The world of payment processing is packed with jargon and acronyms. One particular thing that causes confusion is the difference between a payment gateway and a virtual terminal.

In this article, we describe both virtual terminals and payment gateways and explain the circumstances where you might use one or both.

Payment Gateway vs. Virtual Terminal

Before explaining the differences between a payment gateway and a virtual terminal for credit card processing, it’s helpful to illustrate the similarities.

Both systems allow merchants to accept card payments from customers and seek authorizations from issuing banks. Payment gateway providers often offer both payment gateways and virtual terminals. In many cases, businesses decide that they can benefit from access to both to provide customers with a choice of convenient payment methods.

Let’s look at each in turn.

What is a Payment Gateway?

A payment gateway is the online equivalent of a card processing terminal in a physical store. Anyone running an eCommerce store who wishes to accept online payments must integrate a payment gateway within their website infrastructure.

Payment gateways require online customers to key in their card details themselves. Those are then passed through to a payment processor for authorization and security checks. In turn, the same merchant service provider usually handles the back-office function of transferring the funds to the merchant’s account.

Payment gateways require online customers to key in their card details themselves.

End-to-end payment gateway service providers like Chase Merchant Services handle every part of the process. All have subtly different charging models, but generally speaking, they make their money with transaction fees and subscription charges.

What is a Virtual Terminal?

A virtual terminal is another way to accept payments. It gives merchants the ability to key in customer card details manually. This opens up the ability to take telephone payments, in-person payments in stores and at one-off events, and even payments from old-fashioned mail-in forms.

While payments made via an eCommerce payment gateway involve the paying customer inputting their details, virtual terminals allow the business (the merchant) to do so.

Virtual terminals give businesses a way to manually key in company card details. 

Virtual terminals also utilize online services. Usually, merchants will log on to a secure website or use a mobile app to access the virtual terminal. The details provided, such as card number and expiry date, are generally the same as those a customer would provide if they were initiating an online transaction themselves.

Online shopping seems ubiquitous and continues to grow more popular each year. However, around 24% of the US population still don’t shop online. Use of a virtual terminal gives businesses the ability to take payments from those who would prefer to pass their payment details to a “real person.”

Which Do You Need?

To make things just a little more complicated, virtual terminal credit card processing uses a payment gateway!

The easiest way to understand this is that:

  • You can have a payment gateway without a virtual terminal.
  • You can’t have a virtual terminal without a payment gateway.

As referenced above, merchant service providers often offer an all-in solution. For example, Square offers a virtual terminal that uses its own payment gateway. Sometimes, a virtual terminal will be an add-on from an eCommerce provider, allowing businesses to take in-person and phone payments alongside website transactions made by customers.

Here are a couple of possible scenarios:

  • If you’re a purely online business, wishing to take a “hands-off” approach to accepting card payments, you may purely wish to invest in a payment gateway. This will be integrated as part of your website, and will process payments where customers input their card details.
  • If you also want to ability to manually input card details – perhaps for payments made over the phone – a virtual terminal allows you to do this. It’s worth noting that plenty of providers throw in access to a virtual terminal as part of a packaged service.

Things to Consider

Payment processing providers often offer a comprehensive package of services. Here are a few things that are handy to keep in mind when navigating complicated lists of features:

  • Shopping cart abandonment is a considerable problem for online businesses. A study shows that 69.57% of online shopping carts are abandoned. Providing customers with friction-free ways to pay and a wide range of payment methods can help to reduce the ratio of abandoned carts.

Virtual terminals often allow additional methods of payment alongside credit and debit card, such as ACH and check. Combined with the ability to process manual card payments when people struggle to complete an online purchase, a virtual terminal can give your business plenty of options to increase conversion rates and win more paying customers

  • There’s considerable nuance in how providers charge for payment gateway services. Some charge purely based on transactions, while others introduce an element of monthly fees. It’s well worth considering the unique trading patterns of your business to work out which will be most cost-effective.
  • Payments made via a virtual terminal are almost always treated as “card not present” transactions. These often come with higher processing fees, reflecting the higher level of fraud risk and cost of related security checks.

While offering customers multiple ways to pay is desirable, it still makes sense to steer them to methods that cost less to process and require no manual intervention.

If you are doing business online, you need a payment gateway. In many cases, adding a virtual terminal will be beneficial, offering you complementary ways of accepting customer payments.

If you run a mail-order or telephone-order business, a virtual terminal could form the heart of your infrastructure for taking payments. 

Either way, when researching payment gateway providers for your business, it’s valuable to understand a virtual terminal’s role. It’s almost always something that can add value.