For those who are looking to integrate payment solutions into their e-commerce/online business, some of the jargon used in the payment processing industry can be somewhat confusing. The most common of these terminologies is the payment gateway and virtual terminal and individuals often find it difficult to differentiate between them. Nonetheless, you must understand the similarities and differences between the two, what they do, and how they interact before making a decision on which to use. Let’s take a look at the definition and characteristics of each.
What is a virtual terminal?
A virtual terminal is basically a facilitator of internet-based electronic payments. It allows individuals to process transactions with computers or smart devices that have internet connections. Usually, you log into a secure web page (on a standard web browser) with your credentials and process payments using the built-in merchant dashboard. This dashboard is similar to a card reader or physical swiper except that the card data has to be entered manually instead of swiping or reading the card’s chip.
Virtual terminals usually come with some smart options such as insightful reporting, automatic recollect, real-time validation of transactions, recurring transactions, etc. Although most virtual terminals only have the ability to process credit card payments, some have additional capabilities that allow them to process electronic checks and make use of fraud prevention tools.
What is a payment gateway?
Payment gateways are solutions used by customers to make payments on e-commerce websites. They are integrated into a business’ website and used in conjunction with checkout and shopping cart solutions. The gateway obtains data from a virtual terminal, authenticates it and routes the information to the payment processor. It is the payment gateway that allows customers to input their cardholder data and complete an online purchase or payment transaction.
Customers add an item/items to their shopping cart, proceed to the checkout option and are prompted to key in their credit card information. Once it is entered, the card information is encrypted and sent through the payment gateway for processing at the merchant bank. Lastly, the bank of the customer authorizes the payment/charges, and the payment gets sent to the merchant’s bank account. Payment gateways can function without a virtual terminal; however, it means that transactions can only be accepted from the customer end of the website. Virtual terminals are what allows owners of e-commerce/business websites to process transactions as a merchant. There are payment gateways that come with additional capabilities such as real-time notifications, instantaneous payment authorization, and cloud reporting.
Most payment gateways support virtually all kinds of transactions including authorization and capture, authorization only, refunds, voids, etc. When used with virtual terminals and physical POS terminals, a payment gateway offers individuals reliable and secure processing for all their business needs.
Comparison of Payment Gateways vs. Virtual Terminals
The above definitions and characteristics clearly show that payment gateways and virtual terminals are indispensable to merchants who sell their products and services online. Let’s compare payment gateways vs. virtual terminals to determine when best to use one or the other.
Both payment gateways and virtual terminals are internet-based and require individuals to create a merchant account. Merchant accounts are bank accounts specifically designed to accept funds deposited by means of an electronic payment transaction. It is also linked to a normal business account so that business owners can withdraw their funds. The merchant account, which can be gotten as part of an all-inclusive payment solutions package or separately, is also required for the backend processing of transactions and the transfer of customer’s deposit to your bank account.
Before a business or individual can process or receive electronic payments, a payment gateway must be integrated with the website so that card data can be routed to the processor. Although the merchant can do this manually via a virtual terminal, the stress of continuously keying in customers’ card data can be overwhelming.
The benefit of having a virtual terminal is that it enables merchants to enter card data by themselves. This feature is very helpful in cases where the source of the electronic payment is not a checkout or shopping cart solution. In such cases, merchants can obtain the card information from their customers either in-person, through calls, text, chats, etc. and then use the virtual terminal to take payments.
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