How the Point of Sale (POS) Industry Works

How the POS industry works_customer

It’s easy to forget that whenever you purchase something at a brick-and-mortar store or restaurant that there’s a lot more going on behind the scenes than meets the eye. Not only the technologies physically present that make the transaction possible, but also the efforts of numerous people and multiple hardware and software companies that come together and create an ecosystem at the point of sale.

Whether you’re researching point of sale solutions for your business, or want to understand more about the POS industry, here is a summary of how the point of sale industry works.

POS Hardware Manufacturers

Point of sale hardware is all of the physical devices you see sitting on top of the counter at the point of purchase. POS hardware manufacturers create a variety of different POS hardware peripherals such as:

  • All-in-one touchscreen POS terminals and tablets
  • Barcode scanners
  • Cash drawers
  • Receipt printers
  • Customer-facing displays (pole displays)
  • Digital scales

While there are some manufacturers such as Zebra Technologies that manufacture a variety of different solutions — for instance, barcode scanners and receipt printers, many others focus on producing one specific type of hardware.

POS Software Developers

On the other side of the fence, POS software developers focus on creating software that provides point of sale functionality such as sales, returns, inventory control, reporting capabilities, a customer database or CRM, and much more. Software developers work with a variety of hardware manufacturers to integrate their devices with the software.

Different industries have varying needs when it comes to the actual point of purchase procedure and general operational needs. For instance, the retail sector is relatively cut and dry — at least on the surface. A customer brings their items to the counter, the cashier rings them up, the customer pays, and a receipt prints out as proof of the purchase.

In contrast, at a fine-dining restaurant, the entire transactional process and checkout experience are entirely different. Rather than pay for items as customers order them, the waitstaff opens a check and assigns a table number to it. The server adds menu items as requested, and then presents a final check once the meal is complete. The open checks, table management, and traditional back and forth to authorize card payments or give change for cash sales is entirely different from the retail process we previously described.

Given these unique needs, it’s common for developers to customize the software to serve specific types of businesses such as retail POS, restaurant POS, and salon POS to name the big three.

PointofSale POS Industry infographic How the POS industry works

POS Software: Cloud vs. On-Premise

In addition to the distinct features that set different types of POS software apart from one another, the network communication structure can also differ. Historically, most POS software was based on a client-server model, whereby terminals would connect to a server located on the premise.

While this setup is the optimal choice for maximum uptime because you don’t have to rely on an external internet connection, it also means all your business data is stored on premise. Therefore, if you want to review reports, make changes to the menu or update inventory, you need to be at the physical location to do so.

Today, many developers deliver their POS solutions via the cloud. By removing the need for a local server, administration, and upkeep, cloud-based solutions store business data on a remote server that you access via an internet connection. Although this means your uptime is at the mercy of an external internet connection, it also means you can access your business data with secure login credentials from anywhere you have an internet connection.

The cloud trend is very real, and according to research by MarketsandMarkets, the global cloud POS market size is expected to grow from $1.3 billion in 2018 to $3.7 billion by 2023, at a CAGR of nearly 23 percent.

Payment Providers

A key part of today’s modern POS industry landscape are companies that facilitate credit and debit card payments. From card networks (Visa, Mastercard, American Express, Discover) to issuing banks, payment processors and acquiring banks, there are a lot of moving parts when it comes to facilitating and processing an electronic transaction – and this is only behind the scenes.

On the surface, you have payment terminals—both fixed and mobile—that allow customers to swipe cards (i.e., magstripe), dip (i.e., EMV), or tap (i.e., NFC) for payment. These payment terminals read the customers’ card information and then securely transmit the data from the issuing bank to the acquiring bank via the payment processor.

POS Value-Added Resellers (VARs)

Once the software developers and hardware manufacturers complete the integration and are ready to bring the complete POS solution to market, they may engage Value-added Resellers (VAR)

POS VARs, also known as POS resellers or dealers, are IT specialists who work directly with business owners to find the right blend of technology, hardware, and software that fits their business needs. Reputable VARs bring decades of experience and will perform assessments to ensure their solution meets the needs of their customers, no matter how niche the industry.

The local VAR may be a two person or fifty-two person operation, but companies ultimately behind them are modestly sized software developers to multi-billion dollar distributors and layers of expert industry personnel, all working to ensure a smooth and seamless POS installation and a solution that makes their customers’ business more efficient and profitable.

Value-added resellers act as trusted advisors, providing value to their customers through their years of experience and ongoing support. They may work independently, sourcing hardware and software directly from manufacturers, or with a POS distributor for added support and expertise.

Point of sale resellers will also perform the POS system installation, coordinating and supervising any necessary cable and electrical installations. VARs also provide on-site training to ensure the staff and managers understand how to use the solution to maximize the ROI of the investment.

See Also: The Truth About Cloud POS vs. Traditional POS

POS Distributors

Another option the POS system creators have to bring their solution to market is to enlist the help of a POS distributor. Point of sale distributors act as liaisons between manufacturers and developers to value-added resellers (VARs), POS dealers, and end users.

Distributors such as BlueStar, Ingram Micro, and ScanSource work with a broad line of hardware, software, and payment device manufacturers who lack the infrastructure or interest in working directly with VARs or the end-user customers. They can also supplement a resellers’ business in a few key ways:

  • POS distributors can take care of unboxing, configuring, and testing equipment so VARs can more easily offer plug-and-play installation for their clients.
  • They can provide sales and marketing assistance by sending you qualified leads and equipping you with useful marketing materials to help you sell.
  • Lastly, distributors will extend a line of credit to VARs, making large purchases hassle-free.

By working with a distributor, VARs gain the benefit of accessing many different products from one centralized source. Due to the full range of solutions a distributor carries, VARs can bundle together custom-built solutions for businesses and budgets of all sizes.

Buying a POS System: Direct Sales vs. POS Resellers

Now that you have an understanding of how a point of sale system is created and brought to market, let’s take a look at buying a POS system. When it comes time to purchase a point of sale solution, business owners have two options:

Buy a POS System From a Reseller

Like we mentioned in the previous section, merchants, business owners, and end users can buy a POS system via a local POS reseller. Many VARs operate in and service their local area or region, which allows them to build relationships and trust in the community. Finding the right POS reseller for your business can be as simple as searching online for POS resellers in your city, using an online directory, or asking other business owners whom they use and their opinion of the experience.

In this model, the manufacturer sells to a POS distributor or value-added reseller (VAR) who sells, installs, and supports on the manufacturer’s behalf. Let’s look closer at POS distributors and VARs.

Buy a POS System Directly From the Software Company

In this model, the software company sells directly to the end-user or business owner. All distributors, VARs, and intermediaries are cut out of the loop. The company must have the sales infrastructure in place to generate end user leads, as well as teams to install and support the equipment — which is no easy feat.

Since software companies main priority is to create great software, most don’t have an appetite for incorporating a direct sales model unless it’s for large accounts that require white glove treatment.

Finding the right way to buy a POS system comes down to your specific business needs and personal style and preference. For instance, if you have a more complex business model, require multiple technologies to manage your business, and prefer a hands-on approach, going with a local reseller is probably the right choice for you.

How to Choose a POS System

With thousands of hardware and software products available and countless combinations, it’s essential to follow some best practices when it comes to choosing a POS system. Here are a few tips to follow:

  • Make sure all hardware and software are tested for interoperability.
  • Buy from reputable, proven brands. Many companies are trying to cash in on the latest trends and lack the experience and infrastructure to support what they’re selling.
  • Seek solutions purpose-built for your specific business or industry.
  • Ask for referrals from businesses similar to yours.
  • Regardless of whether the POS system is sold direct or through a VAR, make sure training and support are offered as needed.
  • Seek hardware and software partners that are innovators. The POS industry is rapidly evolving, so choose partners willing to make the necessary investments to grow and adapt.
  • Select software that can grow with you. Having fully featured software means you can turn on new features as needed — when you’re ready.

The Wrap Up

The installation of a point of sale system is the culmination of a multi-billion-dollar industry with numerous players adding value at every stage of the process. End-users of a POS system and their customers may not see or appreciate the tens of thousands of people involved, but they are there, in the background, helping to make it happen day in and day out. We hope this article has given you an understanding and appreciation for how the POS industry works.

About the Author

Mike Monocello

A former VAR and ISV, Mike Monocello is the co-founder of McM Media, publisher of DevPro Journal and XaaS Journal, and a regular contributor to   Mike is also the owner and publisher of SCAN: The Data Capture Report and a regular contributor to RSPA Connect magazine and part of the RSPA’s education faculty.