The Differences Between a Payment Gateway and a Virtual POS



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The terminology attached to credit and debit card payments can be hard to decipher, particularly if you are new to the world of accepting plastic. Nevertheless, it is important to understand how specific products and services differ from each other before you sign your name on the bottom line of a contract. A case in point is the definitions of payment gateways and virtual point-of sale equipment.

What Is a Payment Gateway?

This method of accepting payments is used primarily by consumers when they are making e-commerce transactions. Think of the gateway as similar to the stationary or mobile card reader you may have seen in a brick-and-mortar store. When the customer adds an item to her shopping cart and opts to purchase it, her credit card information is encrypted and sent to the payment gateway. Next, it is passed on to the merchant bank for processing. In the final link of the chain, the customer’s bank authorizes the charges and the payment goes through.

As a merchant, you can purchase “smart” payment gateways that will enable you to receive notifications and payment authorizations instantaneously. The gateway will support all types of payment services, including refunds, authorization only, authorization and capture, and even voids. Some gateways are even equipped with a virtual terminal option that allows the merchant to enter customer payment information if a transaction is via phone or mail order. Most gateways also enable a customer to save his or her profile, thus making future payments much faster and easier.

What is a Virtual POS Terminal?

As is the case with payment gateways, these virtual POS systems are used to accept credit and debit card payments. However, they are internet-based and operated solely by the merchant, with no direct inputting of information by the customer. Instead, a merchant simply logs into his account, accesses a menu known as a merchant dashboard and manually enters one or more credit card transactions.

Beyond the computer or smartphone used to access the dashboard, no additional hardware or software is necessary. Virtual terminals enable validation of payments in real time, allow for the generation of reports and usually give you ways to automatically collect insufficient funds.

Advantages of Payment Gateways

Payment gateways give you, the merchant, leeway to let the credit card payment aspect of your business pretty much run itself. By using this method, you can accept online payments of all kinds, including credit, debit and batch payments. Many of these secure gateways also provide you with software that enables you to automate some of your accounting and recurring billing tasks. This ultimately frees up time that you can use on serving customers, expanding your inventory or training staff.

Advantages of Virtual POS Terminals

If you prefer a hands-on style of management, a virtual POS system might be more your cup of tea. Although you will still be involved in the direct inputting of data, this system will simplify many of the processes. It is especially helpful when you are dealing with mail order, telephone and other off-site sales.

Which Should You Get?

Fortunately, payment gateways and virtual POS solutions are not mutually exclusive. In fact, it usually makes sense to have both. If you plan on making any electronic credit card transactions at all, you will need a payment gateway that will transmit payment data to the processor.

By the same token, there may be times when it is extremely helpful for you as the merchant to have the capability to manually enter customers’ payment information. This could happen if the buyer has trouble with your integrated shopping cart. Or perhaps someone wants to purchase one of your products over the phone simply by providing you with a credit card number and expiration date. At times like this, you would lose a sale if you did not have virtual POS capabilities in place.

How Can I Get One or Both?

Here’s where it can get tricky and where it is vital to carefully read the language of your contract before signing it. In most cases, it is best to purchase a virtual credit card terminal as part of a larger payment solutions package, although you can search around and buy a stand-alone model if you really want to do so. However, doing this results in your receiving sometimes confusing bills from multiple companies. Do your homework, and you just might find a vendor that will give you the virtual POS as a free add-on.

Similarly, you can obtain a payment gateway alone or as part of a package. As we stated above, a growing number of gateways come with integrated virtual terminal POS capabilities, thus giving you the best of both worlds. In all cases, you must also buy a merchant account where your electronic payment funds can be deposited and stored. This will be linked to your regular business account, enabling you to withdraw these funds when necessary.

As an entrepreneur, one of your prime objectives is to offer the best products and customer service you possibly can. Integrating both payment gateways and virtual POS solutions into your system can help you to provide your customers with multiple, easy ways to pay. Keep in mind that a seamless buying process usually leads to satisfied customers who return to your store again and again, often also spreading the word about you to their friends and family members. Therefore, it makes a great deal of sense to adopt both of these payment solutions into your day-to-day operations.