What’s the difference between a virtual terminal and a payment gateway?

The payment processing industry has a lot of jargon that can completely bewilder even the sharper tools in the shed. It’s not uncommon to be a bit confused, especially when you’re shopping around for payment solutions.

Let’s make it simple. Two common entities in the electronic payments process are the virtual terminal and the payment gateway. What they do and the way they interact can be difficult to pin down, but it’s important to understand the distinction.

What is a virtual terminal?

The virtual terminal is an internet-based facilitator of electronic payments. It allows you to key in and process transactions using any computer (or smart device) with an internet connection. Typically, you will log in to the page through a standard web browser and use a menu to process payments. This can be referred to as a merchant dashboard. It’s akin to a physical swiper or card reader, except that instead you simply enter the data manually.

Virtual terminals can come with a host of smart options. They should allow for real-time validation of transactions, insightful reporting, recurring transactions, and automatic recollect to reattempt the collection of insufficient funds. Many virtual terminals only process credit cards, but some will also facilitate electronic checks and utilize fraud prevention tools in addition to their features.

What is a payment gateway?

A payment gateway facilitates the route to and from the processor. It takes the data from the virtual terminal, verifies for accuracy, and hands it off to the processor. (Note that the processor is the next friend in line in our series of fortunate events. See our blog post Nuts and Bolts for more payment processing basics.)

The payment gateway is integrated into your website, used typically with a shopping cart and checkout solution. A payment gateway without a virtual terminal can also capture and process transactions, but it only will work from the customer’s end through your website. The virtual terminal is what enables you to go in and process a transaction as a merchant.

Clever payment gateways also offer real-time cloud reporting and notifications. Used in conjunction with smart devices, like physical POS terminals and Virtual Terminals, a gateway can offer secure and reliable processing all the way through the journey.

Which one do I need?

When processing payments, you will need a payment gateway with your solution so that data can be taken to the processor. That is, of course, unless you intend on passing it through yourself. Most might find this to be a bit of a headache. For all electronic payment transactions, a payment gateway is required.

The virtual terminal is exceedingly helpful in processing payments, as it enables you as a merchant to enter the data. There are a number of times when this might be helpful. You may find that payments aren’t always obtained via an online shopping cart and checkout solution, and so you would prefer to have a virtual terminal option in order to take payments via other methods (like mobile, over the phone, and even in-person).

How do I get one?

Virtual terminals often come at a cost alone, but are best found as part of a payment solution package. This way you can avoid the headaches of working with multiple companies and sorting out multiple bills. Many companies either require you pay extra for this feature or simply don’t offer it. Be sure you do your homework: a virtual terminal can be found as a free addition to a payments package.

Similar to the virtual terminal, a payment gateway is also typically offered separately at a cost. You may have to piece this all together, or you can look for a solution that will give you the payment gateway in addition to your processing. Some even throw in the virtual terminal, too.

Both require a merchant account, which can be obtained separately or through an all-inclusive payment solution package. A merchant account is simply a bank account that is specifically designed for the deposit of funds within an electronic payment transaction. It will be linked to a designated normal business bank account, so that you can later withdraw what you’ve collected. The merchant account is necessary for all electronic payment processing and requires an underwriting process. We’ll be speaking on this more in a future blog post, so keep your eyes peeled!

Still have questions about all this mumbo-jumbo? Reach out to us here. We’d love to help you figure out which solution works best for you.

Photo credit: Thomas Leth-Olsen

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