To accept customer payments, businesses must know which types of payment hardware and software best fit their needs. Making decisions about what kind of payment setup is right for your business – and best suited to how your customers want to pay you – first requires understanding the difference between a point-of-sale (POS) and a card reader.

Once you understand the distinct functions and roles of POS systems and card readers in payment processing and business operations, it will become much easier to determine what hardware and software best support your needs.

We'll cover what POS systems and card readers are, how they work, and which is most beneficial for different types of businesses.

What's in this article?

• What does POS stand for?
  
• What is a POS system?
  
• How does a POS work?
  
• What is a card reader?
  
• How does a card reader work?
  
• Can I accept in-person payments without a card reader?
  
• What's the difference between a card reader and a POS?
  
• Do I need a POS or a card reader?
  
• Benefits of using a POS system
  

What does POS stand for?

In the context of payments, "POS" stands for "point of sale". This can refer to two things:

• The time and place where a customer makes a purchase from a business. For example, POS might be the checkout counter at a brick-and-mortar retail shop, the online checkout flow of an e-commerce website or the moment when a handyman uses a card reader on his mobile device to process a client's card in their home.
  
• POS also refers to the software required to run a business and initiate payments. POS systems are sometimes bundled with hardware like card readers, and sometimes sold independently, with the responsibility of hardware selection placed on the business.
  

What is a POS system?

A POS system is the software that businesses use to accept payments from customers and complete other tasks, which can include:

• Updating inventory
  
• Tracking sales
  
• Cash drawer management
  
• Printing receipts
  
• Scanning barcodes
  
• Clocking employees in and out
  
• Running reports on sales and other analytics
  
• Managing customer accounts and rewards
  

POS systems are sometimes bundled with hardware like card readers, and sometimes sold independently, with the responsibility of hardware selection placed on the business.

How does a POS work?

Some POS systems are ready-to-use solutions that businesses can set up quickly to track inventory, manage employees, and initiate payments.

What is a card reader?

A card reader is a device that accepts credit and debit cards, as well as digital wallets as payment methods, and then communicates the card information to the business's payment processor.

How does a card reader work?

There are four main types of card readers:

• Stand-alone countertop card readers
  
• Card readers that physically attach to mobile devices such as a tablet or phone
  
• All-in-one handheld card readers that do not require a peripheral device such as a tablet or register
  
• Unattended card readers for self-service, like on vending machines
  

Most card readers are able to accept credit and debit card payments in multiple ways, including:

• Contactless payments: Transactions made with digital wallets and some newer credit cards are powered by near-field communication (NFC) technology.
  
• EMV chips: These are the small computer chips embedded in certain credit and debit cards, which are used by inserting the chip end of the card into the card reader.
  
• Magnetic stripe (magstripe) swiped payments: These payments use the magnetic stripe on credit cards to transmit the card number to the card reader.
  

Can I accept in-person payments without a card reader?

With Tap to Pay, businesses can accept contactless in-person payments with only an iPhone or Android device. Tap to Pay is especially popular for on-the-go payments and businesses that occasionally transact in person. It can be more affordable for some businesses because it doesn't require additional hardware.

What’s the difference between a card reader and a POS?

A card reader is a component of a POS; the two are not interchangeable terms. Card readers accept credit and debit card information, like the card number and the cardholder's name and address, and send that information – along with the amount being requested for purchase – to the business's payment processor. That's where the role of card readers ends. The POS, on the other hand, takes the information from the transaction and uses it to perform many important operations relating to the purchase, such as documenting customer information, updating inventory, logging the sale for accounting purposes, documenting any rewards programme information, and noting which employee performed the transaction.

Do I need a POS or a card reader?

The answer to this question depends on your business. Here are common scenarios that fit most businesses and the hardware and software needed to support each of them:

• If your business accepts in-person payments
  If your business operates IRL (that is, not exclusively online), and you accept credit card payments, then you'll need a POS with a card reader.

• If you operate a fully online or mobile business
  If your work requires you to be on the go or make house calls – think hair stylists, carpenters, or personal trainers – then you probably don't have space for a full-size card reader like you'd find at a brick-and-mortar retailer. The best choice for you is an all-in-one handheld card reader that is running your POS hardware.

• If you're an e-commerce retailer who only operates online
  If you don't accept in-person payments, you don't need a card reader. You will, however, need a payment gateway on your digital storefront where customers can complete credit and debit card transactions online. And you will still want some sort of software that functions similarly to an in-person POS, allowing you to track sales and update inventory.

Benefits of using a POS system

If you run a business online, in person, or both, it doesn't take long to understand that the right POS system can radically change how you operate. In short, it simplifies every aspect of your business and equips you with valuable data about your sales and customer – while minimising the amount of labour required to run so many key business functions. Many POS systems specialise in a certain industry, like retail, hospitality, healthcare, beauty, and more.

Here are a few other ways a POS system can benefit businesses:

• Reduce mistakes
  A strong POS system safeguards your business against human error when it comes to processing payments. During an in-person customer transaction, it's sometimes too easy for us to skip steps and make mistakes. Your POS will flag when something goes wrong or is done incorrectly, keeping your transaction secure and preventing costly mistakes.

• Track inventory
  Most POS systems also double as inventory management, alerting you when items need to be ordered. And POS systems can track when items are sold, where and to whom, showing you seasonal and regional sales trends that can help you forecast demand more accurately.

• Generate actionable sales reports
  One of the most valuable aspects of a POS system is that it logs sales data, which lets you detect trends, learn about your customers and inform strategic decision-making for your business. Your POS system can be an insight-generating tool to experiment with new approaches, track performance and evaluate what you learn.

• Manage staff easily
  POS systems serve business operations beyond payment processing and sales reporting – they're also great for managing your team. You can track employees' hours, take care of scheduling and get a bird's-eye view of productivity.

• Perform fast omni-channel updates
  POS software allows businesses to perform system-wide updates at multiple locations, both in person and online, with a single update. For example, if you have three retail locations and an e-commerce store, and your business starts carrying a new product, your POS software will allow you to push the update to all fronts simultaneously. If a product is out of stock at one location but available at another location, your POS will tell you.

A POS system is a powerful tool for keeping every aspect of your business updated, ensuring your team is on the same page about sales and inventory, and facilitating the best possible customer experience everywhere your business operates.