The ability of businesses to accept and process payments from credit and debit cards both in person and online helps businesses expand their customer base and increase their online presence. Credit and debit cards are the most common form of payment for online and in-store purchases, which makes it very important for all businesses to have an efficient payment processing system to accept this type of payment.
Payment processing systems involve multiple components that allow businesses to accept and process various forms of payment. When it comes to credit and debit card payment processing, the three main components involved include payment gateways, virtual terminals, and shopping carts. Each of these components serves a different purpose within the payment processing system and it helps to understand the functions of each to ensure that you have the right components to meet your payment processing needs.
In this guide, we will discuss each of these components to help you understand the differences between payment gateways, virtual terminals, and shopping carts as well as how they each benefit your business.
Payment Gateway
The payment gateway is the point-of-sale software interface that facilitates credit and debit card transactions. Payment gateways authorize online payments, and they are also used for in-store purchases when combined with hardware such as monitors and card readers. The main functions of a payment gateway are to securely transmit credit card information to the payment processor and transmit confirmation details and approval codes back to the gateway.
The payment gateway acts as the link between your business and merchant service provider and it directs the transaction to the issuer, which is the customer’s bank or credit card company. The issuer determines if the transaction is approved or declined and sends this information back to the payment gateway.
The following is a rundown of how payment gateways work:
- The process starts when the customer swipes or taps their card at a terminal or enters the information into an online form.
- The credit card information is encrypted and forwarded to the payment processor.
- The information is sent from the payment processor to the issuer of the credit card through the credit card network.
- The issuer checks the funds and either approves or declines the transaction.
- The payment gateway receives the information on whether the transaction is approved or declined from the issuer.
- The merchant and customer are notified of the approval or decline from the gateway.
The main features and advantages of payment gateways include:
- Secure acceptance: Payment gateways securely accept a variety of payment types and can facilitate transactions in multiple currencies for international transactions. The responsibility for ensuring secure transactions is with the merchant service provider that keeps payment gateways updated with security measures that comply with PCI-DSS regulations.
- Cost effective: Payment gateways do not typically include set-up fees or monthly charges and they help streamline the payment process while eliminating the need for manual payment processing.
- Customer satisfaction: Payment gateways improve the customer experience by allowing them to conveniently use the payment method of their choice.
Virtual Terminals
A virtual terminal is a software application that allows for the payment processing of card-not-present transactions. Virtual terminals operate entirely online, and merchants can access these terminals online through their payment processor accounts.
Computers, tablets, and mobile devices with an internet connection can be used to process recurring digital transactions, phone orders, mail orders, ACH payments, and eChecks. While a card reader is not required to process payments with virtual terminals, you can choose to add one via a USB connection.
Credit and debit card payments are processed through a virtual terminal with the following steps:
- The merchant accesses the online payment processing account to get to the virtual terminal.
- Once in the virtual terminal, the merchant selects the payment type and provides information including the transaction amount, and the credit or debit card information. A card reader can also be used for this step.
- The payment is then submitted and once verified, the merchant has the option of providing the customer with a digital receipt through text or email.
The following are the main features and benefits of virtual terminals:
- Process payments anywhere: Merchants can access virtual terminals anywhere from any device with an internet connection, allowing them to process payments while at home or out and about.
- Detailed reporting: Virtual terminals include reporting tools that merchants can access and download within their account.
- Easy to set up: Virtual terminals are set up by the merchant account service provider and the login credentials are provided to the business. Merchants can then log in to the terminal using any web browser and immediately begin processing payments.
- Hardware free: Because virtual terminals exist and operate online, no additional hardware or equipment is needed. Businesses can use the computers, smartphones, and tablets they already have to access the virtual terminals.
- Streamlined payment collection: Virtual terminals allow for faster payment collection and allow for automatic recurring payments. Customers can also access the virtual terminal from their end to submit payments.
Shopping Cart
Online shopping carts are the virtual version of a real shopping cart as the items chosen for purchase online are added to the virtual shopping cart until the customer is ready to check out. Shopping carts differ from payment gateways as they simply hold the products and calculate the price, including applicable taxes and fees. However, shopping carts are integrated with a payment gateway that initiates the payment processing once the customer decides to check out.
The following are the main functions of an online shopping cart:
- Adds up the price of the items
- Factors in sales tax and applicable fees such as shipping or delivery fees
- Applies credits and discounts from coupons and special codes
- Displays total amount due
Difference Between Payment Gateways and Virtual Terminals
Payment gateways and virtual terminals both operate online and require a merchant account to accept and process payments and receipts. The merchant account is also linked to the business’s bank account to ensure that funds from processed transactions are transferred to the account.
Payment gateways can be used by the merchant for on-site transactions and be combined with hardware like card readers and touchscreen monitors to automatically collect and transmit credit card data to the payment processor. They also have an interface that customers can use to make payments online.
Virtual terminals are used only by the merchant and generally require the manual input of credit card information. This makes it easier to process payments that do not come from an online shopping cart or traditional on-site checkouts. Manually entering credit card information into a virtual terminal allows for simplified payment processing for telephone or mail orders and transactions at off-site events.
Virtual Terminals and Payment Gateways from First MCS
Virtual terminals and payment gateways each have their advantages as payment gateways allow for seamless payment processing for a variety of online payments while virtual terminals allow for payment processing of card-not-present transactions such as phone and mail orders as well as off-site transactions. If you are not sure which is best for your business, our professionals at First MCS can help. First MCS is a merchant service provider that helps businesses set up payment processing systems. We can help determine what type of payment processing method is best for your business based on your specific needs. Whether your business needs a payment gateway, virtual terminal, or a payment processing solution that utilizes both, we can help set up your payment processing system so you can safely and efficiently process a variety of payments.
Call First MCS at (888) 673-3099 for more about our payment processing services.
