Behind Every Tap: The Story and Science of POS Systems

1. Introduction

Every time you tap your card or phone to pay, a tiny machine beside the cashier does a lot more than it seems. It talks to your bank, checks your balance, gets approval, and prints that satisfying receipt — all in just a few seconds.
This magic happens thanks to Point-of-Sale (POS) systems — the backbone of card-based payments. In this article, we’ll explore what POS systems are, how they work, and the story behind their invention.

2. The Origin of POS Systems – Where It All Began

Before the 1970s, payments were entirely manual. Cashiers used mechanical registers, and every card payment involved paper slips that had to be processed by banks days later.
The real transformation began in 1973, when IBM introduced one of the first computerized POS systems for restaurants. But the real revolution in electronic card payments came in 1979, when Visa launched the Visa Net network, allowing real-time electronic authorizations — this made modern POS possible.
During the 1980s and 1990s, POS terminals evolved from bulky wired machines into smaller, digital, and connected devices.
By the 2000s, wireless and contactless technology turned the POS terminal into the fast, smart payment point we know today.
So, when you tap your card today, you’re actually using technology that has been improving for over five decades.

3. What is a POS System?

A Point-of-Sale (POS) system is the combination of hardware and software used to process transactions when a sale takes place. It’s what connects the customer’s payment instrument (like a card) to the financial system that verifies and transfers the money.
Typically, a POS system includes:

• Hardware: the physical terminal, card reader, receipt printer, and sometimes barcode scanner or cash drawer.
• Software: manages sales, calculates totals, connects with the bank, and sends/receives authorization messages.

Modern POS systems don’t just process payments — they also track inventory, manage loyalty programs, and generate analytics for business owners.
They support multiple payment types:

• Chip (EMV) cards
• Magnetic stripe cards
• Contactless / NFC payments
• Digital wallets (Apple Pay, Google Pay, etc.)

In short: a POS system is the frontline of electronic payments — where money securely moves from the customer to the merchant.

4. Types of POS Devices

Depending on where and how merchants operate, POS systems come in different forms:

• Countertop POS: Fixed devices used in retail stores and supermarkets.
• Mobile POS (mPOS): Portable readers connected to a phone or tablet — great for small merchants and couriers.
• Smart POS: Android-based devices that combine apps, analytics, and payment acceptance.
• Integrated POS: Large-scale systems directly linked to ERP or inventory software for big retailers.

 5. How a POS Card Transaction Works (Step-by-Step)

The POS transaction process involves multiple players — the customer, merchant, acquiring bank, card network, and issuing bank. Here’s what happens step by step, matching exactly what you’ll see in the diagram:

Step 1: Transaction Initiation

The customer presents their card (chip, tap, or swipe).
The POS terminal reads the card details — PAN, expiry date, and service code — and the merchant enters the amount.
It then encrypts this data (using DUKPT or AES) before sending it out, ensuring that no sensitive information travels unprotected.

Step 2: Sending the Authorization Request

The POS builds a standard message (based on ISO 8583) and sends it to the Acquiring Bank — the merchant’s bank.
The acquirer validates the message format and applies routing logic before securely forwarding it through the Card Network (e.g., Visa or Mastercard).

Step 3: Processing by the Issuer Bank

The card network identifies which Issuing Bank (the customer’s bank) should receive the request, based on the BIN (first 6–8 digits of the card).
The issuer checks:

• If the card is valid and active.
• If the account has enough balance or credit limit.
• If security checks like PIN, CVV, or token are correct.
• If there’s any risk or fraud alert.

If everything looks good, the issuer sends back an Authorization Response, usually with a response code like:

• 00 – Approved
• 05 – Do Not Honor
• 51 – Insufficient Funds

Step 4: Returning the Response

The authorization response travels back along the same path —
Issuer → Card Network → Acquirer → POS Terminal.
The POS displays “Approved” or “Declined,” prints or sends a digital receipt, and stores the transaction record.

Step 5: Clearing and Settlement

At the end of the day, the POS batches all approved transactions and sends them to the acquirer.
The Card Network reconciles all positions between issuers and acquirers.
Then:

• The Issuer Bank transfers the funds (minus interchange).
• The Acquirer Bank credits the merchant’s account.
• The merchant receives the final amount (usually within one business day).

6. The Key Players

7. Common Terms

8. Why POS Systems Matter

POS systems have quietly reshaped the way we pay.
They made transactions faster, safer, and more traceable — enabling today’s digital economy.
From small cafés to multinational retailers, every smooth checkout you experience owes something to this decades-old invention that keeps evolving with each tap.

9. References

• Visa – Payments Processing: Visa Payments Processing APIs
• Mastercard – Payment Processing Guide: How Credit or Debit Card Payment Processing Works
• Worldpay – Card Payment Processing Overview: How Credit Card Processing Works
• ISO 8583 Standard: ISO 8583 – Message Format