Selecting the right payment processing solution can be a difficult process. One of the most common misconceptions is getting an understanding of the differences between a payment gateway and the virtual POS (Point of Sale) system.
The terminology linked with debit card and credit card payments can be difficult to understand -especially if you are new to the financial world. Still, it is crucial to understand how particular products & services tend to differ from each other. Let us help you understand the difference between a payment gateway and a virtual terminal or POS.
What is a Payment Gateway?
The method of accepting payments through a payment gateway is utilized primarily by consumers when they tend to execute e-commerce transactions. You can regard a payment gateway quite similar to a mobile card or stationary card reader you might have observed at a typical brick-and-mortar store. As the customer goes ahead with adding items to the respective shopping cart while selecting to purchase the same, the credit card information of the customer is encrypted as well as sent to the concerned payment gateway.
Eventually, the same information is passed on to the concerned merchant bank for its processing. In the final stage of the channel, the bank of the customer will authorize the charges as the payment will eventually go through.
If you are a merchant, you can go ahead with using ‘smart’ payment gateways that will allow you to receive notifications as well as payment authorizations at the same time. The gateway will be offering support for all types of payment services -including authorization only, refunds, capture, authorization, and voids. Some payment gateways are also equipped with the option of a virtual terminal for allowing the merchant to enter payment information of the customers in case the transaction is made through mail order or mobile. Most payment gateways go ahead with allowing a customer to save the respective profile -therefore, enabling future payments quickly and easily.
Some of the important steps to understand the functioning of a payment gateway are:
- Credit information gets dipped or swiped at a terminal. On the other hand, credit card information can be entered manually into the shopping cart or hosted payment form.
- The payment gateway goes ahead with encrypting the credit card information of the customer while forwarding the same to the payment processor.
- In turn, the payment processor will route the respective payment details across the credit card network to the bank that issues the card.
- The bank issuing the card will either reject or approve the transaction depending on the availability of funds.
- The payment processor goes ahead with communicating the decline back or authorization to the respective payment gateway.
- The gateway will eventually notify the customer and the merchant about the particular decision.
What is a Virtual POS Terminal?
Like with payment gateways, virtual POS systems are used for accepting both debit as well as credit card payments. However, the technology of virtual POS terminals tends to be Internet-based. These units are operated independently by merchants. Therefore, there is no direct input of information provided by the customers. Rather than this, the merchant can simply consider logging into the respective account while assessing a dedicated menu referred to as the merchant dashboard. The merchant will then manually enter the details for multiple credit card transactions.
In addition to the use of smartphones or computer systems for accessing the dashboard, there is no requirement of any additional software or hardware system. Virtual POS terminals allow the validation of payments in real time -allowing for generating detailed reports and offering access to innovative ways to automatically collect funds that are insufficient.
Some of the ways in which virtual POS terminals function are:
- A merchant will log into the online account or payment gateway to get access to the virtual terminal.
- Checking account, debit, or credit account details for every transaction are entered into the desired form.
- The merchant can go ahead with selecting the ‘Process’ option for completing the transaction.
What are the Benefits of Using Payment Gateways?
Payment gateways offer merchants the freedom to allow the credit card payment process of the business to function on its own. By leveraging the technology of payment gateways, merchants are able to accept online payments of all types -including debit, credit, and even batch payments.
Most of the secure payment gateways also offer access to software solutions that allow you to automate some of the recurring billing and accounting operations. This will ultimately help in freeing up time that could have been utilized on serving customers while expanding the training staff and existing inventory.
What are the Benefits of Using Virtual POS Terminals?
As a merchant, do you prefer using a hands-on management style for your business? In this case, a virtual POS terminal will be an ideal solution for your business. While you will still be directly involved in managing the direct input of data, the approach of using virtual POS terminals will help in simplifying a majority of processes.
It is particularly helpful when you have to deal with a mail order other types of off-site sales, or telephone-based sales.
What is the Difference Between Payment Gateways and Virtual POS Terminals?
One of the primary differences between a payment gateway and a virtual POS terminal is that the former solution is primarily used for executing e-commerce transactions. This implies that there is a consumer-centric interface like the presence of the hosted payment type or the shopping cart checkout form. On the other hand, virtual POS terminals are utilized only by merchants.
Still, there are some businesses that continue using both ways to ensure the acceptance of credit cards in case they have a brick-and-mortar along with the e-commerce presence.
Which Solution Should You Choose?
Thankfully, virtual POS terminals and payment gateways do not tend to be mutually exclusive. As a matter of fact, it will typically make greater sense to possess both. If you have plans of ensuring any electronic form of credit card transaction for your business, you will require access to a dedicated payment gateway for transmitting payment-related data to the respective processor.
In the same context, there might be instances wherein it becomes immensely useful for merchants to ensure the capability of manually entering the payment information of customers. This situation occurs when the buyer is facing issues with the shopping cart that has been integrated. There might also be a chance that someone would like to buy one of the products of your business over the phone simply by offering access to credit card number and its expiration date. At such situations, you might end up losing a sale in case you do not have access to the capabilities of a virtual POS terminal in your business.
How can I Use One or Both?
This is wherein the situation can get difficult. Therefore, it is immensely crucial to carefully go through the language of your agreement or contract before you end up signing the same. In most instances, it is recommended to buy a virtual credit card terminal as an integral part of the payment solutions system.
However, it is also possible to conduct ample research and purchase a stand-alone payment model if you prefer doing the same. However, when you do this, it could result into confusing bills out of multiple vendors. Therefore, it is recommended to conduct in-depth research. Therefore, you might end up with a vendor offering you access to the virtual POS terminal as the free add-on.
At the same time, you can think of obtaining access to a payment gateway as the stand-alone solution or as an integral part of the entire package. A growing number of payment gateways are available with integrated capabilities of virtual POS terminals. This will offer you with the best of both payment solutions. In all possible cases, you are also expected to purchase a dedicated merchant account wherein the electronic payment funds can be deposited as well as stored. It will be eventually linked to the standard business account -allowing you to withdraw the available funds upon the need.
As an entrepreneur, one of the primary objectives is offering access to the best products or customer-centric services. When you integrate both virtual POS terminals and payment gateways into your business, it can help you in providing the customers with easy and multiple ways to ensure the payments. It is important to note that a seamless buying process will eventually lead to highly satisfied customers returning to your store again & again. It will mostly help in spreading the word about your business to others. Therefore, it makes a greater sense to use both payment solutions in the day-to-day operations of your business.