Overwork due to repeated work is the most common cause of burnout for business owners and their employees. A good choice of retail POS system can perform many retail processes and workflows on autopilot. From there, POS data analytics solve many business problems by saving valuable resources and time, such as:

• Inventory management: Keep your inventory up to date by tracking sales and returns and forecast to calculate restocking to avoid deadstock and out-of-stock situations. Also, it can show what products are selling well and what aren’t for you to leverage the quantity.
• Competitive analysis: Provide solid data and reports like business heatmaps, graphs, and charts so you can understand your company’s performance metrics relative to industry standards and compare them with competitors.
• Customer experience enhancement: Optimize your customer’s omnichannel journey by integrating mobile, desktop, and in-person experiences. For example, when customers come to your store, the POS counter staff can quickly view their purchase history for suitable suggestions and cross-selling. Such small touches keep customers coming back because they love attention and recognition.
• Loyalty program: Based on POS data, you can design personalized marketing strategies by tracking customer contact information and their purchases. POS systems can integrate with loyalty programs and customer databases to leverage customer engagement and help you gain more profit.
• Staff performance: Create staff working schedules and track the sales of each staff to calculate wages and commissions.

In short, modern POS software retail helps you focus on more profitable areas such as consulting, customer care, and achieve new levels of success.

So far we’ve covered the basis details of retail POS. Now let’s look at the 5 essential steps you’ll need to take to get the right POS system for your retail.

1. List your business requirements for your POS system
2. Define your budget and prioritize
3. Compare retail POS solutions based on your requirements
4. Get a trial or demo of the retail POS
5. Optimize your POS system for maximum business growth

Step 1: List your business requirements for your POS system — near and long term

Timeframe

No business owner wants to go through the retail POS system transition multiple times over a while. Therefore, you should outline the requirements for the POS solution you want before you start looking.

First, you can start with a simple question: How long do I need this solution to work for my business?

You should not stop at asking for today, but think about your expectations in the future as well. 2–3 years might be a reasonable time frame for a technology investment.

Features

After deciding on a timeframe, you should consider the following questions:

• How many stores will use the POS solution to operate?
• Do I need to handle multiple growing stores at the same time?
• Do I just need a simple POS system to handle in-store transactions?
• What sales promotion do I want to run?
• Do I want to integrate the POS with any other system such as Quickbook, MYOB, or Xero?
• Which business operations are doing well and which are not
• How important is it to synchronize data between the physical stores and online stores?
• What types of data do I need to sync?

Customers use gift cards at POS checkout.

Your customer experience may not be seamless because your eCommerce and in-store POS systems lack the connection. No matter how much manual effort you put in keeping everything in sync, you may still find an order for an item that’s actually out of stock.

So you can try mapping out your value chain, from supply chain to post-purchase customer care, and then look at each stage to find bottlenecks that could improve the customer experience metrics and profit margin. From there, you can check specifically how the future POS system can improve those stages.

• Cost: Retailers can rely on accurate real-world data to identify and handle slow-moving or low-margin inventory flows.
• Revenue: You can minimize the number of employees and optimize sales. You’ll also ensure accurate stocking of high-margin and best-selling products. In addition, you can implement promotions and loyalty programs to increase the average cart size.

Considering these 2 aspects will help you shape the most important features you need in a POS system for retail. Think about the strategy and methods you want to adopt. Then, gather all the challenges in as much detail as possible into a checklist of requirements for potential POS vendors.

Although no solution fits all businesses, below are the most common and recommended features for your reference.

POS must-have features

• Invoicing and billing
• Sales management
• Inventory management
• Customer management
• Loyalty programs and offers
• Reporting and data analytics
• eCommerce integration
• Marketing integrations
• Employee management

POS nice-to-have features

• Employee scheduling
• Click and collect
• Refunds and returns

Remember that choosing the type of POS system for retail depends on the nature of your business.

• A mobile food truck that works differently from a traditional coffee shop
• A construction contractor has different needs than a clothing store

In case you’d like to know the necessary features for POS system by business lines, you can refer here:

• Fashion boutique POS
• Vape and cannabis POS
• Furniture and homeware POS
• Sports and outdoor POS

There are still some aspects to consider.

Option to accept the most common payment methods

• Cash
• Credit and debit cards
• PayPal
• Authorize.net
• Stripe

Ease of use

Your retail POS needs to be user-friendly and easy for your employees to use without calling technical support or referencing the manual frequently.

Integration

Many POS systems have built-in POS and inventory system integration. However, you should also consider a POS developed in an open-source platform like Magento. They provide maximum integration capabilities via APIs to connect with other cooperating systems such as CRM and ERP.

PCI Compliance

You should choose a POS system that’s compliant with PCI data security standards to safeguard customer payment data and minimize fraudulent payments.

Step 2: Define your budget and prioritize

In this step, you’ll need to determine how much investment you are willing to spend to achieve your goals and requirements within the defined timeframe, including:

Budget
Potential revenue
Costs you expect to save

You should break down each requirement of step 1 to determine investment costs and opportunity costs to prioritize the components.

The cost of a POS system includes 3 parts:

POS software: Your POS license will be one-time payment or subscription depending on different POS providers.
POS hardware: The average cost of a card processor is between $20–100. Other peripherals like a receipt printer, cash drawer, and tablet stand will cost you from $600 to $1,000.
Payment processing: Payment processing depends on the pricing scheme of your payment processor, accounting for 1.5–3.5% per transaction. You can visit our guide to know more about the average credit card processing fee.

Step 3: Compare retail POS solutions based on your requirements

Even the best retail POS solution sometimes has problems, or you simply want to customize to meet changing business needs. Therefore, a POS system isn’t only about purchase and installation, but also needs the support of a long-term partner to accompany your business growth.

• What are my expectations for POS deployment and launching?
• Do I want a dedicated project manager or will I oversee most of the system implementation on my own?
• How do I want to receive support? How long do I expect to wait for the POS providers to respond? And through which communication channel?

We recommend working with a leading POS system to perform your daily tasks efficiently and achieve your business goals.

Check out our articles on POS system examples and the top POS software of 2024. They not only possess leading-edge technology but also have a team of Magento experts with a customer-centric mindset.

And keep reading our in-depth POS comparison of the best Magento POS providers for retailers:

Side-by-side comparison of POS for Magento:

• Webkul POS vs. Magestore POS
• Magefan POS vs. Magestore POS
• Acid POS vs. Magento POS
• ConnectPOS vs. Magestore POS
• Ebizmarts POS vs. Magestore POS
• BoostMyShop POS vs. Magestore POS
• Revel POS vs. Magestore POS
• Magestore POS vs. Microsoft Dynamics POS
• Magestore POS vs. QuickBooks POS
• Magestore POS vs. Lightspeed POS
• Epos Now vs. Magestore POS
• Clover POS vs. Magestore POS

Step 4: Get a trial or demo of the retail POS

Most POS providers let customers test the software with a free trial. This step ensures you find the right POS for your business. You can play and see how the overall system works, explore benefits, and check out features. If you encounter any problems or points for improvement, you can make a note and share it with the POS provider. It’s an opportunity for you and them to discuss and solve your problem together.

Step 5: Optimize your POS system for maximum business growth

After choosing the POS system, the game isn’t over yet. As you test and use it, you can still figure out where to optimize to improve your business. You can start with enhancing the default features, then slowly explore all that the system has to offer or can integrate with.

Business insights

You should create detailed and complete sales reports with graphs and charts on your retail point of sale system. There should be a visualizer of valuable data such as sales, inventory, and cash in real-time to:

• Discover meaningful trends: POS data analysis can unlock the secret portion of future success.
• Gain a competitive edge: Know your sales performance, track against competitors, and analyze by industry.
• Expand your footprint: Get in-depth information to make sound decisions about where and when to open a new branch, as well as the necessary equipment and manpower

POS apps

Applications of POS systems can make running your business easier. You can check what apps and add-ons your vendor has developed like Magento eCommerce integration.

Continuous improvement and updates

It’s important to ask for employee feedback as they use the system for things that could improve the overall experience for your customers or for your own employees.

Do not terminate your relationship with the supplier at the time of purchase. You should stay in touch to get useful information about new features, suggestions, and inspirational articles in working with retail POS systems.

Starting from the simplest function of processing sales orders, the modern POS solution is now the central system of retail businesses and contributes to keeping customers coming back to the store. Thus, your choice of a POS system will be a make-or-break decision and one of the most important investments you can make.

We recommend that you consider all aspects of your retail before committing to any single retail POS solution. If you need expert advice, we are available to talk to clarify your business requirements and tailor a retail POS solution to meet your unique desire.

The table below draws a distinction between POS vs terminals in terms of definition, components, key functions, pros, cons, and other important information.

Unlike traditional POS which mainly processes payments, modern POS nowadays has more advanced functions to help merchants better manage their businesses like inventory management or customer loyalty programs. However, many retailers are unaware of this huge progress and still think that POS is used to take payments only, which sometimes makes it hard for them to distinguish between POS vs terminals when choosing a suitable solution for their businesses.

To reduce confusion, we compare the key features, pros, cons, and prices of the most popular POS systems vs payment terminals available on the market for your reference, including Stripe Terminal, Square Terminal, Magestore POS, and Lightspeed Retail. Let’s take a look!

The answer depends on how well you understand the differences between POS vs terminals and your business situation. Before reaching the final decision, you should analyze your business types, scales, and objectives thoroughly to see what you need. Besides, a comprehensive POS system has higher prices than a payment terminal. Therefore, you’d better balance your requirements and financial resources to ensure you make suitable investments in what works best for your business.

For example, small merchants with tight budgets use payment terminals independently to accept card payments. Nevertheless, retailers with more complex workflows or expansion plans prefer a POS system as it offers more features to aid business management.

Using a POS system with card readers is also an ideal choice if you want to facilitate card payments from customers while still running your business effectively. Besides, you should also check whether POS and terminals can work smoothly with each other. The compatibility of the two solutions removes unnecessary conflicts and errors, thus producing enormous benefits for your business.

• POS systems consist of both POS hardware and POS software.

POS hardware includes card readers, barcode scanners, receipt printers, cash drawers, tablets, laptops, or desktops.
POS software integrates with payment processors to handle card and mobile payments.

• Popular types of payment terminals comprise card readers, countertop terminals, EMV payment terminals. Thus payment terminals are a component of POS hardware.
• At checkout, customers swipe, tap, or dip their cards or mobile wallets at the payment terminals. The integrated POS software then encrypts and transmits the payment details to the payment processors for authorization.
• Using payment terminals independently is suitable for small businesses that simply need to handle in-store payments.
• A more established business will need a complete POS system with POS hardware and POS software to process payments and manage other operations such as inventory, customer, order fulfillment, and reporting.

What is the difference between a POS and a card reader machine?

A POS includes POS software and hardware. It helps process payments and streamline business operations. Otherwise, a card reader is an electronic device that can work as a standalone payment solution or as part of a complete POS system. It collects and transmits customer card data to and receives responses from specific payment processors.

What makes a POS system different from a payment gateway?

A POS system supports inventory management, employee tracking, and more. On the contrary, a payment gateway is an intermediary platform that primarily facilitates online payments. Its main function is to securely transfer transaction data between businesses and payment service providers.

What is the difference between a POS terminal and an EDC terminal?

A point of sale terminal accepts payments from different card types, including magnetic stripe, EMV chip, and contactless cards while EDC or electronic data capture terminals support magnetic stripe cards only.

What is the difference between a POS and a virtual terminal?

POS systems handle payments and execute other business management activities. Unlike POS, a virtual point of sale terminal is a web-based app that allows merchants to take payments from customers via phone, email, or fax. Merchants only need to use Internet-connected laptops, tablets, or smartphones to process payments.

Is POS the same as a payment processor?

No, they’re not the same. POS solutions have plenty of functions to help simplify business operations, whereas payment processors coordinate the payment processing flow between customers, businesses, and relevant financial institutions. Payment processors transmit transaction data to customers’ issuing banks for verification and authorization. They also ensure the transfer of funds between the customers’ issuing banks and the merchant’s acquiring banks.

A payment gateway is a technology that enables businesses to accept customer payments online or in-store. It securely collects, encrypts, and sends payment data to payment processors for verification, ensuring that transactions go quickly and safely.

In physical stores, it covers point of sale (POS) terminals where consumers may swipe or tap their cards or smartphones to pay for items. In the online environment, it refers to “checkout” portals where clients submit their payment information.

A payment gateway supports a variety of payment methods to enhance shopping experiences for customers, including:

• Debit cards
• Credit cards
• Digital wallets
• QR codes
• Near-field communication (NFC)

Nowadays, there are many retail payment gateways available to suit a variety of business needs and sizes. PayPal, Stripe, Square, and Authorize.net are a few examples. We’ll discuss them in detail later.

Here’s a step-by-step explanation of how a payment gateway operates in a transaction:

1. Customers start a transaction.

When consumers shop in a physical store, they need to put the card into the POS terminal and then enter their personal identification number (PIN) to pay for the item.

If buying online, they must submit their card information on the checkout page. This information contains the cardholder’s name, card number, card expiration date, and card verification value (CVV) code.

2. The payment gateway encrypts and transmits the data.

After receiving customer payment information, the payment gateway encrypts transaction data and conducts fraud checks with various technologies, such as the Luhn algorithm, to ensure the validity of PINs. This technique safeguards data against unwanted access or theft. After encryption, the gateway transmits the data to the payment processor.

3. The payment processor validates the transaction.

The payment processor takes transaction data from the integrated payment gateway, verifies it, and transmits it to the customer’s bank via an appropriate card network.

4. The customer’s bank (issuing bank) authorizes the request.

The issuing bank checks the transaction details, account balance, and payment method validity.

• If the issuing bank says yes, it sends an authorization code back through the card network to the payment processor and the payment gateway.
• If it declines, the bank sends a decline code and reason.

5. The merchant’s bank (acquiring bank) authorizes the response.

The payment gateway transmits the authorization answer to the merchant.

• If accepted, the merchant fulfills the order.
• If refused, the merchant requests a different payment method.

6. The transaction is done.

Once the issuing bank approves the transaction, the merchant delivers the products or services to the customer, completing the transaction.

7. Payment settlement

After authorization, the payment processors facilitate transferring funds from the customer’s bank to the merchant’s bank through the card network. This process often takes a few hours or one to two business days.

The 4 main types of payment gateways are:

• Hosted payment gateways
• Self-hosted payment gateways
• Application programming interface (API) payment gateways
• Local bank integration gateways

Let’s explore the distinctions between these sorts.

Here’s a list of seven popular payment gateways, along with their standout features:

Further reading:

• 7 POS integrates with Stripe for smooth transaction process
• 8 Square POS integration for effective payments and operations

Typically, a payment gateway charges 3 types of fees.

• Setup fees can range from $0 to several hundred dollars, depending on the payment gateway provider and the complexity of the setup.
• Monthly fees may vary from $0 for simple plans to $100+ for more comprehensive plans that include extra features and support.
• Transaction fees typically consist of a percentage of each sale (ranging from 1% to 3+%) plus a predetermined price per transaction (usually between $0.20 and $0.50). These fees can also vary depending on the kind of card used (credit or debit), the location of the transaction (domestic or international), and the number of transactions handled.

For example, Authorize.net doesn’t charge setup costs and offers 3 pricing plans:

In this regard, it’s fundamental to compare several payment gateway providers to find the best match for your business’s needs and budget.

In a payment transaction, the payment gateway and payment processor collaborate but play different roles.

The payment gateway securely gathers and transmits client payment information to the payment processor. The processor then works with the card network and banks to authorize and transfer money between the customer’s and merchant’s accounts.

A payment gateway and a payment terminal serve different roles in the payment process.

As mentioned above, a payment gateway is a technology that handles card and phone-based payments from your clients. It acts as a virtual POS in the digital world.

Meanwhile, a payment terminal is a physical POS device used in brick-and-mortar stores to process in-person payments.

We hope this article has helped you understand what payment gateways are, how they work, and what role they play in the payment process. Let’s spend some minutes reviewing the key points of the article.

• A payment gateway is a technology that accepts your customers’ preferred payment methods and protects your transactions in both online and offline operations.
• Payment processing has several stages. First, the payment gateway encrypts and sends payment information to the payment processor. The processor then confirms the transaction with banks, authorizes the payment and facilitates the movement of money between the client and merchant accounts.
• There are 4 main types of payment gateways: Hosted payment gateways, self-hosted payment gateways, API payment gateways, and local bank integration gateways.
• Payment gateway vs payment processor: The payment gateway securely encrypts and transmits payment information, whereas the payment processor authorizes and transfers payments between banks.
• Payment gateway vs payment terminal: The payment gateway is the digital interface for payments, whereas the terminal is the physical device used in stores.

1. How do I know the payment gateway of a website?

You’ll know the payment gateway of a site once you reach the checkout portal. Here, you can see the logo, trademark, or mention of the payment providers like PayPal, Authorize.net, Stripe, or Square. This is the simplest way.

Other options include looking at the page’s source code for hints. This requires some technical skills. Alternatively, you can directly contact the merchant website’s customer service for help.

2. Is PayPal a payment gateway?

Yes, it is.

PayPal features an eCommerce payment gateway and a virtual terminal for mobile payments.

Moreover, PayPal’s ease of use and trustworthy reputation make it a popular choice for both small and large merchants.

3. Is Stripe a payment gateway?

Yes, Stripe is a white-label payment gateway. This means it provides a fully-functioning payment gateway interface that supports numerous currencies, languages, and payment methods.

Additionally, Stripe works well with the majority of eCommerce systems, including Magento, Shopify, WooCommerce, and Wix.

Related article: Magento Stripe integration: 5 alternatives to Stripe connectors

A payment gateway allows online and in-store merchants to collect the customer’s payment information, encrypt it, and securely send it to the card processor for authorization.

During online checkout processes, the payment gateway acts as the online payment portal. Meanwhile, during in-person transactions, it includes card readers and POS terminals to accept card payments, i.e. credit cards and debit cards, and card-not-present (CNP) payments such as digital wallet, QR code, or Near Field Communication (NFC) payments.

Here’s how the payment gateway works:

• Collect payment information when customers tap their card or enter their card details at the online or in-person POS
• Encrypt the payment details
• Transfer the encrypted payment information to the payment processor for authorization
• Transmit the authorization response from the payment processor back to the business, notifying them if the transaction is successful

While there’s a wide range of options, the best payment gateway companies include:

If your business accepts credit cards or direct payments, especially online payments, you’ll need payment gateways to safeguard sensitive customer information during transactions.

If you need a budget-friendly payment gateway, you can consider the best online payment gateways for small businesses including Adyen, Stax, and Payment Depot. Please note that currently, there’s no free payment gateway on the market.

FYI, there are two types of payment gateways:

• Third-party payment gateways: These send customers to an external gateway during website checkout, meaning a customer submits their card information outside of the merchant’s website. Upon transaction completion, this type of gateway takes customers back to the merchant’s website.
• Integrated payment gateways or white-label payment gateways: These gateways are built into the merchant’s eCommerce platform, so customers submit their card information and process their transactions on the merchant’s website.

A payment processor allows merchants to accept and handle financial transactions via credit cards, debit cards, and bank accounts.
In the transaction flow, the payment processor acts as the middleman between the customer’s bank (the card issuer) and the merchant bank (the acquiring bank).

Specifically, payment processors:

• Receive transaction details from payment gateways and validate them
• Transfer transaction data to the acquirer
• Receive authorization responses and send them to payment gateways
• Settle authorized transactions
• Provide reports for payment reconciliation

The best payment processors include:

As a merchant, you should know specific cases where a payment processor is mandatory:

• Businesses of any size that accept electronic payments, credit or debit card transactions, e-wallets, and bank transfer
• Global businesses that accept international payments and need to simplify handling diverse currencies and multiple payment methods
• High-traffic businesses that want to secure large volumes of payments, automate tasks like authorization, reconciliation, and reporting, and minimize manual errors
• Omnichannel businesses that want to deliver a consistent and secure payment experience across all channels

Furthermore, you should also know whether to use a payment processor built into a POS system or a third-party payment processor.

If you prioritize convenience of an all-in-one solution and are willing to pay slightly higher transaction fees, you can utilize a built-in payment processor. In that case, make sure you understand the fee structure, hidden fees, and binding contracts.

On the other hand, if you want to ensure flexibility and cost-effective payment handling, you should opt for a third-party payment processor. Some POS systems, such as POS for Magento and POS for Shopify, offer a wide range of integration with popular payment processors like PayPal, Stripe, Square, Clover, etc.

Although a payment processor vs gateway may seem similar, they play different yet complementary roles in the transaction process.

On the one hand, a payment gateway is responsible for the collection, encryption, and verification of customer payment information. This is especially important during electronic payments because online payment fraud reached $41 billion in 2022 and is forecast to double between 2023 and 2027. An Internet payment gateway helps merchants verify mobile payment, debit card, and credit card information while completing digital transactions.

On the other hand, payment processors take charge of payment data validation and transmission, and fund settlement. They also offer additional services like fraud detection and prevention, chargeback management, and reconciliation reporting. Without them, merchants can’t request and receive payment from the customer’s account.

The table below summarizes key distinctions between a payment gateway vs payment processor.

Payment processors vs payment gateways have different functions in the payment processing flow. The two components work together to facilitate smooth communication and safe data transfer between merchants, customers, and banks.

Here’s how a payment gateway vs processor collaborates during a transaction:

• First, the customer starts a transaction by giving the business their payment information.
• Second, the payment gateway receives the transaction information from the checkout page, encrypts it, and sends it to the payment processor.
• The payment processor then forwards it to the card issuing bank (the customer bank) to request payment authorization for the transaction.
• The issuing bank verifies the payment details, checks for available funds, and then either approves or declines the transaction. After that, it transmits this approval or decline message to the payment processor.
• Next, the payment processor shares the authorization response from the issuing bank to the payment gateway.
• The payment gateway sends the response back to the business, which displays the “transaction approved” or “transaction declined” message to the customer.
• If the transaction is approved, the payment processor coordinates the fund transfer from the customer bank to the business bank account. This process, called payment settlement, typically takes a few business days to complete.
• Finally, the payment processor provides reports for the business to reconcile transactions.

The collaboration of the payment gateway and payment processor helps businesses handle sensitive payment information securely and efficiently. The two components working together also ensure that the payment process adheres to information security protocols such as PCI DSS (Payment Card Industry Data Security Standard).

Related post:

How retailers can process payments in-store

Your business type and offered payment options will determine if you need a payment gateway, a payment processor, or both.

If you have an omnichannel business or global operations, you should invest in payment processing platforms for smooth, secure, and consistent transactions across channels and currencies. Moreover, when you process a high volume of transactions every day, you’ll need a payment processor to minimize errors and automatically generate reports for reconciliation.

If you have online stores, process phone or mail orders, offer subscription services, or don’t have a complete POS system, you’ll need a payment gateway to securely process payments and manage recurring charges.

Note that a payment gateway needs to work with a payment processor. Many payment processing companies, such as Adyen, PayPal, and Stripe, offer end-to-end card processing services including both the payment gateway and payment processor. For brick-and-mortar businesses, your payment gateway might be built into your POS hardware.

If you process eCommerce transactions or accept card payments without a full POS system, you’ll need both online payment processors vs payment gateways to ensure secure and efficient transactions.

No, payment gateways vs payment processors are distinct components of the transaction process. Payment gateways step in first to encrypt and transfer payment information to the payment processor. Payment processors then verify the card information and facilitate the fund transfer.

However, some payment service providers offer end-to-end payment solutions, including both a secure payment processor and a payment gateway under one brand name, such as Adyen, Stripe, and PayPal.

Some of them are either a payment gateway or a payment processor while others are both. Let’s see the summary below.

Visa is neither a payment gateway nor a payment processor. It’s a card network that provides a communication system between issuing banks and businesses to process credit card transactions.

A POS consists of hardware, software, and payment services that help businesses accept payments and complete sales. POS systems can be physical devices in brick-and-mortar stores, or checkout points in online stores.

While point of sale processing includes logging purchased items, processing payments, and generating receipts, payment gateways receive payment information from the POS and send it to payment processors for verification. When processing an electronic trans

A payment gateway is a technology that allows merchants to securely transfer funds by collecting, encrypting, and verifying customer payment information.

A payment aggregator is a financial organization that consolidates multiple merchant accounts and payment gateways into a single setup. It allows merchants to eliminate the need for individual contracts with acquiring banks, thereby accepting payments more conveniently.

A payment facilitator (payfac) provides merchant services. It contracts with a merchant acquirer for payment acceptance on behalf of their merchants, also known as sub-merchants.

Payment processors allow merchants to start accepting payments and route transactions through banks and card networks. 

In the payment flow, the transaction data reaches the payment processor first and then travels to the merchant acquirer.

Specifically, a payment processor authorizes and securely transfers transaction data to the merchant acquirer.

A merchant acquirer (also an acquirer or acquiring bank) receives the payment information from the payment processor, authorizes the transaction with the issuing bank, and facilitates the settlement of funds. It also manages merchant accounts and allows merchants to process payments securely and quickly.

Purpose: Money transmitters serve individuals and businesses who want to send money overseas or to individuals without access to traditional banking services. On the other hand, payment processors serve a wide range of users, including online businesses, retailers, service providers, etc.

Regulation compliance: Payment processors adhere to PCI compliances to ensure security standards. Money transmitters have to comply with stricter and more extensive regulations due to higher risks of illegal activities.

Payment method: Money transmitters typically accept cash or bank transfers, while payment processors accept various payment options such as credit and debit cards, bank transfers, and e-wallets.

Transaction fee and limit: Money transmitters often have lower transaction limits, while payment processors offer lower transaction fees.

A payment gateway encrypts customer information and transmits it for authorization.

A payment processor receives transaction details from a payment gateway, authorizes, and processes transactions.

A merchant account holds funds from customer transactions for payment verification before transferring them to the business bank account.

The payment processor sends the transaction data to the acquiring bank, which transmits it to the card network.

The card network then directs the transaction to the issuing bank for authorization and relays the authorization response to the acquiring bank.

A merchant acquirer, or an acquiring bank, contracts with merchants to accept and process payments.

A payfac, short for payment facilitator, contracts with a merchant acquirer to accept payments on behalf of their merchants, also known as sub-merchants.

A payment processor is a system that accepts and manages financial transactions via credit cards, debit cards, and bank accounts.

Payment processors serve as a bridge between the customer’s bank (the issuing bank) and the merchant bank, authorizing and transferring data to ensure secured and smooth transactions.

Utilizing payment processors to handle transactions in-store and online helps businesses to:

• Achieve industry standards, such as the PCI-DSS certification, to ensure the security of financial transactions
• Satisfy customers’ needs for flexible and convenient payment options, as well as international payment
• Integrate payments with other business operations to streamline management, such as accounting, billing, and customer relationship management (CRM) systems.

Some payment processor examples include Square for retailers, PayPal for low-traffic businesses, Adyen for small businesses with simple operations, and Clover for niche industries such as food and beverage. This article will provide an overview the largest payment processor companies, so keep reading!

An acquirer, also called an acquiring bank or a merchant bank, allows merchants to process card payments securely and quickly. In payment processing, an acquirer provides merchant accounts that hold onto funds for verification before transferring them to the business bank account.

Examples of acquirers are JPMorgan Chase, Bank of America, FIS (Worldpay), Fiserv (First Data), and Global Payments.

An issuer, also an issuing bank or card issuer, is a bank that issues credit and debit cards to customers. In payment processing, the issuing bank acts as the gatekeeper, approving or declining transactions based on customer credits and funds and verifying payment method legitimacy to prevent fraud.

JPMorgan Chase, Bank of America, and Capital One are among the largest issuers in the U.S.

A merchant account is a bank account for businesses to accept customer payments, usually by credit card, debit card, or other electronic transfer. In the payment processing flow, a merchant account serves as a middleman who securely holds onto funds briefly for verification before transferring them to the business bank account.

Note that a merchant card is different from a standard business bank card. While a business bank account handles daily business operations such as payroll or rent, a merchant account focuses solely on securing and speeding up credit card transactions. With a merchant account, it only takes minutes to complete all the security checks and verifications necessary, compared to several days with direct transfers from a customer’s bank account to a business bank account.

Some types of merchant accounts include mobile, eCommerce, and retail merchant accounts.

A payment gateway transmits payment information when a customer taps their card or enters their card details at the point of sale to the acquiring bank for credit card processing. It ensures the encryption and security of sensitive data during the card transaction process. The term includes both card readers and online payment portals.

There’s a wide range of payment gateway options, such as Stripe, PayPal, Apple Pay, and Square.

A card network is an organization that facilitates card-based payments by providing the communication system that issuing banks and businesses use to process credit card transactions.

Some popular card networks are American Express, Mastercard, Visa, China UnionPay, and JCB.

PCI compliance, or Payment Card Industry Data Security Standard (PCI DSS) compliance, is a set of 12 security standards ensuring credit card transaction security and reducing data breach risks.

EMV cards (also called chip cards or IC cards) are smart credit, debit, or prepaid cards with an embedded microchip that stores data and generates a unique code for each transaction. This makes EMV chip cards safer than magnetic stripe cards, which rely on static data.

You may have heard of some common EMV chip credit card brands, such as JCB, Mastercard, and Visa.

“What does a payment processor do?” is a great question to start learning about the world of payment processing. To answer this question, merchants should take a closer look at the payment transaction flow.

Customers make payments for their purchases, whether in-store at the POS or online, by giving the businesses their credit card details.

The payment gateway encrypts transaction data to prevent data abuse and sends the data to the payment processor.

After receiving the transaction data from the payment gateway, the payment processor validates the transaction details and then forwards them to the acquirer.

The acquirer continues to send the transaction details to the issuer through a card network to request authorization.

The issuer reviews the transaction and decides if the customer has enough credit or money for the payment. It also verifies the legitimacy of the payment method and the customer’s identity to prevent fraud.

When the issuer accepts the transaction, it sends an authorization code back to the acquirer via the card network, which then forwards the response to the payment processor. Otherwise, it sends a message with a decline code and the reason for the decline.

The payment processor receives the information from the acquirer and forwards it to the business. If approved, the business can proceed with the sale. Otherwise, the business should ask customers for an alternative payment method.

Once the issuer approves the transaction, the company delivers the products or services to the customers. At this point, we can consider the transaction complete, although the actual money transfer has yet to occur.

Typically, the business sends a batch of authorized transactions to the payment processor for settlement at the end of every business day. The payment processor then submits this batch to the acquirer, initiating the fund transfer from the issuer to the merchant bank, which often takes one to three business days.

This is the stage where the merchant reviews all settled transactions to ensure they align with the company’s sales records. The business reconciles settled transactions using reports from the payment processor and other sources, such as internal accounting systems and bank statements.

Payment processing services make money through transaction fees, which is a commission as a percentage of the transaction between the merchant and the customer.

Typically, the percentage and fixed fee are combined into a discount rate, including interchange rates, assessment fees, and payment processor markup. For example, a 3.5% + $0.15 discount rate means each transaction grants the merchant acquirer $0.15, and the merchant must also pay 3.5% of the total payment volume (TPV) per dollar.

Pricing structures for payment processors include:

• Flat rate pricing: The merchant pays a fixed percentage per transaction, regardless of the actual expenses. Let’s say the discount rate is 3.5% + $0.15. A $1,000 sale will cost you $35.15.
• Interchange plus pricing: The interchange fee set by the card network plus the markup set by the payment processor. For instance, 2.5% + $0.10 over 1.5% interchange fee means a $1,000 sale will cost you $40.1.
• Tiered pricing: This structure divides transaction rates into qualified, mid-qualified, and non-qualified tiers according to various features, such as the card type and payment method. Each tier has a different processing rate.

Ensuring the security and compliance of your customers’ financial information needs to be your top priority. Therefore, make sure that your in-person and online payment processor adheres to PCI DSS and possesses fraud detection and prevention systems. Besides, it should utilize both encryption and tokenization for an extra layer of security.

42% of U.S. customers won’t complete a transaction if they don’t see their preferred payment option at checkout.
Thus, make sure your payment processor supports different payment methods that customers may prefer, such as digital wallets, debit cards, credit cards, buy now pay later, and any other local payment methods.

For a smooth operation, merchants should choose a payment processor compatible with their existing eCommerce platform, POS system (such as POS for Magento and POS for Shopify), or other business software. Most processors provide easy-to-use APIs, plugins, or SDKs that enable seamless integration with various platforms.

Consider your budget and investigate the available pricing options of the credit card payment processor. To find the most cost-effective solution, businesses should understand the pricing structure as discussed above. Then, opt for a pricing model that aligns with your business’s transaction volume and anticipated growth. 

Choose a payment processor that accepts a variety of currencies and common local payment options if your company operates or intends to grow internationally. Remember to check for international transaction and currency conversion fees as it’ll add up your sale costs.

You should evaluate both the customer checkout flow and the user dashboards your payment processor offers. The checkout flow should have clear instructions and efficient input fields. The user dashboard interface should also be easy to understand, use, and navigate.

Your needs for payment processing will change as your company expands. Choose a processor that can adapt to your growth and supports features like subscription billing, invoicing, and recurring payments.

Now that you’ve learned what is a payment processor. It may get tricky to pick the most suitable one because of the overwhelming number of payment service providers on the market. Moreover, each payment processor has different rates and features and caters to specific business types.

To help you choose the perfect fit with ease, we’ve compiled a list of the 7 top payment processing companies in the below table.

Payment processing meaning stays the same across such industries as banking, retail, and eCommerce. It refers to the series of actions that safely move money from a payer to a payee. It typically involves using electronic payment systems for transaction authorization, verification, and settlement.

When a consumer pays with a credit or debit card to purchase goods or services, a business has to pay a predetermined amount. These costs are deducted from the merchant’s sales revenue and called payment processing fees or merchant acquirer service fees.

Batch payment processing, or bulk payment processing, allows you to combine several payments into one batch and send them all at once from the same business bank account.
Processing payments in batches is more efficient for retailers than making several single payments when paying several recipients, such as for supplier bills, payroll, or overseas payments.

Yes, PayPal is among the most common payment processors in the world.

Yes, Stripe is a scalable, secure, and flexible payment processor that allows businesses to manage online payments.

POS and terminal compatibility

There are several ways to check the compatibility between your POS system and a payment terminal:

• Check the POS provider’s website or documentation for a list of compatible payment terminals. For example, Magestore has listed Square as a compatible terminal on their website.
• Contact the POS provider directly if you can’t find a list of compatible terminals
• Check the payment terminal manufacturer’s website to find a list of compatible POS systems

Since Square does not publish a list of compatible POS software on their website, we recommend you check with your POS provider.

Streamlined inventory management

The POS should help you manage inventory effectively across sales channels and locations.

• Create and manage orders
• Update inventory levels across channels in real time
• Transfer stocks between stores
• Adjust inventory quantity
• Manage stocks with barcodes
• Have automatic low-stock notifications

Real-time data syncs across channels

• Sync customer data: customer profile, purchase history, loyalty program, etc.
• Sync products: product information like names, descriptions, images, variations, etc., inventory level, and pricing and promotions
• Sync orders: customer info such as name, address, contact details, etc., order details, and order status

Customer management

Your POS should integrate and sync customer data captured at the Square terminal with their online data to streamline the buying experience:

• Customer profiles
• Purchase history across channels
• Loyalty programs

Reports and analytic tools

To evaluate your business growth and make prompt and data-driven adjustments, your POS should provide you with a diverse array of POS reports regarding:

• Sales: Track daily, weekly, and monthly performance. Analyze sales by product, brand, supplier, and more
• Employees: Monitor individual sales performance, work hours, and commissions
• Inventory: Maintain clear visibility into on-hand stock, stock movement, and incoming inventory

Bonus points

• eCommerce integration: Integrate with online stores to centralize customer and inventory data for a seamless shopping experience
• Cross-device flexibility: The POS should work well on iPads, Android tablets, PCs, and Macs.
• Scalability and customizability: Look for a POS system that can connect with third-party apps to expand functionalities. And remember to check if the POS allows you to add new features or custom workflows tailored to your needs.

Here’s a comprehensive comparison table of 8 POS software programs that integrate seamlessly with Square.

1. Square POS and Square for Retail: Suitable for startups and small businesses with simple needs

Square Point of Sale provides merchants with basic features to handle online orders and inventory, reach customers, and manage staff.

Square for Retail is a comprehensive POS solution with more advanced features than the Square Point of Sale to help retailers run their businesses more efficiently, such as intuitive inventory management and smart reporting.

Key features

Register and checkout

• Various payment options: cash, contactless, chip, Cash App, buy now pay later (Afterpay), card on file, gift cards, check, etc.

Order management

• Accept online orders for in-store or curbside pickup
• Easily issue a refund and adjust stock levels

Inventory management

• Upload unlimited items
• Track inventory in real time across locations and online stores
• Set low-stock alert notifications
• View inventory reporting and forecasting
• Only in Plus subscription of Square for Retail: add and transfer stock across locations in bulk, create and print different label sizes, automatic stock adjustments, and more

Customer management

• Auto-created customer profile, customer group, and custom fields in all plans

Team management

• Unlimited personal passcodes, time tracking, timecard reporting, and multiple wage rates
• Customizable permission sets are available only in Advanced Access (from $35/month).

Reporting

• Sales reports are available for all plans.

Pros and cons

Pricing

Best use case

• Square Point of Sale is suitable if you sell some items or services or just want a simple online ordering platform to start your business.
• Square for Retail is for omnichannel retailers or those wishing to manage more operations.

Expanding businesses often look for an alternative Square POS integration because they require a complete solution to run their industry-specific operations, such as handling a complex matrix of ingredients, processed items, and special orders.

2. Magestore: Scalable POS for omnichannel retailers of all sizes

If you’re looking for Square POS integrations for Magento, Magestore Magento POS, a Square partner, should be at the top of the list. This Square POS integration not only has robust built-in functionality but also a strong ability to customize and integrate with 3rd-party services, including Square and other payment service providers. This makes the POS an optimal choice for retailers of all sizes, especially those wishing to elevate the customer experience and expand business in the future.

Magestore also develops a Shopify POS with impressive functions at affordable prices dedicated to Shopify merchants. In addition to syncing inventory and offering omnichannel loyalty programs, the point of sale (POS) functions smoothly with Shopify and is compatible with tablets and desktop computers. This Square POS integration for Shopify also supports fast checkouts, refunds, discounts, and employee management.

Key features

Fast checkout process

• Create and process orders in seconds, from just 1 dashboard
• Offer flexible payment methods for your customers, including cash, debit and credit cards, gift cards, store credits, reward points, split payments, layaway, buy now pay later, etc.
• Provide customer-facing display and self-checkout option for quick checkout

Order management

• Offer omnichannel order fulfillment options such as store pickup, buy in-store ship to door, and create orders online and pay at store, etc.
• Support returns, refunds, and exchanges

Inventory management

• Manage inventory across locations and channels
• Utilize barcodes and a bin system to manage inventory and product catalogs
• Move inventory between stores and warehouses and count stock with ease
• Sync inventory data across channels in real time
• Create purchase orders based on product threshold setting

Customer experience

• Run omnichannel loyalty schemes with gift cards, store credits, and reward points
• Sync customer data from online and offline channels in real time for consistent shopping experiences

Employee management

• Grant the right permissions for your staff to complete their tasks: admins, cashiers, location login, etc.
• Oversee sales performance, employee work schedules, commissions, and record salespeople’s names on receipts

Reporting and analysis

• Provide live and comprehensive reports about inventory visibility, daily sales, cash flows, order status, customers, employees, etc.
• You can apply multiple filters to get preferable results and export the reports for thorough analysis.

Integration and customization

• Already integrated with Square Terminal
• Integrate with other 3rd-party services providers, including other payment terminals (Worldpay, Adyen, Stripe, Tyro, Paypal), marketplaces (Amazon, eBay, Etsy), accounting (Xero, QuickBooks), ERP (NetSuite, SAP), shipment (ShipStation, FedEx), etc. to enrich the POS functions
• Compatible with most popular hardware: cash drawers, receipt printers, barcode scanners, iPads, PCs, Macs, and Android tablets
• Easy to scale and customize to your evolving requirements

Others

• Run on any device and work well in offline mode
• Respect PCI guidelines to store sensitive data securely

Pros and cons

Pricing

Best use case

• Startups and small retailers can use the simple POS for Magento or Shopify POS.
• Multi-store and omnichannel retailers of medium and large sizes can opt for the robust Magento 2 POS.

3. Loyverse POS: Free POS for small retail stores and restaurants

With Loyverse POS, users can manage inventory, visualize sales analytics, and manage customer relationships. Quick-service restaurants can benefit greatly from the free KDS (kitchen display system) feature, and small food-based retailers can benefit from the system’s inventory tools, which include variants and real-time tracking. However, Loyverse POS lacks features for full-service restaurants and tools to manage specialized industry regulations.

Key features

Inventory management

• Bulk import and export product information
• Track inventory and receive low-stock notifications
• Create purchase orders and track stock receipts
• Transfer stock across stores
• See inventory valuation and analytics

Sales analytics

• View reports on sales trends, employee’s sales performance, popular items, and taxes

Loyalty programs

• Implement a points reward program
• Request feedback from customers
• Write notes about individual customers

Restaurant features

• Create predefined tickets for table management
• Print bills or pre-receipts
• Specify dining options like dine-in, take-out, delivery
• Display kitchen orders on a screen

Retail features

• Scan barcodes with the camera (iOS only)
• Manage product variants
• Display orders on a separate customer display tablet

Pros and cons

Pricing

• Free POS with basic functionalities such as adding items, making sales, creating and applying discounts, taxes, modifiers, etc.
• Offer optional addons for monthly subscriptions with a 14-day free trial:

Best use case

• Quick-service restaurants and small food-based retailers
• Businesses that want a built-in loyalty program (food and beverage sellers, fashion and beauty retailers, supply stores, etc.)
• Small businesses with basic operations

4. Odoo POS: Free POS for restaurants and retail stores

Odoo POS is a component of Odoo’s integrated business application suite, which includes an integrated inventory management platform to unify data across stores. Moreover, the free plan boasts all the essentials to run your small retail shop or restaurant.

Key features

• Manage and send orders to specific areas, like the bar or kitchen for fulfillment
• Handle multiple checks and quick product searches with barcodes or filters
• Customer management and loyalty: loyalty programs with points or discounts, customer identification with cards or barcodes
• After-sale services: refunds, warranties, and customer claims
• Integrate seamlessly with Odoo apps for inventory, sales, and eCommerce
• Offline mode

Pros and cons

Pricing

Odoo’s POS system gets you started for free if you use no other Odoo apps. However, to unlock advanced features such as inventory, customer relationship management (CRM), and accounting, you’ll need to upgrade to paid plans.

Best use case

Small and midsize restaurants and retail businesses that need a POS solution with a modest budget and basic features.

5. Hike POS: Square POS integration for SMEs in leisure and adventure industries

Hike is a cloud-based POS system that offers eCommerce, appointment scheduling, inventory management, and sales analytics and reporting. This system integrates multiple locations with a central inventory and supports retailers with one location or up to 101 locations. Hike POS sets itself apart with features tailored to specific industries, flexible pricing schemes based on the number of users, and first-rate customer service.

Key features

Inventory management:

• Categorize your products, add detailed descriptions, and update their status with ease
• Utilize barcodes for quick product scanning, conduct regular merchandise counts for accuracy, and set low-stock reminders to avoid stockouts
• Transfer inventory between locations to optimize distribution
• Create purchase orders for smooth supplier transactions and record supplier information for automatic order assignment based on predefined rules
• Customize tax rates and apply price margins

Reporting:

• Comprehensive sales tracking: payments, gift cards, transactions, account sales, and returns
• Analyze employee activity, customer profiles, and product performance, and create custom reports

Faster checkouts:

• Record payments, park orders, apply discounts, process returns, add taxes, set credit limits, etc.

Integrations:

• Integrate with eCommerce platforms with smooth data syncs and a consolidated dashboard

Store management:

• You can process returns, view order history, create daily totals reports, and assign pins to specific staff members

Customer management:

• Import any existing customer directories
• Create individual customer profiles with customer’s visit frequency, average spend, loyalty point accrual, etc.

Pros and cons

Pricing

* Note: A 14-day free trial is available.

Best use case