of any POS. Generally, the payment methods that systems can facilitate include the following:

• Credit and debit cards

• Digital wallets such as Google Pay and Apple Pay

• QR codes

• Gift cards

• Cash

• Contactless payments

• Card-not-present transactions, like when you manually enter credit card information

• Online payments through your e-commerce site

Types of POS systems

Given that every business has unique needs, finding the right POS is imperative. If you want to know what are POS systems, then you need to understand the different types of systems, such as:

• On-premise or traditional systems: Usually fixed to a static location like the checkout counter at the front or back of the shop, these solutions store data on a local server and are updated manually.

• Cloud or mobile systems: Because mobile systems connect to other devices using Bluetooth and Wi-Fi, they are portable and can be accessed throughout a retail location or even on the go. They also use cloud-based technology to store data, keeping people and devices connected in real time.

• Tablet-based systems: With tablets as the central device, these POS systems offer a larger screen and user-friendly interface. They can easily be placed at a checkout counter for a low-friction payment process.

• Online or e-commerce systems: Designed specifically for online businesses, these e-commerce tools integrate with websites or online marketplaces to process payments and manage orders. They can also be used to automatically track and organize e-commerce purchase data.

Top benefits of POS systems

Robust and well-integrated point of sale systems can take growing businesses to the next level in terms of driving sales and unlocking new growth opportunities — all while providing the tools for managing operations from anywhere.

POS integrations

Modern point of sale systems can connect to entire ecosystems of third-party platforms to help businesses sync data and simplify their workflows. With the right integrations, you can also avoid the hassle of learning new software or migrating data.

Common POS integrations include e-commerce, accounting, and inventory management platforms. For example, a business might connect its POS to an accounting platform, making it easy to track and report revenue come tax season.

Inventory management

Automatically update inventory in real time with your POS system. Some POS inventory management platforms will alert you when stock runs low. You can use this inventory data to reorder best-selling items in advance, so you don't run out of your most popular items.

POS data

Your POS can generate comprehensive sales reports from POS data related to customer activity and transactions, including total sales, cost of items sold, gross margins, and net profits.

With these insights at your fingertips, you can make more informed decisions to fuel small business growth.

Staff management

Use your POS to set up unique accounts for each employee. This way, staff members can clock in and out from one unified platform.

POS employee management features can also help business owners create schedules and track staff performance.

Tipping with a POS

Make it easy for customers to show their support by providing a POS tip screen at checkout. Many systems will prompt customers with suggested tip amounts, so they can simply tap and add the extra payment.

A POS tip management feature can also help you track, organize, and distribute employee tips as needed.

Build customer profiles

Create comprehensive customer profiles that store payment and contact information, purchase history, and loyalty program status so customers generally only have to share their information once.

You can then use this data to launch personalized marketing campaigns and distribute special offers based on each customer's interests and preferences.

Sales associates and customer service representatives can also access this information to deliver more personalized online and in-store assistance.

How to choose a POS solution

Choosing the right POS solution depends on the unique needs of your business. Consider a POS that supports the following:

• Multiple payment methods for fast, contactless transactions
• Hardware devices like card readers, barcode scanners, and cash drawers
• On-premise and cloud-based payments
• Integrations with third-party platforms
• POS reports of sales, costs, and profits
• Real-time inventory and staff management
• Customer profiles of contact information and purchase history

Understanding POS systems

POS systems are more than just payment processing tools. With the right features, they can help integrate and optimize processes across your business — from inventory management to accounting. These systems can also be customized to meet each company’s needs. Meaning you mix and match the hardware and software features that make most sense for your checkout experience.

Beyond traditional systems, mobile or cloud-based systems are transforming the way retailers function. With these connected solutions, you can meet shoppers with their preferred payment methods and generate detailed reports about customer behaviors. As your business grows, your POS can serve as a central hub for driving sales and keeping operations in sync across your organization.

If you’re shopping for a point of sale system, PayPal Zettle can help streamline transactions and business operations. Click here to learn more about our complete Point of Sale Solution.