Point of Sale Devices (POS)

DEFINITION
Point of Sale (POS) devices are typically used to handle payment transactions. The device can be a card
reader, personal computer (PC), barcode scanner, or any hardware that can identify customers and
receive instructions for the transfer of value. Where transaction volume is expected to be high, or
where wireless Internet access is available, PCs may be used, although most POS devices are card-
reading terminals.1

POS networks are part of the broader electronic payments (“e-payments”) networks that include ATMs
and Internet-based payments that facilitate the exchange of electronic value. POS technology typically
refers to devices that have connectivity and are placed at retail outlets for payments.2
Examples of Point of Sale (POS) Devices*”:

*
Diagrams sourced from: http://images-eu.amazon.com/images/P/B000A527BA.02.LZZZZZZZ.jpg; http://www.amtel-
security.com/products/images/ts_fee_comp.gif; http://www.infologixsys.com/pictures/products/POS-mobile-order-taker.jpg;
http://www.hypercom.com/Images/_Products/P1300.jpg; http://www.synchronics.com/graphics/device-workstation-lg.jpg;

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ACHIEVES / OVERCOMES
Depending on the model employed, POS devices can:
• Reduce crowds in branches and free branch staff for more personalized tasks
• Allow clients to purchase goods directly without cash
• Offer clients withdrawal, deposit, transfer and loan payment services at non-branch locations
• Reduce the frequency with which clients must visit bank branches – reducing client and financial
service provider time spent on routine transactions
• Reduce opportunities for theft or fraud as transactions are confirmed electronically
• Allow untrained, non-professional banking staff to carry out financial service functions
• Allow clients to manage transactions and finances themselves, reducing financial service provider
time, and building clients’ sense of ownership of personal and business financial management

# MECHANICS
Each POS device uses a telephone line,
Technology Adoption Process
mobile phone connection, or the Internet
The mechanics of client-focused technologies vary greatly,
to send instructions for transferring value however the process employed when determining if, when,
from one account to another. For and how to implement new technologies remains fairly
example, after swiping a card through the consistent.
POS device, the merchant presses a
button on the terminal authorizing 1. Identify constraints to rural outreach faced by the
payment from the customer’s line of financial institution
credit (credit or smart card) or funds 2. Identify technologies that may overcome those
available in the customer’s current constraints
account (debit or smart card).1 3. Assess organizational readiness to effectively
implement new technologies, including: organizational
A POS device is not a banking channel on maturity and willingness to change, stable MIS that can
its own. A human attendant must be support the new technology, and organizational buy-in.
available at the point of sale to count and 4. Complete a feasibility study, including projected
store cash and to use the POS device to short- and long-term costs and benefits
identify the customer (such as by having 5. Conduct a pilot test
the customer swipe a debit card and input
a personal identification number [PIN]). If the pilot succeeds, move to full implementation. If not,
The bank also relies on this person to adjust the approach and conduct a second pilot.
answer customer queries, explain product
features, and do other basic tasks. Supermarkets, drugstores, post offices, and other retail outlets are
ideal locations for a POS device because they have cash on hand and have staff to operate the device. In
return for “hosting” the POS device and offering banking services, the retail outlet expects to increase
sales by attracting greater foot traffic and to earn a share of bank fees.1

The complexity of POS systems may vary substantially: from simple systems that only allow customers
to make payments for purchases through to systems offering a suite of transactions including deposits,
withdrawals, transfers to other account holders, and loan payments. The most complex systems offer
full banking services including loan appraisals and account opening services. In all cases, the POS device
identifies and authenticates the client and authorizes the transaction. In more complex models, cash
counting, handling, and storage are the responsibility of the retailer.1

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The table below describes three potential POS systems, their uses and examples of banks that have
employed each system.

Using POS Devices for Banking

Strategy Business Operations
Build merchant • Issuing bankcards
acquiring business • Placing card readers
with merchants
Deliver basic • Issuing bankcards
banking • Placing card readers
with merchants
Expand market • Issuing bankcards
coverage • Placing card readers
with merchants
• Partnering with MFI
“service agents” for
loan appraisal and
monitoring
* Not always available
Services Offered Examples
• Purchase
• Cash back
• Purchases
• Balance inquiry
• Withdrawals/disbursals
• Deposits/repayments
• Account opening*
• Money transfers*
• Purchases
• Balance inquiry
• Withdrawals/disbursals
• Deposits/repayments
• Account opening
• Money transfers
• Insurance products*
• Loan appraisals
• Corporation Bank (India)
• AgroInvest Bank
(Tajikistan)
• CERUDEB (Uganda)
• Lemon Bank (Brazil)
• WIZZIT (South Africa)
• Teba Bank (South Africa)
• CARD (Philippines)
• RBAP (Philippines)
• Botswana Savings Bank
• Fundacion Social
(Columbia)
• Caixa Economica Federal
(Brazil)
• Banco Popular (Brazil)
• Banco Postal (Brazil)
Source: CGAP Focus Note 32

« PREREQUISITES
• Buy-in from executive management and leadership from business managers
• A well-organized institution prepared for and capable of managing change
• A well-functioning MIS that can be integrated with the POS machines
• Motivated, trained, and empowered staff and/or partners
• Reliable communication infrastructure (telephone, mobile phone service, Internet)
• Reliable power supply
• Relatively safe and stable political and social environment (to ensure safe storage of money at
POS locations and transport of cash to and from POS locations)
• In some countries, the central bank may need to approve POS transactions

 TIMELINE
The timeline for introducing POS services will vary greatly depending on:
• The strategy employed by the implementing organization,
• The opportunities to partner with existing networks, and
• The understanding among retailers of POS devices and their potential value.

1PITFALLS
• Depersonalizing services can alienate clients. Clients are often relationship oriented and
enjoy person-to-person transactions. These transactions build trust and familiarity while
automating processes can depersonalize services and alienate clients. This must be considered
and adequately planned for when switching from highly personalized services to automated
transactions.

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• Failure to properly monitor retailers using POS for advanced transactions. When
retailers are handling advanced transactions, such as loan payments, on behalf of a financial
institution, it is important that the financial institution ensures that they are doing so properly.
• Unpredictable demand for cash. Some retailers hesitate to give cash back because they are
unsure of demand, wary of banks promising to repay the cash they disburse, and concerned
about the added risk associated with keeping extra cash on hand.

ÍTIPS
o In markets in which POS devices are not yet common, financial institutions should be prepared to
spend substantial time and resources building a POS network. This includes time spent introducing
the technology to potential implementers and educating them on the benefit of POS devices.

o Similarly, time will need to be spent educating rural clients on the advantages and uses of POS devices,
introducing financial services which they are not necessarily familiar with. Education and awareness
will also need to be offered on the specifics of how to use the POS systems and on overcoming any
mistrust or fear rural clients may initially have.

o Technology is often positioned as a solution for all rural and agricultural finance providers. However,
to date, these technologies have been implemented primarily by well established MFIs or banks. The
strategy taken when implementing any new technology solution should consider the organizational
size, maturity, and ability to fully take advantage of such technologies.

†RESOURCES
1. CGAP Focus Note 32: Using Technology to Build Inclusive Financial Systems
http://www.microfinancegateway.org/content/article/detail/31756
2. CGAP Technology Resource Center Point-of-Sale Page
http://www.microfinancegateway.org/resource_centers/technology/iss_software/list_technologies/
2

ß EXAMPLE A: CAIXA ECONOMICA USES CARD-READERS,

BARCODES, AND PERSONAL COMPUTERS2
Caixa Economica, the Brazilian state-owned bank that manages the country’s lottery network and
distributes government benefits, manages about 14,000 correspondents. It uses POS devices (a card-
reader, barcode scanner and PC) with dial-up or high-speed connectivity to process transactions at
lottery and mini-lottery outlets, in addition to petrol stations, supermarkets, drugstores, bakeries,
butchers and other stores. Caixa’s banking correspondents are present in all of the country’s roughly
5,500 municipalities, and the bank estimates that nearly 40 percent of all of its banking transactions are
handled by this network. By 2007, Caixa expects to operate 20,000 to 23,000 banking correspondents,
and reach customers in virtually every district of the country, reducing the maximum distance between a
customer and a correspondent to two to three kilometers. The most expensive POS devices cost R$
7,000 (US$ 2,800) to purchase and R$ 400 (US$ 160) per month in connectivity charges, as opposed to
up to R$ 1 million (US$ 400,000) to open a bank branch.

Through its correspondents, Caixa offers the full range of banking and payments services as described
above, including a simplified current account called “Caixa Aqui.” This account can be opened at any
Caixa branch or correspondent using only an ID card, CPF (tax file number) and proof of residence or

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an address declaration. Caixa Aqui clients have access to Caixa’s entire branch and correspondent
network. Monthly transaction volume (debits and credits) cannot exceed R$1,000. Clients are allowed 4
withdrawals and 4 account statements per month, and additional transactions are R$0.50 each. Deposits
and balance inquiries cost nothing. Between May 2003 and March 2005, Caixa opened about 2.8 million
new Caixa Aqui accounts.

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