The retail industry is enjoying a revival moment after the pandemic-prompted slump. The US retail sales alone could reach $5.5 million by 2027, with ecommerce transactions accounting for 30% of the market.
Ecommerce remains a preferred channel for many shoppers. Personalized product recommendations, loyalty-based discounts, and convenience are among the few factors that prompt customers to buy online. The newer-found affinity for online interactions has prompted many retailers to focus more on omnichannel operations — scaling a seamless customer shopping experience across channels.
Doing so pays off. Omnichannel customers tend to shop 1.7X more often than single-channel shoppers — and generate a higher paycheck. However, they also have higher expectations towards retailers. Buy online, pick up in-store (BOPIS) is now seen as a “given” option. Also, consumers expect end-to-end product availability and visibility across store locations, as well as personalized service attuned to their customer status.
To meet the above requirements, retailers must invest more in IT infrastructure, particularly point of sales (POS) systems. Read this guide to answer all the common questions about POS software selection and implementation.
Remind Me, What is the Point of Sale?
The point of sale (POS) is a place where a retail transaction is completed. In a physical store, POS refers to the checkout counter or cash register where customers finish a transaction by paying for their purchases. In ecommerce stores, the point of sale is the checkout page.
What is a Point of Sale System?
A POS system is a combination of hardware and software merchants use to process sales transactions:
- Calculate the total product price
- Accept payment
- Validate a POS transaction
- Issue a receipt
The simplest form of a POS system is a cash register connected to a bank terminal for cash and card payment processing. That’s what you’ve seen in most stores until recently.
Traditional POS terminals cost $1,500-$5,000 on average. More advanced POS systems featuring touchscreen customer interfaces, self-checkout capabilities, and barcode scanners can cost thousands of dollars to implement. That’s why alternative low-cost options, such as affordable card readers (Square, SumUp) connected to the cloud POS, have progressively emerged.
That said, modern POS systems are more than a till. They also help identify customers, manage store inventory levels, and track sales performance. You can integrate digital POS systems with CRM tools, accounting apps, and ERP systems (such as Microsoft Dynamics) for a holistic view of the entire sales cycle.
How Does a POS System Benefit My Business?
Apart from doing the obvious — processing customer payments — POS systems also bring in other benefits, such as:
- Higher workforce productivity through streamlined access to product and pricing data, instant scanning, and customer self-service capabilities.
- Faster checkout — support new payment methods like contactless payments, QR-code-based payments, or digital wallets to speed up the checkout experience for consumers.
- Improved inventory management. Modern POS systems help you keep track of product stock levels in real time with in-built inventory management tools or via add-on subscriptions.
- Advanced analytics. Digital POS systems can report data on product sales trends, average customer checks, and return rates. You can also export raw data to build advanced reporting models using data science.
- More customer insights. Collect extra loyalty and membership data by giving your shoppers an easy way to identify themselves — via a loyalty card, an in-app code, or a unique personal identifier.
- Instant lending. Generate higher average checks by offering consumers to benefit from installment financing via buy, now, pay later (BNPL) integration.
- Seamless upsells/cross-sells. Offer extra personalized perks based on shoppers’ past spending history with your brand. Advanced POS systems can instantly recommend upselling opportunities, based on the customers’ basket or past purchase history.
How Long Do POS Systems Last?
The average lifespan of a POS system is five years. However, the exact duration of service will depend on the quality of hardware/software and the frequency of use. Hardware components of a POS terminal, such as touchscreen displays, barcode scanners, and printers, can last up to 10 years if properly maintained. Timely firmware and software updates also increase the lifespan and security of a POS system.
Cloud POS systems usually have a longer “shelf-life” since the vendor maintains the software. So you won’t have to develop security patches or fix bugs yourself (unlike with open-source POS software).
What Are The Popular POS System Types?
A POS system has two components — hardware and software. With them, you can create different types of POS system setups. These include:
- Terminal POS systems
- Cloud POS system
- Mobile POS system
- Tablet POS system
- Self-service kiosk
Terminal POS System
A point-of-sale terminal is a “classic” implementation that features hardware and software solutions required to process customer purchases and manage sales. POS terminals usually have cellular or wireless connectivity to process card payments and validate transactional data with other systems involved in payment processing.
A POS terminal consists of a computer or tablet, a cash drawer, a barcode scanner, a receipt printer, and a credit card reader or other payment processing equipment. Most POS systems rely on an asynchronous line interface to exchange data.
An asynchronous line interface is a protocol that uses a seven-bit data packet, odd parity, plus one stop-bit interface. Alternatively, some POS terminals also rely on a synchronous line interface, which uses a bit-oriented Synchronous Data Link Control (SDLC) protocol.
You can install the software component (POS operating system) locally. It provides users with extra functionality – for online ordering, mobile payments, loyalty marketing, inventory management, and more. You can purchase a POS OS from the hardware provider, select another vendor-supplied solution, or develop custom POS software.
Cloud-Based POS System
A cloud-based POS system provides access to all software functionality through the Internet. In this case, POS software (and data) runs on remote servers rather than a local server.
You don’t need to purchase extra POS hardware if you opt for a cloud solution. Instead, you can use a smartphone, computer, tablet, or another Internet-connected device to manage sales and inventory.
Cloud POS systems are more cost-effective than POS terminals and require less ongoing maintenance. So, no wonder that cloud POS usage is increasing. In 2020, the global cloud POS market stood at $2.24 billion. Based on forecasts, it will reach $13.24 billion by 2028, growing at a CAGR of 24.5 % YoY.
What Are the Benefits of a Cloud-Based POS System?
Cloud-based POS systems offer several advantages over traditional on-premise POS systems:
- Higher accessibility: Check sales analytics, manage inventory, or arrange a customer checkout from any device. With a cloud POS, your team can effectively bill customers in person (without asking them to come over to the till), accept payment over the phone, or issue invoices for payments due later.
- Lower upfront costs: Pay a monthly subscription fee to access the required software features instead of purchasing expensive, non-customizable licenses. Save on hardware costs by repurposing other devices. Easily upgrade or downgrade usage as your needs change.
- Embedded data backups: Benefit from automatic data backup and recovery services to avoid data loss due to hardware failure or connectivity issues. The POS data gets securely stored in the cloud and protected against unauthorized access.
- Automatic updates: Reduce POS maintenance costs. Cloud POS providers automatically issue security patches and software updates to provide you access to new features and improved product experience.
- Integrations: Connect your POS system with other business software using pre-made integrations or custom API-based connectors for secure data exchanges. This way, you can consolidate your in-store and ecommerce data to gain omnichannel reporting and analytics capabilities.
Tablet POS System
A POS tablet system uses a tablet as the primary interface for processing payment transactions and managing sales. The system consists of a tablet connected to payment processing equipment, such as a card reader, barcode scanner, and receipt printer — and a cloud POS app that supplies all the necessary features. In other words: a tablet POS is one of the installation versions for a cloud POS.
Mobile POS System
A mobile POS system uses a smartphone (or a similar handheld device) as the main interface for processing payments and accessing analytics. A smartphone connects to payment processing equipment, such as a card reader and receipt printer. With a mobile POS, you can check out customers anywhere on the premises while maintaining access to all the sales management tools you need. Like a tablet POS, mobile POS systems usually operate with a cloud app.
A self-ordering kiosk is a touchscreen-based POS system customers can use to check out independently (i.e., without interacting with a cashier). Self-checkout systems differ in sophistication. Some ask shoppers to scan the barcodes. Others offer a product catalog.
The most advanced self-checkout POS systems include RFID tag scanners, which remove the need to scan barcodes. Instead, shoppers can place the selected item into a boxed area in the self-checkout kiosk — and the system automatically registers the items’ details and price. Afterward, the customer proceeds with the payment.
Japanese retailer Uniqlo recently equipped most of its stores with RFID-based self-checkout systems. The company leadership believes that this way, they can “evolve our face-to-face customer experience by developing digital technology to better have our associates serve customers in stores.”
Digital-savvy consumers prefer self-checkout as it’s often faster and more efficient than interacting with a cash desk clerk. Self-checkout terminals now occupy 38% of lanes in US grocery stores. That makes sense as 64% of shoppers prefer to use contactless payments and value the ability to check out anywhere in the store.
What Are the Benefits of Using a Self-Service Kiosk?
Self-checkout technology reduces operational costs for retailers and positively impacts customer experience (CX).
Shoppers benefit from:
- Shorter wait times and queues
- Multiple payment options available
- Anywhere checkout
- Digital receipts
- Personal discounts application
Retailers benefit from:
- Higher order accuracy
- Instant payment processing
- Lower labor costs
- Higher rates of customer identification
- Up-sell and cross-sell opportunities
- POS lending integrations
Must-Have POS System Features
POS systems are rather standardized on the hardware level. Yet, they differ a lot in terms of supported software functionality. Legacy POS systems don’t do much except for order and payment processing. But newer, cloud-based POS solutions provide access to extra order, sales, and inventory management functionality.
Here’s an overview of the basic and advanced features you can select (or develop) in a POS system:
- Customer billing
- Order processing
- Product shortcut keys
- Payment processing
- Receipt generation
- Loyalty card processing
- Employee access management
- Customer data security
- Customer relationship management (CRM)
- Real-time inventory tracking
- Order fulfillment management
- Auto-order product suggestions
- Shipping providers integration
- Omnichannel retail analytics
- Inventory management tools
- Product catalog synchronization
- Up-sell/cross-sell recommendations
- Personalized promotions and discounts
- Digital customer receipts
- Invoice generation and management
- Offline operating mode
- Returns and refunds management
- POS lending and financing offers
- Customer data analytics
- Physical and electronic gift cards
- Advanced anti-fraud protection
- Employee sales performance tracking
POS System Security
POS systems process and store sensitive customer and payment data, making them an attractive target for cybercriminals.
Common methods used by hackers to compromise POS systems include:
- Malware: Hackers can use malicious code to breach your POS system and steal sensitive data. In 2022, the two most prominent POS malware families were HydraPoS and AbaddonPoS. Though other types of threats also linger in the background.
- Phishing and social engineering. Hackers often rely on phishing emails to company employees to distribute malware and steal POS access credentials. For example, a lot of HydraPoS attacks involved social engineering.
- Brute-force attacks use undetected vulnerabilities in POS hardware and software to gain remote unauthorized access to your system. For example, Treasure Hunter and MajikPOS can brute-force their way into a PoS terminal.
To protect against POS system hacks, you should install timely security updates and patches; maintain a strong access and identity management policy; use data encryption; secure all APIs, and regularly monitor transaction data for signs of tampering and/or fraud.
FAQs About POS Systems
Any questions left about POS systems? We’ve got answers.
Yes, you can reprogram the underlying POS software to add new features, change standard inputs, and enable integrations with other business systems. However, reprogramming a POS system requires specialized expertise in POS software development. You should select a reliable tech partner for this task to avoid any compromises in POS functionality or security.
Yes, POS systems can be hacked, just like any other computer or networked device. Hackers can exploit vulnerabilities in a POS system’s software, hardware, or network infrastructure to gain unauthorized access to sensitive information, such as credit card numbers, personal information, and transaction data.
Modern POS software comes with in-built protection against common types of fraud, such as chargeback fraud or card testing fraud. The most basic (yet robust) type of fraud protection you can implement is enabling support for EMV chip and NFC technologies, as both offer greater levels of security than standard card swipes. Separately, your POS must support customer and payment data encryption. More advanced systems also include automatic fraud detection algorithms, alerting users to suspicious transaction patterns.
Yes, many modern systems include point-of-sale inventory management features, which allow you to track stock levels in real-time across locations and channels, automate reorder alerts, and sometimes even place orders with suppliers. POS-integrated inventory management helps you reduce the risks of stockouts, streamline supplier order management, and collect better data for adjusting your pricing strategies.
Yes, POS data migration is feasible in most cases. However, the ease of doing so will depend on the type of system, accepted data formats, and your wider IT setup. Some POS systems may have built-in tools for data migrations. Others might require creating a custom integration or manual transfers. It’s best to consult with a POS development company if you’re unsure about your options.
POS systems can accept a wide range of payment methods: cash, credit, and debit cards; mobile payments, such as Apple Pay and Google Pay; contactless payments, such as NFC and RFID; QR-code payments, and even cryptocurrency. Many modern POS systems also support split payments, offer installments, and accept tips. The specific payment methods accepted by a POS system will depend on the hardware and software used and the company’s payment gateway.
Yes, Microsoft offers POS software as part of its Microsoft Dynamics 365 Commerce suite. It’s a robust, scalable system that allows larger retailers to manage inventory, pricing, promotions, and customer loyalty schemes across all retail locations from one centralized interface. Dynamics 365 Commerce also seamlessly integrates with other products in the family for CRM, finance, and operational planning.
No, Apple doesn’t offer any POS software or hardware. But its products — iPads and iPhones are compatible with other POS solutions, such as Square card reader or Clover cloud POS. Also, Apple Pay can be used as a payment method on many POS systems, including those created by third-party vendors.