What Is a Virtual Terminal and What Are the Top Options?

Matthew Speiser

Matthew is a staff writer at Fundera. He has written extensively about ecommerce, marketing and sales, and payroll and HR solutions, but is particularly knowledgeable about merchant services. Matthew's writing has been published in Business Insider, The Fiscal Times, and NJ.com, among others. He has a degree in journalism from the University of Delaware.
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The world of merchant services is full of confusing terminology and highly specific technologies. A great example of this is the virtual terminal. A virtual terminal is quite literally a virtual version of a physical credit card terminal. But that definition doesn’t really give us the full picture of what a virtual terminal is and what it can do for your business.

So to help you better understand virtual terminals, we’ve created this guide. Below, we’ll discuss what a virtual terminal is, how it functions, and suggestions on where to buy your virtual terminal. Before we begin we should clarify that while not every business needs a virtual terminal, every business can benefit from understanding how this payment processing solution works. 

What Is a Virtual Terminal?

A virtual terminal is a piece of software that is hosted online and can be accessed from any internet-enabled device. A virtual terminal gives a merchant access to a payment page where they can key in a customer’s payment information and submit it for processing. The payments page looks similar to a payments page you would find on an ecommerce website

A virtual terminal can be used to process credit cards, debit cards, and electronic checks. They can also be used to accept recurring payments. Generally speaking, the most common use case of a virtual terminal is to accept payments where a physical card is not present (known as card-not-present or CNP transactions). 

No point of sale hardware is needed to accept a payment using a virtual terminal, although some virtual terminal purveyors sell credit card magstripe readers that can plug into a desktop computer or laptop to expedite the process (if there is a credit card present but no traditional credit card terminal available). The virtual terminal is usually hosted on the business’s servers.

Features of a virtual terminal include the ability to accept payment in a variety of different currencies, send electronic receipts to a customer’s email address or phone number, and save customer payment information. Most virtual terminals are located on a page that is only accessible via a password or other kind of security measure. Virtual terminals must also adhere to PCI compliance standards. 

virtual terminal

How Does a Virtual Terminal Work?

For starters, for a virtual terminal to work, the merchant must already be set up with a merchant account and payment processor. These services will actually process the payment submitted by the virtual terminal.

In order for that process to begin, the merchant must acquire a customer’s credit card information. They will then enter the customer’s credit card information into the virtual terminal. The credit card information you must input is similar to what a customer would provide when entering in their credit card information on an ecommerce website. Here is a list of the different types of information your virtual terminal may ask for:

  • Credit card network (Visa, MasterCard, American Express, Discover, etc.)
  • Charge amount 
  • Credit card number
  • Credit card expiration date
  • Currency type
  • Credit card security code (CVV)
  • Customer name
  • Customer address
  • Customer email (to send an e-receipt)
  • Customer phone number (to send an e-receipt)
  • Shipping information (if applicable)

Once the merchant has keyed in all of the customer’s credit card information, they will submit it for processing. Next, the virtual terminal will send the credit card information to an integrated payment gateway via an encrypted connection (for security purposes). What happens next is pretty much the same as when a customer submits their payment information from an ecommerce website:

  • The payment gateway will forward the payment information to the payment processor used by the bank you have your merchant account with.
  • The payment processor will then contact the issuing bank of the credit card to ensure the funds are available and the card is legitimate. The processor will also connect with your merchant account to deposit funds when available. 
  • The purchase will then either be approved or declined by the credit card’s issuing bank. Regardless of the result, the information is relayed back through the payment gateway to your virtual terminal.
  • If the credit card’s issuing bank approves the transaction, the merchant’s virtual terminal will complete the transaction. The payment processor will then release the funds into the merchant account.

This whole process happens within a matter of seconds. Once the transaction is complete, the virtual terminal should provide the customer with some kind of e-receipt.

Virtual Terminal vs. Payment Gateway

At this point, you might be wondering what the difference is between a virtual terminal and a payment gateway. If a payment gateway is used with a virtual terminal, why not just acquire a payment gateway on its own and forgo the cost of a virtual terminal? Well, most payment gateways do in fact come with a virtual terminal built in, so you don’t have to worry about paying for both services separately. 

But still, it helps to understand the difference. Let’s start by providing a definition of a payment gateway: A payment gateway is a software application that plugs into your ecommerce platform to authorize online payments. Payment gateways are required because it is prohibited to send transaction information directly from a website to a payment processor, per PCI compliance guidelines.

The key phrase to take note of there is “ecommerce platform.” While both are used for CNP transactions, a payment gateway is typically used to accept customer-facing transactions. It usually provides a branded interface that is integrated into your ecommerce website. 

The virtual terminal, on the other hand, is used for merchant-facing transactions. In other words, situations where the customer provides their information directly to the merchant, rather than keying it in themselves. Because of this, a virtual terminal usually features an interface that is more basic than what you would get from a payment gateway. Furthermore, the payment gateway you use with the virtual terminal doesn’t necessarily have to be integrated with an ecommerce platform (although some are if a merchant also sells online).

So in short, a payment gateway is used for CNP transactions where the customer submits their credit card information for processing, and a virtual terminal is used for CNP transactions where the merchant submits the customer’s credit card information for processing. In the former, the customer charges their own card, while in the latter the merchant bills the customer.

Why would the merchant need to submit the customer’s credit card information? Let’s find out by looking at the use cases for virtual terminals.

virtual terminal

What Kinds of Businesses Can Use a Virtual Terminal?

Pretty much any business can use a virtual terminal. However, a virtual terminal makes sense for certain businesses more so than others. It mostly depends on your business model. Here are some of the most common use cases of a virtual terminal:

Recurring Payments

If you operate a business where customers must be billed at a regular, predetermined cadence, a virtual terminal allows you to automate the process. Simply enter their credit card information into your virtual terminal, specify the billing amount, and then set a recurring payment schedule (most virtual terminals have this feature built-in). The virtual terminal will save the customer’s information. On the date of payment, the virtual terminal will automatically charge the customer’s credit card for the amount specified. 

Examples of businesses that use recurring payments include subscription services like newspapers and streaming services, membership services like gyms and coworking spaces, financial services like savings accounts and 401(k) contributions, and government and municipal services like tax collection and utilities.

Phone and Mail Orders

Phone and mail orders are probably the most common use case of a virtual terminal because the only way for the payment to work is by the customer providing their payment information to the merchant. Almost any business can choose to accept payment over the phone or by mail. However, it is particularly common with membership-based businesses and nonprofits. 

Some advanced virtual terminals also integrate with your telecommunications provider, allowing customers to key in their payment information from their mobile device for processing. 

Ecommerce Backup

Some people who shop on your ecommerce website might not feel comfortable submitting their payment information online. Instead, they want the peace of mind that comes with providing their payment info to a real person. In these situations, it helps to have a virtual terminal so that customers can call in their orders. This is pretty much the difference between ordering Chinese food on Seamless and calling in a takeout order to the Chinese restaurant. 

By having a virtual terminal with your ecommerce store, you guarantee you won’t miss out on a sale because a customer is uncomfortable paying digitally.

Virtual Terminal Cost

The price you’ll pay for access to a virtual terminal varies depending on the provider you choose. However, most virtual terminal service providers offer fairly similar pricing models. You’ll pay interchange-plus pricing for a virtual terminal, and possibly a monthly fee.

The interchange rate you’ll pay for using your virtual terminal is typically higher than the interchange rate for accepting card-present transactions. This is because there is a greater risk of fraud with card-not-present transactions, given that virtual payments are not protected by magstripe or EMV (chip card) technology. The fixed rate attached to the interchange rate will also be higher for the same reason. 

Whether you pay a monthly fee on top of your processing fee depends on the virtual terminal provider you go with. Typically, if your virtual terminal provider assesses a monthly fee, you get lower processing fees or more features. To get a better idea of the pricing models out there, let’s look at some of the most popular virtual terminal providers on the market. 

Best Virtual Terminal Providers

The virtual terminal market is robust. Pretty much any business that provides a payment gateway also provides a virtual terminal. To help you narrow down your search, here are some of our favorite options:

Square

The Square virtual terminal is included when you sign up for a free account (you also get a free Square mobile credit card reader). With the Square virtual terminal, you can punch in card-not-present payments via the Square mobile app or via your Square account online. For this service you’ll pay 3.5% + $0.15 per transaction, which is pretty expensive. However, there are no monthly, setup, or cancellation fees, and the Square virtual terminal comes with customer- and inventory-management features.

Furthermore, acquiring a free Square mobile magstripe reader means you can also process payments at Square’s lower processing rate of 2.75% in situations where a credit card is present. There is also a reporting function in the Square app that allows merchants to track their sales history.

PayPal

PayPal’s virtual terminal is included in its Payments Pro processing solution, which also comes with a merchant account, payment gateway, and payment API (to integrate into an ecommerce website). The price you’ll pay for Payments Pro is $30 per month. You’ll also be subject to a 3.1% + $0.30 processing rate, which is slightly lower than Square’s (but PayPal won’t provide you with a free mobile credit card reader).

One cool feature you will get with Payments Pro is a branded PayPal debit card, which is attached directly to your PayPal account, instead of your business bank account. Some purchases with the PayPal debit card allow you to earn 1% cash back, which can help offset your virtual terminal fees.

Shopify

When you sign up for Shopify, you get a virtual terminal along with a POS system, payment gateway, and (of course) a Shopify ecommerce website. The Shopify virtual terminal is the perfect option for those looking for a reliable backup to their hosted payments page. The processing fee you’ll pay to use Shopify’s virtual terminal is 2.9% + $0.30, which is fairly reasonable. However, there is also a monthly fee that varies depending on which Shopify subscription you sign up for (prices range from $9 to $299) per month.

The most common option is Basic Shopify, which costs $29 per month. For your money, you’ll get a robust inventory management system built into your website as well as a reporting suite. Shopify Basic users also have access to Shopify’s order fulfillment service Shopify Shipping. With Shopify Shipping, you can buy shipping labels on the Shopify platform and get discounts when you ship items with UPS, USPS, or DHL. 

Note that to use Shopify’s virtual terminal you must also sign up for Shopify Payments—Shopify’s payment processing service. If you want to use a different payment processor with Shopify’s virtual terminal, you will pay a 2% markup on all transactions.

Virtual Terminals: The Bottom Line

Virtual terminals are a great way to offer your customers payment flexibility. They give customers greater peace of mind and can expedite the billing process. While not all businesses need a virtual terminal to operate, having one lessens your chance of missing out on a sale because of payment issues. 

Now that you know what a virtual terminal is and how your business can benefit from one, the next thing for you to do is talk to your payment processor about a virtual terminal, or go shopping for a new one yourself. With so many great options out there, you are sure to find the perfect fit for your business. 

Editorial Note: Fundera exists to help you make better business decisions. That’s why we make sure our editorial integrity isn’t influenced by our own business. The opinions, analyses, reviews, or recommendations in this article are those of our editorial team alone. They haven’t been reviewed, approved, or otherwise endorsed by any of the companies mentioned above. Learn more about our editorial process and how we make money here.

Matthew Speiser

Matthew is a staff writer at Fundera. He has written extensively about ecommerce, marketing and sales, and payroll and HR solutions, but is particularly knowledgeable about merchant services. Matthew's writing has been published in Business Insider, The Fiscal Times, and NJ.com, among others. He has a degree in journalism from the University of Delaware.

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