In 2021, e-commerce retail sales totaled $5.2 trillion U.S. dollars worldwide. This figure is expected to grow by 56 percent over the next three years, reaching $8.1 trillion by 2026. If you’re looking to integrate payment solutions into your e-commerce business, the jargon used in payment processing can be confusing.
Individuals often find it difficult to differentiate between a payment gateway and a virtual terminal, two of the most common terminologies. You must understand the similarities and differences, what they do, and how they interact before deciding on which to use. To better understand them, let’s delve into the definitions and characteristics of each.
The difference between payment gateway vs. virtual terminal
What’s a payment gateway?
A payment gateway is a solution used by customers to make payments on e-commerce websites. The payment gateway market is valued at $22.8 billion and is expected to reach $52.8 billion over the next five years. They’re integrated into a business’ website and used in conjunction with checkout and shopping cart solutions.
Here’s how a payment gateway works:
- The gateway obtains data from a virtual terminal, authenticates it, and routes the information to the payment processor.
- The payment gateway allows customers to input their cardholder data and complete an online purchase or payment transaction.
- Customers add items to their cart, proceed to the checkout, and are prompted to key in their credit card information.
- Once entered, the card information is encrypted and sent through the payment gateway for processing at the merchant bank.
- Lastly, the customer’s bank authorizes the payment/charges, and the payment gets sent to the merchant’s bank account.
Payment gateways can function without a virtual terminal, but those transactions are only accepted from the customer end. There are payment gateways that come with additional capabilities, such as real-time notifications, instantaneous payment authorization, and cloud reporting.
Most payment gateways support all kinds of transactions, including authorization and capture, authorization only, refunds, and voids. When used with a virtual terminal and POS system, a payment gateway offers secure processing for all business needs.
What’s a virtual terminal?
A virtual terminal is a facilitator of internet-based electronic payments. It allows individuals to process transactions with computers or devices with an internet connection. Usually, you log in to a secure web page with your credentials and process payments using the built-in merchant dashboard. This dashboard is similar to a card reader or physical swiper. The difference is the card data must be entered manually instead of swiping or reading the card’s chip.
Virtual terminals usually come with smart options such as insightful reporting, automatic recollections, real-time validation of transactions, or recurring transactions. Most virtual terminals can process credit card payments, but some have additional capabilities, such as processing electronic checks and using fraud prevention tools. The virtual terminals market is expected to reach $34.71 billion in 2026 at a CAGR of 34.6%.
Comparison of payment gateways and virtual terminals
Both payment gateways and virtual terminals are internet-based and require individuals to create a merchant account to accept funds. It’s also linked to a normal business account so that business owners can withdraw their funds. The merchant account is also required for the backend processing of transactions and the transfer of funds to your bank account.
Before a business or individual can process or receive electronic payments, a payment gateway must be integrated with the website. This allows payment card data to be routed to the processor. The merchant could do this manually, but the stress of continuously keying customer card data can be overwhelming.
The benefit of having a virtual terminal is that it enables merchants to enter card data themselves. This feature is helpful in cases where the source of the electronic payment is not a checkout or shopping cart. Merchants can obtain card information from their customers and then use the virtual terminal to take payments.
How PAYARC can help streamline your payment processing operations
PAYARC can streamline your operations by integrating with multiple payment gateways, automating billing and invoicing, detecting, and preventing fraud, providing robust reporting and reconciliation features, and offering customization and flexibility. This can help reduce costs, improve efficiency, and enhance the customer experience.
We want to help you streamline your payment processing operations. Reach out today to get started!
