What is a Virtual Terminal?

No matter what kind of business you run, a virtual terminal can be a useful tool for accepting credit cards. Just as physical terminals are used to collect customer card information as part of a transaction, virtual terminals are used to manually collect card information and process payments via the internet using an internet browser.

Think about the last time you purchased something online – you were probably asked to provide payment information during checkout, including your card number, expiration date, billing address, security code, etc. A virtual terminal is essentially the same, but the information is entered by the merchant rather than the customer. While virtual terminals are most commonly used for orders placed over the phone, they can be very useful to business owners who don’t want to spend money on traditional payments hardware or point-of-sale systems.

Nowadays, virtual terminals are offered by most payment processors, but they typically will not be part of your service unless you specifically request access to a virtual terminal. Be aware that this service may cost you a small monthly fee, usually no more than $15 per month.

If you plan to use your virtual terminal in a physical location, many processors provide basic hardware to expedite the collection of the card information. You’ll find basic USB card readers between $20 and $50, but recent EMV regulations are making those much less attractive. We recommend springing for a USB EMV chip reader, which typically run between $50 and $80.

Even if you don’t accept cards in-person very often, it may be worth it to get one of these USB readers. Swiped cards incur lower interchange fees than cards entered manually, so forking over a little cash now will save you money in your monthly statement.

You should also be aware that virtual terminals require PCI compliance, just like any other method of accepting payments. Whether the virtual terminal is the only way you accept payments or just one of many channels you use, make sure to provide your processor with a certificate of compliance with the PCI DSS. Doing so will ensure that you don’t pay an unnecessary non-compliance fee.

What is a Virtual Terminal?

A virtual terminal is a web-based application that allows businesses to process electronic payments over the phone, mail, fax, email, or in person. It’s a “terminal in the cloud” that can be accessed from any device with an internet connection. Virtual terminals enable businesses to accept credit and debit cards, as well as other payment methods.

A merchant account is required to use a virtual terminal for processing payments. It enables businesses to accept various types of electronic payments and integrates online tools to enhance transaction efficiency and reduce processing costs.

So, let’s sum up the virtual terminal with a little pros and cons list. Weigh these against each other to determine whether a virtual terminal will be a good fit for your business:

Virtual Terminal Pros

• Allows you to take payments anywhere without any dedicated hardware. So long as you have an internet connection, you can accept payments on your phone, laptop, or desktop computer.
• Doesn’t require your customer to be present -- you can enter card information shared via phone, email, or fax.
• No need to pay for complex hardware or a point-of-sale system.

Virtual Terminal Cons

• Because most transactions taken through virtual terminals are card-not-present, you may be more vulnerable to chargebacks.
• Manually keying in customer information can be time-consuming and more prone to human error.
• Electing to forego hardware can lead to higher interchange costs. Without the right hardware, users may still be susceptible to EMV fees.

Key Considerations for Savvy Merchants

Choosing a virtual terminal provider can be daunting, given the variety of options available. For merchants focused on a smooth, secure experience and cost-effective processing, weighing the right factors can be critical to long-term success. Here’s what payment experts recommend when selecting a virtual terminal solution.

1. Top Factors for Selecting a Virtual Terminal Provider

When deciding on a virtual terminal provider, prioritize these aspects:

• Security and Compliance: A must-have for any virtual terminal provider is PCI compliance and end-to-end encryption to safeguard sensitive customer data.
• Ease of Integration: Some virtual terminals require minimal setup, while others may need specific technical support. Check if the terminal easily integrates with your existing software, CRM, or accounting platforms.
• Customization and Flexibility: Does the provider allow you to customize transaction fields, reporting, and customer information? Flexibility here can make managing card-not-present (CNP) transactions much smoother.
• Service and Support: Quick access to responsive customer support can be essential for resolving any issues that arise, particularly with card-not-present transactions.
• Pricing and Fee Transparency: Seek clarity on whether rates include interchange pass-through, additional fees, and whether they impose any monthly or hidden charges.
• Advanced Features: Look for additional functionality like recurring billing, invoicing, and detailed reporting to manage payments seamlessly.

2. Are Virtual Terminals and Payment Gateways the Same?

In short, not exactly. While many payment gateways come equipped with a virtual terminal feature, the two are distinct. A payment gateway facilitates the transfer of payment information from the customer’s bank to your acquiring bank, processing the transaction securely. A virtual terminal, meanwhile, is a digital tool that enables you to input card details manually for card-not-present transactions, making it ideal for phone or mail orders.

When shopping for a virtual terminal, it’s important to understand that not all gateways automatically come with one. If a gateway provider doesn’t offer a virtual terminal, consider if they partner with providers who do, or if you’ll need to look elsewhere for a standalone solution.

3. Card-Not-Present Fees: What to Expect and How to Prepare

Card-not-present transactions, which are processed through virtual terminals, typically incur higher fees than in-person payments due to increased risk. Here’s a breakdown of common fee structures to look out for:

• Interchange Fees: Set by the card networks (Visa, Mastercard, etc.), these are unavoidable. However, certain providers may offer interchange-plus pricing, where you pay a flat markup on top of interchange costs, often the most transparent option.
• Processing Fees: Additional fees may include flat rates, per-transaction fees, or a percentage. These vary significantly, so comparing providers on these charges is vital.
• Monthly Fees: Some providers charge a flat monthly rate for the virtual terminal, while others include this cost within their gateway package.
• Statement Fees and Hidden Costs: Watch for statement fees, PCI compliance fees, and batch fees that can add up over time.

4. Using Staitment for Auditing Your Virtual Terminal Statements

Staitment, a merchant tool for auditing credit card statements, is invaluable for identifying areas of improvement on your monthly processing statements. With Staitment, you can review each line item for potential overcharges, such as interchange downgrades or unexpected fees. Follow these steps for a seamless audit:

• Upload Statements: Start by uploading statements for detailed analysis.
• Identify Interchange Downgrades: Look for CNP transactions processed at higher interchange rates, as Staitment can flag these for optimization opportunities.
• Monitor Processing Fees: Analyze markups, fixed fees, and other charges over time to ensure they’re consistent with the provider’s promises.
• Evaluate Overall Savings Potential: By pinpointing high-fee transactions, you can gauge where to ask your provider for better rates or adjustments.

5. Can You Get Interchange Discounts on Virtual Terminal Transactions?

While traditional interchange rates are set by the card networks and generally higher for CNP transactions, some strategies might help reduce overall fees. Certain providers offer interchange optimization services tailored to virtual terminal transactions, which can lead to savings. Here are a few potential approaches:

• Level 2 and Level 3 Processing: If you process a high volume of B2B transactions, see if your provider offers Level 2 or Level 3 data processing. Adding additional data, like customer codes or tax information, can reduce interchange fees.
• Consider Alternative Processing Rates: Some providers offer lower rates for specific industries or merchant categories. Explore if your business qualifies for any special rates.
• Optimize for Recurring Billing: If you process repeat transactions, using a virtual terminal with recurring billing features can reduce risk and possibly lower your fees.

By paying close attention to these details and regularly auditing statements with Staitment, you’ll ensure that your virtual terminal costs stay transparent and manageable. Taking the time to assess your needs carefully will empower you to make an informed decision that aligns with your business goals.

Additional Key Questions to Ask When Choosing a Virtual Terminal Provider

Selecting the right virtual terminal provider means going beyond standard features and costs; you’ll want to delve into specifics that align with your unique business needs. Below, we’ve added some essential questions you should consider, framed in a Q&A format to help guide your decision-making.

Q: Does the virtual terminal support multiple payment methods beyond credit cards?

A: Ask if the virtual terminal can process a variety of payment methods, such as ACH, e-checks, or digital wallets (Apple Pay, Google Pay, etc.). Offering flexibility in payment options can improve your customers’ experience and potentially lower transaction costs, especially for recurring or high-value transactions.

Q: Are there any restrictions on transaction volume or monthly limits?

A: Some providers cap the transaction volume or amount processed each month, which could limit your business’s growth if you frequently exceed these limits. Be clear on any volume-related restrictions and if they come with tiered pricing structures that may impact your costs as you scale.

Q: What fraud prevention tools and features come with the virtual terminal?

A: Since card-not-present transactions carry a higher fraud risk, look for providers that offer robust fraud prevention features, like AVS (Address Verification Service), CVV verification, and AI-driven fraud detection. These tools can mitigate risks and reduce chargebacks.

Q: How transparent are the fees, and can I easily access a breakdown?

A: Transparency in fees is critical, especially with virtual terminal transactions where CNP rates are often higher. Confirm that your provider offers easy access to a detailed breakdown of fees, including per-transaction costs, monthly charges, and interchange rates. A lack of transparency can result in hidden costs over time.

Q: What reporting features are available to help manage my business?

A: Detailed reporting can be essential for managing cash flow, identifying sales trends, and performing audits. Ask if the virtual terminal offers customizable reports that help track transaction details, fees, and customer purchase trends. Advanced analytics can empower data-driven decisions.

Q: Are there options for integrating the virtual terminal with my existing systems?

A: To simplify operations, check if the virtual terminal integrates with your CRM, ERP, or accounting software. Integration can streamline data flow, reduce manual entry, and ensure that customer data remains updated across your systems, ultimately improving efficiency and accuracy.

Q: Is there flexibility to adjust my plan as my business grows?

A: As your business evolves, so may your processing needs. Ask if the provider offers scalable plans or add-ons that allow for growth, such as more advanced security features or lower rates with increased volume. Flexibility in plan options will help you stay agile without switching providers.

Q: How does the provider handle disputes, chargebacks, and refunds?

A: Disputes and chargebacks are more common with CNP transactions, so understanding how your provider handles these is crucial. Ask about their dispute management tools, timelines, and support policies, as well as any associated fees for refunds or chargebacks, to ensure you’re well-prepared for potential issues.

Q: Does the provider offer interchange optimization for lower fees on certain transactions?

A: Many providers offer interchange optimization strategies, particularly for B2B transactions where Level 2 or Level 3 data can reduce costs. Ask if your provider offers these features and what data fields you’ll need to capture to qualify for lower interchange fees, as it can lead to significant savings.

If you have any further questions about virtual terminals, don't hesitate to reach out to the payments experts at Swipesum. We're happy to help any business find their best payments solution, totally free of charge.