Introduction
The increasing adoption of digital payment systems has significantly transformed the retail and service sectors in India. Among various electronic payment modes, **card-based transactions**—through debit cards, credit cards, and smart cards—have become particularly widespread. These payment methods are now accepted by a broad range of establishments including railways, airlines, malls, hotels, and retail outlets. The infrastructure that enables these transactions is known as the **Point of Sale (POS) system**.
Concept of Point of Sale (POS) Transactions
A Point of Sale (POS) terminal is a device installed at merchant establishments to facilitate electronic payments made through debit or credit cards. When a consumer swipes or dips their card at the POS terminal, the system reads and verifies the card’s electronic data—such as the customer’s name, account number, and other embedded security features—through a secure cryptographic process.
The POS terminal communicates with a host computer that is connected to a network of such terminals. This host system, managed by the acquiring bank or its service provider, validates the transaction by verifying the cardholder’s account information and authorization status. Once approved, the transaction amount is debited from the cardholder’s account and credited to the merchant’s account, usually on the following business day.
Card Payment Acquiring Business
Banks engaged in the Card Payment Acquiring Business enter into agreements with major payment network providers such as VISA International, MasterCard, and RuPay. These networks facilitate the seamless processing of card-based transactions. The service providers also supply, install, and maintain the POS terminals at merchant establishments.
For banks, this business line represents a significant fee-based income opportunity. The merchant pays a small commission (commonly known as the Merchant Discount Rate, or MDR) on the total value of card transactions processed through the POS terminal. This commission is shared among the acquiring bank, the card network (e.g., VISA, MasterCard), and the issuing bank. Additionally, each transaction generates publicity for the acquiring bank, as its name typically appears on the printed transaction receipt.
POS Transactions as an Easy Mode of Payment
Card payments have emerged as a convenient, secure, and efficient mode of payment, contributing to a sharp rise in POS-based transactions. For merchants, the acceptance of card payments translates into greater customer reach and higher sales volumes. Even though credit card holders settle their dues at a later date, merchants benefit from immediate credit to their bank accounts—typically on the next working day after the transaction.
RBI Guidelines on Cash Withdrawal through POS Terminals
In an effort to enhance financial inclusion and customer convenience, the Reserve Bank of India (RBI) has permitted cash withdrawals through POS terminals. As per the RBI press release dated August 27, 2015, the cash withdrawal limit was enhanced from ₹1,000 to ₹2,000 per day in Tier III to Tier VI centres, while the limit for Tier I and Tier II centres remains at ₹1,000 per day. This facility is available only for debit cards and prepaid cards issued by banks.
The RBI expects that this measure will promote cash recycling and improve liquidity in smaller towns and rural areas. Moreover, the regulator has stipulated that customer charges for cash withdrawals through POS shall not exceed 1% of the transaction amount, irrespective of the withdrawal limit.
Merchant establishments offering this facility must clearly display the availability of cash withdrawal services along with applicable charges. When a customer withdraws cash in conjunction with a purchase, the receipt must separately indicate the amount withdrawn.
Process of Cash Withdrawal through POS
The process of withdrawing cash through a POS terminal closely resembles a standard ATM withdrawal. The cardholder must swipe or insert their card into the terminal and enter the Personal Identification Number (PIN) for authentication. Once validated, the merchant disburses the requested cash amount to the customer, following the required due diligence procedures.
Conclusion
POS-based card payment systems have become a cornerstone of India’s retail payment ecosystem. They not only offer customers a convenient mode of payment but also provide banks and merchants with new business and revenue opportunities. The RBI’s continued regulatory support—through guidelines on POS transactions and cash withdrawal facilities—reflects a strategic push toward greater digital inclusion and reduced cash dependency in the economy.
