Card expert : Before POS Terminals were introduced into credit card industry, the Card Companies deployed a manual sales slip system to acquire credit card sales transactions.

Since the introduction of POS Terminal system into credit card industry, the POS Terminal System has grew incredibly. The terminals have taken over almost 100% of the manual sales slip system in developed and developing countries.

Today, more than 90% of the credit card transactions in the world are processed via POS terminals.  While POS terminals have brought a lot of benefits to the credit card industry such as speed and accuracy in processing credit card sales transaction nevertheless, they also have their weaknesses.

One of the major weaknesses of using a POS terminals to process credit card sales transactions is terminal faulty.

How can a Card Company loses revenues when POS terminal is faulty?

A POS terminal is just like any electronic equipments that you use at home or office.  Because it is an electronic gadget, it is prone to damages when subjected to strong magnetic fields and lightning strikes.  When a POS terminal is subjected to strong magnetic field or being stroked by lightning, the memory chip in the machine that stored credit card transactions can be corrupted and data can be lost. Once these happened, the merchants will not be able to perform batch settlements with the Card Company.

If the merchant has a habit of performing daily batch settlement, then the Card Company may get an early alert when merchant complained of settlement problems.  However, if the merchant only does batch settlement once a week or less frequent than that, such problems may only be known much later.

If the POS terminals are supplied by the Card Company, the Card Company has to be responsible for any financial losses suffered due to lost of transactions or late processing of transactions.  I have came across Card Companies that lost thousand dollars of revenues due to loss of transactions and late processing of transactions.

How to minimize loss of revenues due to POS Terminal Faulty?

After knowing how transactions can be lost or delayed  processing from POS terminals, now we will discuss the corrective actions.

One of the most effective preventive method that I have used to alleviate the above problem  is to setup a POS Terminal Settlement Control System.

A POS Terminal Settlement Control System is basically a system to compare all POS terminal batch settlement records submitted by the merchants with the internal transaction authorization records (which were created during the authorization of the each respective transactions). 

The trickiness of this control system is, one got to be very well versed with the credit card sales transactions activities in order to be able to setup a matching criteria. Some example of the matching criteria are:

1. Merchant account matching

2. Batch total transaction matching

3. Batch total value matching

I will not go through in details on this matching criteria as it can be very technical as it goes on.

Once the control system identified a mismatched batch, the whole batch is suspended from further processing.  The suspended batch will be thrown into a batch withheld file, for a staff to check the detailed transactions and compare against the internal authorization records.  From my experience of going through these records, you can find things like duplicate processing, missing transaction, offline transactions, etc.

In addition to the batch matching module, the POS Terminal Settlement Control System should generate a weekly ageing report of unsettled transactions.  The staff-in-charge should go through this report for unusual delay in settlements.  Once an unusual delay is identified, the staff-in-charge should contact the merchant and request them to settle immediately or listen to their explanation if they do not intend to settle so soon.

Some immediate remedial actions (not exhaustive) that you can take are

1. Delete duplicate transactions and repost the batch.

2. Force post the suspended batches to bill cardholders first (in order to avoid late presentment chargeback) and withhold the payments to merchants.  Immediately send requests to merchants for original sales slips for verification against the suspended batches.  Once resolved, repost the transactions (without billing the cardholders) to pay merchants.

A lot of technicalities and detailed procedures are omitted to make it simpler for readers to understand.