The image showing a laptop mimicking the work of a virtual terminal as presented by PayDo

The Easy Guide to Understanding Virtual Terminals

27 December 2023
Accepting Payments
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Virtual terminals are web-based system that allows merchants to manually enter and process credit card transactions on a computer instead of using a physical point-of-sale (POS) system or terminal. Virtual terminal payment gateway has become the number one solution for many digital businesses. The report by Statista only supports this fact as the value of transactions in digital payments reached $8,4 billion in 2022, with FinTech being the largest segment.

As virtual terminals are a focus of many users nowadays, we present a guide allowing readers to understand all the necessary details. Find out how it works and why you may need one for your business transactions. 

What are virtual terminals after all?

The image showing a laptop mimicking the work of a virtual terminals as presented by PayDo

A virtual terminal is an online tool that lets businesses process credit card payments using their computer or another device with network access. Instead of swiping or inserting a card into a machine, the business owner or employee accepting payments now simply enters the customer’s credit card details into the virtual terminal to complete the transaction.

Because of their flexibility and simplicity, these businesses use virtual terminals:

  • Remote Sellers. Businesses that sell products or services over the phone or through mail orders find virtual terminals especially helpful because they can process payments without the customer being present.
  • Service Providers. Professionals like consultants, freelancers, or contractors who may not have a physical office or storefront use virtual terminals to charge clients after services are rendered.
  • Small Retailers. Some small shop owners might use virtual terminals as an alternative to traditional POS systems, especially if they have a low volume of card transactions.
  • E-commerce Businesses. While many online businesses rely on payment gateways for transactions, some may also use virtual terminals for specific situations, such as processing a phone order.
  • Subscription Services. Businesses that offer subscription boxes or recurring services can utilize virtual terminals to set up and manage these recurring payments.

As one can see, virtual terminals offer a versatile and convenient solution for a wide range of businesses. From remote sellers to e-commerce platforms, these tools provide an effective way to process payments without the need for physical presence, making them an ideal choice for businesses operating in various sectors and with varying transaction needs. Their ease of use and adaptability make them a valuable asset in the modern business landscape.

How do virtual terminals function?

A virtual terminal is like an online version of a credit card machine. Here’s a breakdown of how it works:

  1. The business logs into a secure website provided by its payment service provider.
  2. Once logged in, they access the virtual terminal interface.
  3. The business enters the customer’s credit card details, including the card number, expiration date, security code, and transaction amount.
  4. They then submit the information.
  5. The virtual terminal processes the payment, usually by checking if the card has enough funds or credit and if the card details are correct.
  6. Once approved, the transaction goes through, and the money gets transferred from the customer’s account to the business one.
  7. The business usually receives a confirmation message or receipt, which they can share with the customer or keep for their records.

Throughout the process, security measures are in place to keep the customer’s card details safe and to ensure that transactions on merchant accounts are carried out securely.

Difference between virtual terminals, POS systems, and payment gateway

Virtual terminals, POS systems, and payment gateways are tools businesses use to accept and process payments, but they function differently.

Virtual TerminalsPOS (Point-of-Sale) SystemsPayment Gateway
Virtual terminals are online systems that allow businesses to manually enter and process credit card transactions on a computer or another internet-connected device.

This tool is especially useful for businesses that handle orders over the phone, through mail, or in environments where the customer isn’t present to swipe or insert their card.

No physical equipment is required except for a device with an internet connection.
A POS system combines software and hardware designed to ring up sales and process payments at physical locations.

It often includes a cash register (which can be a tablet or a computer), a card reader, and sometimes a printer for receipts.

Besides processing payments, POS systems often have features for managing inventory, employee access, and customer relationships.
A payment gateway is a service that authorizes and processes online transactions. It acts as a bridge between a business’s e-commerce website and the bank that issues the customer’s credit card.

Payment gateways encrypt sensitive information, like credit card numbers, to ensure that information passes securely between the customer and the merchant and between the merchant and the payment processor.

It’s a necessary tool for online sales businesses, ensuring quick and secure transactions.

Each tool is suited for different business needs and environments, helping merchants smoothly and securely process customer transactions.

Key advantages of using virtual terminals to accept payments

As we discovered how virtual terminals function in-person payments and their differences in comparison to other financial tools, let us outline the key advantages:

  1. Flexibility. Virtual terminals can be accessed from any device with an internet connection, allowing businesses to take payments from almost anywhere, be it their office, home, or on the go.
  2. Cost Savings. Since there’s no need to purchase or maintain physical card machines, businesses can save on equipment costs.
  3. No Need for Physical Presence. Virtual terminals are ideal for processing payments when the customer isn’t present, like over the phone or through mail orders.
  4. Easy Setup. Setting up a virtual terminal is typically straightforward, often requiring a simple online registration with a payment service provider.
  5. Secure Transactions. Reputable virtual terminals use encryption and other security measures to process payment details safely.
  6. Record Keeping. Virtual terminals often come with built-in features that help businesses track transactions, making accounting and record-keeping easier.
  7. Recurring Payments. Many virtual terminals offer the ability to set up and manage recurring payments, which is beneficial for subscription-based services.
  8. Quick Processing. Payments made through virtual terminals are processed quickly, allowing businesses to access funds in a timely manner.
  9. Integration. Some virtual terminals can be integrated with other business systems, such as accounting software, to streamline operations.

Virtual terminals offer convenience for businesses, but, like all payment processing methods, it includes manual entry errors, data breaches, non-compliance with PCI-DSS, and limited customer interactions. 

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Common misconceptions about virtual terminals

Often, without understanding the subject matter, many people tend to create misconceptions about something. The virtual terminals are no exception. Many users confuse their functionality with other financial tools, mainly mixing up their features. Among these misconceptions, you may notice the following:

1. All virtual terminals offer the same features

Virtual terminals can vary widely in features and capabilities. While the core function (processing payments) remains the same, additional features like recurring billing, integration with other software, or transaction reporting might differ among providers.

2. They are not secure

Some assume that virtual terminals are automatically prone to hacking or breaches because virtual terminals are online. Reputable virtual terminals use strong encryption and security measures to protect transaction data.

3. Only for online businesses

Some believe virtual terminals are only for online businesses. While they’re useful for e-commerce, they’re also valuable for brick-and-mortar stores, service providers, and any business taking payments over the phone or via mail.

4. They are the same as payment gateways

People sometimes confuse virtual terminals with payment gateways. While both process online transactions, payment gateways are designed for e-commerce websites, automating payments on the site. In contrast, virtual terminals involve manual entry of payment details.

Understanding virtual terminals’ true capabilities and features helps businesses make informed decisions about virtual terminal payments and maximizes the benefits they can derive from such tools.

Choosing right virtual terminals

Choosing the right virtual terminal for your business is crucial for payment processing. Here are a few tips on how to select the best one for your needs:

Step 1. Understand your needs

Start by assessing the specific needs of your business. Do you need to process recurring payments? Are you taking a lot of phone orders? Knowing your primary requirements will help narrow down your options.

Step 2. Fees and charges

Check the pricing structure of potential virtual terminal providers. Look out for monthly fees, transaction charges, and any hidden costs. Ensure that the charges align with your business’s transaction volume and budget.

Step 3. Security

Security is paramount when dealing with payment information. Ensure the virtual terminal provider follows industry standards, such as PCI DSS compliance, and uses encryption to protect data.

Step 4. Integration capabilities

If you use other business software, like accounting tools or CRM systems, see if the virtual terminal can integrate with them. Integration can streamline your operations and save time.

Step 5. Customer support

Check if the provider offers solid customer support. Being able to quickly reach out and get assistance, especially during transaction issues, is essential.

Step 6. Features

Beyond basic payment processing, see what additional features the virtual terminal offers. This might include transaction reporting, the ability to set up recurring payments, or multi-user access.

By carefully evaluating your options and considering these factors, you can select a virtual terminal payment system that aligns with your business needs, ensuring smooth and cost-effective payment processing.

Final thoughts

Virtual terminals are online tools that let businesses process credit card payments by manually entering the details on a computer or other internet-connected device. They allow merchants to input a customer’s credit card information and process the transaction securely. 

Businesses that often use virtual terminals include those taking orders over the phone, service providers invoicing after a job, vendors at trade shows, and companies without a traditional storefront. These terminals offer a convenient way to take credit and debit cards and handle payments without the need for physical card machines.

Contact us to get more information on virtual terminals, POS terminals, and payment gateways!

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