New Zealanders love cashless payments - but have you ever wondered how EFTPOS payments actually work?

EFTPOS stands for Electronic Funds Transfer at Point Of Sale. It's the magic process of transferring money from your EFTPOS card to a business's bank account.

In this article, we'll get down to the nitty-gritty of how EFTPOS payments work in New Zealand.

Who is involved in an EFTPOS transaction?

EFTPOS transactions involve the following players:

1. The merchant

The term 'merchant' can be used interchangeably for both sole traders as well as businesses. A merchant is someone who charges money in exchange for goods or services.

2. The merchant's bank

As the name suggests, this is the bank that's associated with the merchant's payment terminal. The merchant's bank issues a merchant number which is loaded on the terminal.

3. The customer

The cardholder purchasing goods or services.

4. The customer's bank or credit card scheme

This is the bank that has issued a debit card to the customer. If the customer is using a credit card, the payment is processed through their credit card scheme (e.g. Visa, MasterCard or AMEX).


How payments are processed

EFT insert card


Step #1: Customer uses their card

This can be done in three different ways:

1. Swiping

This requires customers to swipe the magnetic strip on their card through the terminal and enter their PIN. However, it's important to note that this method puts customers at a higher risk of card skimming, a process through which scammers gain a customer's card information.

2. Inserting

Customer inserts the chip side of their card into the terminal and enters their PIN to process the payment. EMV chip technology is more secure than the magnetic strip. EMV stands for Europay, MasterCard and Visa as these were the companies who created the EMV standard.

3. Contactless

Thanks to RFID (Radio-frequency Identification) technology, a customer can just present their card and complete the payment within a couple of seconds without the need of entering their PIN. In New Zealand, there is a limit for contactless transactions without a PIN of $80, but cardholders still only have to tap their card.


Step #2: Transaction is processed

When a customer swipes/inserts/presents their card at the EFTPOS terminal, the terminal sends a payment request to the customer’s bank. The transaction gets approved if the customer has sufficient funds, otherwise, it is declined.

All the customer's data is encrypted using point-to-point encryption (P2PE). The encrypted data from the customer's card is moved to the merchant’s point of sale terminal, then to the local server, and finally to the payment gateway, where it gets decrypted and sent to the customers’ issuing bank. You'd be surprised to know that it only takes about three seconds for this entire process to complete. 


Step #3: Settlements

Settlements only concern merchants, not customers. Usually, the daily earnings hit the merchant's bank account by the next business day. However, this may be affected if it's a weekend or a public holiday.


There you have it. Now you know exactly how payments work in New Zealand!

We help over 50,000 businesses like yours make the most of their EFTPOS solution. Are you with us? If you would like to learn more about how we can help you, click on the link below.


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