Payment Gateway or Virtual POS: Which Is Better?

Payment Gateway or Virtual POS: Which Is Better?
By max July 5, 2023

The payment processing sector is filled with acronyms and jargon. Learning about each of them becomes overwhelming. But the two common terms we hear every day include “payment gateway” and “virtual terminal”. These two terms often seem confusing, and we often use them interchangeably. However, payment gateway or virtual POS  or “virtual terminal” are actually two different facets of the online payment process.

It’s important to understand how merchant transactions work to avoid unwanted charges. By having a clear picture of the merchant transaction flow, businesses can provide better checkout experiences. If you are new to the online selling world or wish to learn about merchant accounts, here are the major distinctions between a payment gateway and a virtual POS.

What is a Payment Gateway?

When sales reps or customers use the term “payment gateway”, they refer to either – (a) an online section on their website that enables potential buyers to input their payment information or (b) an in-store payment processing device, such as a car-swiping machine or a card reader. So, if you are at the convenience store grabbing some groceries, the counter-mounted machine through which you swipe your credit or debit card is the payment gateway.

Similarly, when you purchase a few items on your favorite eCommerce store, you are redirected to a page wherein you need to input your payment information during checkout. After entering all your details, the payment is processed, and your order is completed. So, the page or window on which you enter your debit or credit card details is the online payment gateway.

Through the payment gateway, businesses can accept multiple modes of payment, including debit cards, credit cards, digital wallets, UPI transactions, and more. Merchants can incorporate these payment options into physical and virtual point-of-sale terminals. For only payments, the payment gateway can either be integrated into the website during checkout, or the business can send customers direct payment links to complete the purchase through the gateway.

The card or other payment information the customer inputs at checkout gets transmitted to the payment processing provider. The processor sends the info to the issuing bank, which is the customer’s bank, to approve or decline the order. Both the customer and the business will receive this information and proceed toward completing the transaction accordingly.

What is a Virtual POS?

The virtual terminal or virtual POS (point of sale) is an internet-based facilitator of online payments. The technology enables businesses and customers to key in and process electronic transactions via a smart device or a computer with an internet connection.

Users need to log in to a payments page through one of the standard web browsers and then use a menu for processing payments. This page or window is called the merchant dashboard.

The process is similar to a physical card reader or swiper mounted at the checkout areas in a brick-and-mortar store. The only difference is virtual terminal is an online-based electronic payment system and requires the customers to input their card information or other payment details.

Another plus point of virtual POS terminals is that they offer a range of intelligent tools and options. These devices have advanced features, including real-time transaction validation, recurring transactions for repeated or subscription-based purchases, insightful reporting, and automatic reattempts to recollect insufficient funds.

Besides, while many virtual terminals only process credit or debit cards, others will also utilize fraud prevention tools and facilitate electronic checks. The addition of such advanced features will surely boost customer satisfaction at checkout.

5 Major Features of a Payment Gateway

A payment gateway can offer the following benefits and features.

  1. It reduces credit card fraud and chargebacks.
  2. It generates security and trust.
  3. It concentrates and streamlines all your payment channels in one place.
  4. It helps you gain more control over your transactions.
  5. It boosts your sales by improving customer experiences.

5 Vital Features of a Virtual POS

A virtual POS terminal has these vital features and advantages.

  1. It offers a hassle-free payment experience by allowing buyers to purchase goods and services easily and quickly.
  2. It enables customers to make payments via different payment gateways and platforms.
  3. It guarantees high data security and acts as an intermediary between the customer and the eCommerce merchant.
  4. It lowers the risks of non-payments, and the payment is received instantly.
  5. It requires no external software or machinery, as the entire process is online.

Who Uses These Payment Processors?

Businesses that provide customer-facing interfaces to complete their payments can choose a payment gateway with smart features. Some common applications are found in mobile apps and retail websites. If your business requires loads of online transactions, you need a system that forwards every payment info you collect.

On the other hand, a virtual terminal is more suitable for traditional merchants, including those operating in physical store locations. It will enable businesses to receive payments from multiple sources and platforms. Thus, you can serve a higher number of customers, thus expanding your market.

Virtual POS terminals are beneficial for businesses that need to enter customers’ data manually. It is a popular choice among merchants selling high-ticket products, wherein more control over the sales process becomes necessary. It is also a suitable option when customers place orders through calls. In such cases, you might need to enter the customers’ card details manually.

Payment Gateway or Virtual POS: Which is Best for My Business? 

Both solutions have their benefits and unique features. A smart and secure payment gateway enables merchants to accept debit cards, credit cards, and ACH payments online. Moreover, some advanced payment gateways also allow accounting software integration, recurring billing, and more.

On the other hand, virtual terminals are designed to simplify your electronic payment processes for telephone order sales, mail orders, off-site sales events, etc. Most virtual POS systems will enable merchants to manually enter the customers’ payment info. It will be a savior when the buyer is facing some issues during the checkout process.

This feature is also beneficial when the customer wants to place an order over the phone and provides you with their credit card details. You can manually enter the card number and expiration date to complete the order on the customer’s behalf. It will save you from losing a valuable customer.

However, you need to remember one thing. You may need to pay higher interchange fees for CNP (Card Not Present) transactions owing to higher fraud risks and chargebacks. Furthermore, merchants will need more human resources to process transactions through a virtual terminal since someone has to enter the cardholder details manually. Physical payment gateways are relatively smoother and hassle-free on the merchant’s side.

Besides, the physical tools and hardware necessary for installing these two payment processors are similar. A payment gateway can operate with any physical POS system or website. Similarly, a virtual terminal can work with any website.

One additional advantage of virtual POS solutions is that they don’t require any physical POS materials. Even if you don’t need any physical hardware for installing virtual terminals, these solutions will provide higher flexibility in your payment processing systems.

However, if your business model needs to use both payment processors, you can opt for both a payment gateway and a virtual terminal. For instance, if you have both an online and offline presence, you can incorporate a physical payment gateway at your brick-and-mortar retail store and integrate a virtual POS on your website to manage your online customers.

You can also incorporate an online payment system at your offline retail store since more customers like to go cashless and make digital payments. This way, you won’t lose any customers, as they like to be given multiple payment options. It will enhance customer satisfaction and bring more business in the upcoming years with more repeat purchases.

How to Select the Best Payment Processor?

Understand your customers. Closely watch how they are purchasing your products and services from your website or retail store. Identify how your potential buyers will purchase your items from different sources or online platforms, and find out how they are able to reach you.

You can also integrate analytical tools like Google Analytics to measure the amount of traffic coming from various online sources. Based on these observations and analytical insights, you can decide whether you need a payment processor or a virtual POS by determining how your customers like to contact you and pay for their purchases from your store.

Moreover, you also need to check how much control you wish to gain over your payment solution. While you will have more control and flexibility with a virtual POS, you may need to hire separate personnel to manage the collections from a payment gateway.

You can select a suitable system that you feel comfortable working with based on your business model, unique store or website requirements, customer type, and budget. Find a plan that suits your business needs and customer demands the best.

But before making any investment, be thoroughly aware of how you will be required to manage your payment solution. Avoid opting for complicated systems that require too much time and effort to learn how it works.

Final Words

To conclude, each payment solution, a payment gateway or a virtual POS, comes with its unique advantages and features. Determine your business needs and customer choices to decide which solution to incorporate into your payment systems. You can also opt for both options to serve a wider audience base, as many buyers love to have more choices when it comes to making payments at the checkout.