The Point of Sale Transaction

I have spent nearly 20 years in the payments industry and like many of us, when I talk about something I’ve been so involved with I often take certain things for granted. As more and more stakeholders engage in payments and commerce it reminds me that a “back to basics” blurb around a physical point-of-sale transaction is probably in order, especially in lite of the misrepresentations I’ve heard over the past month.

What is important to note is that in order for a transaction to be completed, there are a myriad of technologies (and oftentimes stakeholders) that must come together. As the world becomes more complex with the deployment of EMV and other technologies these various stakeholders will need to learn how to transform and morph their business to retain customers.  

Point of Sale Transaction

POS/Terminal: The POS system used to be a VeriFone or Ingenico credit card terminal. In today’s always connected world the POS can be anything from a full blown ERP system to a cash register to a cloud based tablet or phone. As the POS morphs in the physical, virtual and mobile worlds, unified and secure integration into these systems by payment providers is critical. The point of swipe needs to be fully encrypted and the desire to remove any/all card data from these POS systems becomes even more important.

Gateway/Middleware: In the always connected world, most POS systems today connect to a front-end processor using a gateway or middleware of some sort. The rationale is that it is much easier to connect to a basic standard API then connect to a processors platform directly. There are many independent gateways in the market today that offer connectivity to many processors. In addition, many processors, ISOs and acquirers have developed their own gateways for ease of connectivity. 

Processor (Front-End): While gateways offer easy connectivity, they do not actually connect to the card brands. A front-end processor works on behalf of an ISO/Acquirer and takes the transaction and actually sends it to Visa or MC for an authorization (getting the response from the issuing bank). Then the processor sends the response back to the POS through that gateway. At the end of the day, the processor then sends the record of all the transactions to the card brands for clearing and deposit. 

Processor (Back-End): The back-end processor works with the ISO/Acquirer to make sure that all transactions clear through interchange properly and provides the necessary information to both fund and later bill the retailer. The back-end processor is usually the same as the front-end processor, but that is not a necessity and is intimately related to the ISO/Acquirer as they manage the billing and risk elements of every transaction.  

ISO/Acquirer: The ISO/Acquirer role is not necessarily one of technology, though many operate gateways and processors, but the role of risk management, compliance, servicing, pricing and billing.  The billing elements of acquiring often include discount rates (%), transaction fees, monthly fees and compliance costs. Think of the ISO/Acquirer as the program manager responsible for bringing all the assets together to make a transaction work from the beginning to the end.  

In today’s complex ecosystem who plays what role often varies. Some ISOs now also offer gateway and processing services while some processors also offer ISO/acquiring solutions. When comparing offerings it is critical to understand exactly what you are paring-up.  It is also important to note that all these technologies must come together in harmony for a transaction to be completed. No one technology can go it alone. As the world becomes more complex with the deployment of EMV and other new technologies stakeholders will need to learn how to keep up to survive.