How Do Point Of Sale Payment Terminals Work
POS Terminals
25-05-2017 00:00:00
How Do Point Of Sale Payment Terminals Work

Following the withdrawal of high-value currency denominations by Indian government in November 2016, retailers are scrambling to get PoS terminals which have seen exponential growth in the last few months, even as banks finding hard to meet the demands due to insufficient locally-made POS machines.


The government had instructed the banks to install 10 lakh more Point of Sale terminals by March 2017, but according to Reserve Bank of India report, the number of POS terminals post demonetization has grown up to over 12.5 lakh in February 2017.  At the end of March this year, India had 27.73 lakh PoS terminals compared to 13.8 lakh machines in March 2016, the RBI data states.


So, what is a PoS payment terminal?


A Point Of Sale (POS) payment terminal is a small hand-held mobile device integrated with a card swiping slot, digital display, receipt printer and a key pad. Mobile POS payment terminals are provided to retailers by RBI designated banks only. 


These terminals are linked to the business accounts of the vendors in their respective banks. A sophisticated cash register, POS terminals can process debit and credit cards issued by banks. At the POS counter, a vendor has to swipe customers’ card and enter the exact billing amount and press the enter key. To make the payment serured, customers need to enter their card PIN to complete the transaction. Customers get acknowledgement slip immediately for the payment made through POS terminals. The vendors too get acknowledgement of credit from his bank on his Mobile phone.


Payment terminals are controlled by three entities - the issuer bank, the acquirer bank, which installs the PoS machines and the payment gateway.


These POS payment terminals are used in grocery stores, petrol pumps, hotels, showrooms, bakery shops, medicine stores, or any other retail stores where customers prefer cash-less transaction. 


How to install POS payment machine?


If you are a retailer and want to have a POS payment system at your store, then all you have to do is to make a request with your bank to install PoS machine/s at your establishment. If the bank is not among the RBI-designated one, it has to make a request with one of the designated banks to provide a payment terminal at its customer place.


Any Charges?


There is no charge levied on end-customers when they make payment through credit/debit card at the PoS terminal. However, the issuer banks charge merchants on every transaction what is called Merchant Discount Rate (MDR). The issuer bank installs the POS machines at the merchant place.


However, certain merchant pass on the MDR cost to customers by jacking up the prices of merchandise or ask customers to pay 2-5 per cent extra on the bill value when they opt to pay through credit/debit cards. 


Separate charges for debit and credit cards


The government has capped MDR charges for all bank debit cards but not for credit cards. The RBI in July 1, 2012 capped debit cards’ MDR at 0.75 per cent of the bill amount up to Rs 2000 and one per cent for a trading amount above Rs 2000. MDR for credit cards varies between 1.5 to 2.5 per cent.


After demonetization of old Rs1000 and Rs 500 currency notes, the apex bank had asked all banks not to charge MDR till the end of December 2016. Later it lowered the MDR rate to 0.25 per cent for debit card payment up to Rs.1000 and 0.5 per cent above Rs 1000 to Rs.2000 till March 31, 2017. In the absence of further orders, most of the banks are continuing with these MDR charges post March 2017.


Bank Settlement


Settlements are made as per the choice of merchants. Mostly, vendors choose settlement within a day. The respective banks credit the amount to the merchants’ account, after deducting MDR charges the following day.


Sharing MDR charges


As discussed earlier, credit card payment system involves three service providers -- the issuer bank, the acquirer bank and the payment gateway. The MDR is divided into three (unequal parts) among these entities. The issuer bank gets the lion share of the MDR.

-K Ramanathan

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