Everything You Need To Know About Using A Virtual Terminal For Credit Card Processing
Whether you run a service business that mostly interacts with clients over the phone, a retail or restaurant business that regularly takes phone orders, or you just want to offer your customers more ways of settling billing with you, a virtual terminal may be a savvy choice.
If you are wondering how to use a virtual terminal for credit card processing — or need more information to determine if it’s even a good option for you — stick around. In this post, we’ll explore what’s involved with virtual terminal transactions, and we’ll arm you with plenty of information so that you are more equipped to make a wise decision for your business.
Read more below to learn why we chose these options.
Table of Contents
- What Is A Virtual Terminal?
- How Does A Virtual Terminal Work?
- Why Use A Virtual Terminal For Credit Card Processing?
- The 5 Best Virtual Terminal Solutions For Small Business
- Looking For One Of These Virtual Terminal Merchant Services?
- What To Look For In An Online Payment Terminal
- How Do I Choose A Virtual Terminal For Credit Card Processing?
- In Summary: The 5 Best Virtual Terminal Solutions For Small Business
What Is A Virtual Terminal?
A virtual terminal is a software application (usually web-based these days) that allows you to enter credit card details manually via the internet and submit a transaction for processing. This solution enables you to accept payments over the telephone or in-person from your computer — without a card reader.
Pictured below is an example of a secure virtual terminal from Stax by Fattmerchant. As you can see, it’s pretty straightforward. You simply plug in details and wait a moment for processing to complete the sale.
You might also notice that Stax’s virtual terminal is included as a feature of its web-based Stax Pay payments platform. Traditional virtual terminals tended to be stand-alone services. Today, they’re more often included as a feature of a provider’s integrated payments platform, combining online and in-person payment processing options into a single, cloud-based platform. An integrated payments platform allows you to run your business and accept payments from any computer, smartphone, or tablet.
What kinds of companies can benefit from taking payment via a virtual terminal? Here are some examples:
- Food Delivery: Customers can prepay over the phone before food delivery.
- Remote Freelance Work: Web designers, graphic artists, writers, and other pros who work remotely can settle billing over the phone.
- Local Professionals (E.g., Doctors, Attorneys, Accountants): Take payment over the phone to book clients, settle a running tab, or process from across the counter.
- Auto Mechanics: Your customers can pay you over the phone and pick their car up after hours, and you can collect what’s due during regular business hours, too.
- Other Delivery Services: Whether you own a local pharmacy, deliver wine and spirits, or something else, taking phone orders is an excellent option for smaller delivery-based businesses.
If none of these apply to you, some situations may still arise where a virtual terminal will come in handy. Some merchants enjoy the fact that a virtual terminal enables them to forgo hardware to compensate for limited counter space. While mobile payment processing apps are also an option, some folks live and die by their laptops (so to speak), so a virtual terminal makes the most sense for their business needs.
And every other merchant who typically processes via swiping, dipping, or tapping may need to take payment over the phone once in a while. If you already have a credit card processor, chances are there is a virtual terminal somewhere on the dashboard with which you can manually enter credit card details through a web-based form. Square is one of these companies. Here is an example of Square’s virtual terminal screen. As you can see, it’s a very straightforward form that requires credit card data and allows you to enter a note about the sale:
While Square offers a pretty simple setup that automatically comes when you sign up for free, other credit card processing companies, especially traditional merchant accounts, may vary slightly in their approach. Below we are going to explore the different features a virtual terminal may offer. Later in the article, we’ll talk about the costs involved and share a few processing companies that provide top-notch virtual terminals.
How Does A Virtual Terminal Work?
It’s easiest to think of a virtual terminal as nothing more than a “virtual” version of a standard countertop credit card terminal. The virtual terminal’s interface screen allows you to type in your customer’s credit card information and details about the purchase. This information is then sent over the internet to your provider’s payment processing network, where the transaction is (hopefully) approved and funds scheduled for disbursement. This functionality is essentially no different than how a countertop terminal or mPOS app works, except that most countertop terminals can also transmit information over a landline telephone connection. In fact, the app on your smartphone or tablet for accepting mobile transactions is essentially a virtual terminal. However, it might include some additional features (such as the ability to receive tips).
Virtual terminals are often confused with payment gateways, which are essential for eCommerce. While both products include the same functionality, gateways include many extra features on top of processing a transaction. Also, gateways are designed to allow customers to process their own sales, whereas virtual terminals require the merchant’s input to complete a transaction. Today, virtual terminals are primarily used by mail order and telephone order (MOTO) businesses that either don’t have a website or don’t accept online sales.
Another benefit of virtual terminals is that they can be configured to accept card-present transactions with the addition of a compatible card reader. Until very recently, these card readers connected to your computer via USB and only accepted magstripe transactions. While companies are still selling these types of readers, we highly recommend avoiding them and buying a reader that can also accept EMV payments. Modern card readers often connect via Bluetooth instead of USB. While a USB connection might be more reliable, we recommend card readers with a Bluetooth connection to avoid hardware compatibility issues in the future. Card readers that accept NFC-based payment methods (such as Apple Pay and Google Pay) are also worth the modest additional cost.
With the ongoing COVID-19 pandemic accelerating the popularity of contactless payment methods, more customers are discovering the convenience of making purchases with just their phone or smartwatch. Both you and your customers will appreciate being able to process a sale without you having to handle the customer’s physical credit card. If your business has been affected by the pandemic, please be sure to check out our Coronavirus Payments Guide: Everything You Need To Know About Switching To Online & Phone Payments for more in-depth information on switching to online and telephone payments.
While virtual terminals offer a convenient way to accept card-not-present transactions, there is a catch. If neither the customer nor their payment card is physically present for a transaction, there’s an inherently higher risk for fraud. Processors charge a significantly higher fee to process card-not-present transactions to guard against this possibility.
Virtual Terminal With A Merchant Account
Most traditional merchant services providers will set you up with a merchant account that allows you to accept debit and credit cards and receive funds from those transactions. Your merchant account comes with a unique merchant ID number that identifies your business to the payment processing networks. Almost all providers on the market today include a virtual terminal with your merchant account. In many cases, this is included for free as a standard feature of your account — whether you ever use it or not. Other providers only offer virtual terminals as an optional feature that costs extra. Even if your virtual terminal is free, you’ll often have to pay extra to buy a card reader if you want to accept card-present transactions.
Unlike payment gateways, there’s usually no extra per-transaction charge to use a virtual terminal. As we’ve noted above, however, the interchange fees for card-not-present transactions are higher. We generally recommend full-service merchant accounts for businesses that process around $5,000 per month or more. (Note that the point at which a full-service merchant account is more cost-effective can vary from as little as $1,500 to as much as $10,000 per month, depending on the business.)
Virtual Terminals Without A Merchant Account
Not every business needs (or can afford) a traditional, full-service merchant account. Seasonal and low-volume businesses are usually better off signing up with a payment service provider (PSP), such as Square or PayPal. These providers aggregate their users into a single merchant account, so you won’t get a unique merchant ID number for your business. It might sound trivial, but it can affect your account’s stability and increase your vulnerability to account freezes, holds, and terminations. At the same time, PSPs offer flexible contract terms, no monthly fees, and predictable flat-rate pricing — all of which can save a small business a lot of money and headaches.
Although PSPs tend to offer basic functionality with their accounts to keep costs low, you can still get a virtual terminal through them. In fact, Square’s mobile processing app is essentially a virtual terminal, but with a few additional features added in.
The same caveats regarding virtual terminals that apply to full-service merchant accounts also apply to PSPs. You’ll still pay higher interchange rates for card-not-present transactions, and you’ll still need to invest in a card reader to accept card-present transactions. However, you won’t get hit with a bewildering array of fees every month or be locked into a long-term contract.
Ironically, the virtual terminals offered by PSPs are often more feature-rich than the ones you’ll get with a more traditional merchant account provider. These additional features sometimes come at a cost, however. For example, PayPal — while a great choice for eCommerce-only businesses — charges $30 per month for its virtual terminal.
Why Use A Virtual Terminal For Credit Card Processing?
Virtual terminals are just as secure as physical terminals or payment gateways, using the same tokenization and encryption methods to protect your customers’ card data from hackers during the transaction approval process. They also meet the same PCI compliance requirements as other payment processing devices and software. Additional security measures, such as address verification (AVS) and the use of CVV numbers, are also available and should be used whenever it’s appropriate.
Despite these built-in safeguards, you still need to be aware of the risks involved with any manual data transfer. The main thing you need to be cautious about as a merchant is that you or your employees should never write a credit card number down on a piece of paper or store it in any way. Storing credit card information via non-PCI-compliant software (or written on a scrap of paper) is a considerable risk to your business.
Nowadays, fraudsters target credit card storage of small companies, just looking for a vulnerability. The best way to avoid liability for credit card fraud is to always enter credit card information directly into the payment form and never copy the numbers down anywhere else. Of course, even with good security, sometimes breaches happen. However, if your company has a PCI-compliant virtual terminal, the liability shifts away from you if a breach occurs.
Another type of risk that every merchant should be aware of — no matter how you process — is chargebacks. Whether your customers don’t remember the purchase, change their minds, or aren’t happy, they can request a reversal of funds called a chargeback. This situation can cost a merchant the price of the sale and extra fees. Because a merchant doesn’t capture the electronic data on the chip or stripe, a card-not-present transaction has an elevated risk of “friendly fraud” as well. Friendly fraud is when a customer likely knows they purchased from you, but they call their credit card company directly to deny the purchase. As a merchant, you can reduce chargebacks through open communication and follow up and promptly address any complaints or customer service issues from your customer. For more helpful tips on protecting yourself from the dreaded chargeback, read The Small Business Owner’s Guide To Preventing Chargebacks (& 12 Tips For Fighting Chargebacks).
The 5 Best Virtual Terminal Solutions For Small Business
The best virtual terminal providers are usually also the best merchant services providers for your business. While often proprietary, virtual terminals don’t vary much in terms of features or capabilities from one provider to the next. Instead, you should focus your search on companies that offer flexible contracts, fair pricing, and excellent customer support.
Although it’s best known for its low-cost mobile payments system, Square now offers a complete lineup of products and services to accept any kind of transaction. Among those services is the Square Virtual Terminal, which is exactly what the name implies: a web-based “virtual” terminal for accepting credit card transactions on a personal computer. Well, some personal computers — at the time of this writing, taking card-present transactions with a card reader is only available for Macs and Chromebooks, and you’ll have to use either Chrome or Safari as your browser. Given Windows computers’ dominant market share, we expect that availability will expand to these devices in the future.
Pricing for the Square Virtual Terminal couldn’t be any simpler. You’ll pay either 3.5% + $0.15 per transaction to manually enter a sale or 2.6% + $0.10 per transaction to swipe or dip a physical card. Like most of Square’s other services, there are no additional monthly fees or long-term contracts.
While you don’t need a card reader to use Square Virtual Terminal, the lower processing rate for card-present transactions is reason enough to invest in one if you plan on accepting in-person payments. Square isn’t too specific on its website about compatible hardware, but most likely, you’ll want to use the $49 Square Reader for Contactless and Chip, which connects via Bluetooth and accepts both EMV and NFC-based payment methods.
Square’s Virtual Terminal is an excellent choice for small businesses that only process several thousand dollars a month in credit/debit card transactions. At higher processing volumes, the company’s flat-rate pricing can actually hurt you, and you’ll be better off getting a full-service merchant account. As with any other payment service provider (PSP), account holds, freezes, and terminations are also more frequent. You’ll want to take this risk into account when signing up.
- Pay-as-you-go billing
- No monthly fees
- Predictable flat-rate pricing
- Account stability issues
- Card-present payments not available on Windows PCs
2. Stax By Fattmerchant
Stax by Fattmerchant
Stax by Fattmerchant is one of the few merchant account providers on the market to offer membership pricing, saving high-volume businesses a lot of money on processing costs. With this pricing type, you pay a single monthly “subscription” fee that covers all the costs associated with maintaining your account. In exchange, you’ll only pay the standard interchange fees plus a small (and prominently disclosed) fixed per-transaction fee. Unlike most other providers, there’s no percentage markup — something that can become very expensive for large-ticket sales.
Stax offers a virtual terminal as a built-in feature of its Stax Pay integrated payments platform. Formerly called Omni, Stax Pay combines a payment gateway, analytics and reporting tools, and other ancillary features into a single, cloud-based system that allows you to run your business from any device with a web browser. The virtual terminal feature in Stax Pay includes support for electronic invoices, recurring billing, QuickBooks integration, a customer information database, and many other functions. Naturally, you can also accept in-person transactions with a compatible card reader.
This type of pricing, combined with the huge number of features available through the Stax Pay platform, makes Stax very appealing to most businesses. However, we’d caution you that the company’s pricing will only save you money if you already have a fairly high monthly processing volume. Payment processing subscription pricing is $99/month, while Stax Pay starts at $49/month, which will be too expensive for low-volume merchants. Also, Stax only serves US-based businesses at this time.
- Transparent membership pricing
- No percentage markup rate for transactions
- Month-to-month billing with no long-term contracts
- No early termination fee
- US-based merchants only
- Not suitable for low-volume businesses
3. Payment Depot
A close competitor of Stax, Payment Depot also offers membership pricing that can save your business hundreds of dollars per month in processing costs. The main differences between the two companies are that Payment Depot provides a much more affordable low-end subscription ($49 per month) but lacks an integrated payments platform similar to Omni. However, this isn’t a major concern, as the company partners with several third-party vendors to bring you all the same services and features for one monthly fee.
Among those features is free access to the VPOS (Virtual POS) virtual terminal provided by Authorize.Net. VPOS allows you to manually enter transactions or accept in-person sales via the BBPOS Chipper 2x card reader. This reader costs $99 and can accept magstripe, EMV, or NFC-based payment methods. Connection to your computer is via either Bluetooth or a USB cable. Unfortunately, it’s only compatible with Windows computers at this time.
Payment Depot also offers month-to-month billing with no long-term contracts and no early termination fees. If the company’s pricing doesn’t work out for you, it’s fairly easy to close your account and switch providers. You can also save money by paying your membership fees on an annual basis. Payment Depot’s $49 subscription plan — which costs about half of Stax’s processing plan — also makes it more affordable for businesses that don’t have a high monthly processing volume. At the same time, it could still be too expensive for very low-volume or seasonal businesses.
- Free virtual terminal
- Transparent membership pricing
- Month-to-month billing with no long-term contracts
- Excellent customer service and technical support
- Not cost-effective for low-volume businesses
- Not available to high-risk or international merchants
Based in Chesapeake, Virginia, CDGcommerce is one of the few providers we’ve found that offers a full-service merchant account at a price that even small businesses can afford. The company provides various pricing options, allowing you to choose between flat-rate, interchange-plus, or membership pricing plans.
Regardless of which pricing plan you choose, you’ll have access to a virtual terminal that’s included at no extra charge. Virtual terminal support is either through Authorize.Net’s VPOS terminal or the company’s proprietary Quantum Gateway. You can also integrate your account with a variety of other third-party gateways if you choose. Rates for card-not-present transactions processed over the virtual terminal start at 2.9% + $0.30 per transaction under the flat-rate pricing plan; lower rates are available with either an interchange-plus or membership pricing plan. We recommend that you review all pricing options to determine the most cost-effective plan for your business.
CDGcommerce has been around since 1998 and has consistently been one of our top-rated providers. In addition to its flexible contract terms and affordable pricing plans, the company has a great reputation for offering high-quality customer service and support.
- Free virtual terminal
- Offers flat-rate, interchange-plus, or membership pricing
- Month-to-month billing with no early termination fees
- Excellent customer service and support
- Only available to US-based merchants
5. Durango Merchant Services
Durango Merchant Services
While all of the providers we’ve discussed above are excellent choices for low-risk merchants, it’s harder to find a company that will accept you if you’re a high-risk merchant. One of the best companies we’ve found that specializes in serving the high-risk community is Durango Merchant Services. The company works with various acquirers and processors to get you approved for an account but offers its own proprietary merchant services and customer support.
One of these services is the Durango Pay gateway, the company’s proprietary payment gateway. Durango Pay includes a virtual terminal as one of its features, allowing you to accept orders and payments over the telephone, even if you don’t have a website. You’ll get access to various features, including support for recurring billing and a customer information database. As a high-risk provider, Durango also includes a robust set of security features, including anti-fraud services that can flag (or even block) suspicious transactions.
The one downside to working with Durango — or any other high-risk provider — is that its complex relationships with its numerous back-end processors make it impossible to disclose any pricing information on its website. Instead, you’ll have to contact Durango’s in-house sales team and get a pricing quote that’s customized to your business. Although you can expect to pay higher rates than a comparable low-risk business, the company’s prices are fair and haven’t generated any complaints from merchants.
- High-risk specialists
- Offers offshore merchant accounts for some international merchants
- Fair pricing and excellent contract terms
- Dedicated account manager for customer service
- No pricing disclosures on the website
Looking For One Of These Virtual Terminal Merchant Services?
As we’ve said before, the best way to get a quality virtual terminal is to sign up with a reputable provider rather than focusing on certain features of a company’s virtual terminal or choosing a provider based on name recognition or how popular it is in Google searches. Two providers, in particular, stand out for apparently being popular with merchants — despite not offering the best way to get a virtual terminal.
A perennial favorite among online sellers, payment service provider PayPal is one of the oldest and most established names in eCommerce. In recent years, the company has put a lot of effort into expanding beyond internet-only sales and now offers payment services for retail merchants. In addition to the PayPal Here service for mobile payments, the company also provides a virtual terminal for accepting payments over the telephone or in-person with a card reader. However, you’ll need to sign up for the company’s PayPal Pro service to access it. PayPal Pro costs $30 per month, which is quite expensive for a payments service that otherwise doesn’t charge a monthly fee. Unless you plan to take full advantage of PayPal Pro’s other features, this probably won’t be a cost-effective way to get a virtual terminal. While we like PayPal overall, it’s not a good choice for this specific service.
Unlike PayPal, Payanywhere doesn’t charge you for its virtual terminal. However, it does have a sneaky habit of automatically converting your processing account into a full-service merchant account once your processing volume exceeds $100,000 in a twelve-month period. This merchant account comes complete with expensive tiered pricing, numerous monthly and annual fees, and an onerous three-year contract. Surprise! Naturally, there are a lot of complaints from merchants alleging that the company’s sales agents failed to explain this possibility when setting up their accounts. This is an especially raw deal considering that you won’t have any opportunity to negotiate the terms of your “upgraded” account. Unless you’re quite sure that you’ll never exceed the processing threshold that triggers the conversion to a merchant account, we highly recommend that you avoid Payanywhere.
What To Look For In An Online Payment Terminal
Most virtual terminal services on the market include several common features, and there isn’t much to distinguish one from the other. However, there are several not-so-standard features that you might want to look for, especially if your business needs them. These include the following:
- eCheck/ACH Processing: Accepting a lot of card-not-present transactions over a virtual terminal can get pretty expensive due to the high interchange fees charged for these types of transactions. However, some providers offer the ability to accept ACH or echeck payments through their virtual terminal. Most ACH transactions are billed at flat fees (anywhere between $0.15 and $1, usually) or as a percentage of the transaction (up to 1%). There might also be a fixed monthly fee to add this feature if it’s only offered as an optional service.
- Customer Information Database: The ability to store your customers’ payment method information so that they don’t have to re-enter it every time they make a purchase is a good feature to have. Most modern payment gateways include this feature, and as virtual terminals are increasingly offered as a feature of a gateway or integrated payments platform, it’s easier to get this feature in your virtual terminal as well.
- Recurring Billing Support: Again, this has become a standard feature on most payment gateways, so you shouldn’t have much trouble finding a virtual terminal that has it. Just be careful about pricing, as some providers still consider recurring billing an optional feature and charge you extra to add it to your account.
- Inventory Management: Obviously, it’s a good idea to make sure an item is actually in stock before making a sale. Early, stand-alone virtual terminals didn’t always include this feature, but you definitely want to have it today if you sell physical goods.
- Security: Keeping your account protected from fraudsters and cyber thieves is getting harder every day. Fortunately, virtually all merchant services providers prioritize offering strong security features to protect your account (and their bottom line). Protecting your customers’ credit card data is of the utmost importance, particularly if you’re taking it down over the telephone and manually entering it into a virtual terminal. Look for tokenization features and point-to-point (P2P) encryption at a minimum. Providers are also introducing algorithm-based security features that try to detect potentially fraudulent transactions or possible chargebacks before they happen.
How Do I Choose A Virtual Terminal For Credit Card Processing?
Whether you only occasionally need to enter a transaction manually or your business is 100% based on telephone sales, having a virtual terminal with strong security features is very important. Virtual terminals offer a secure method of completing a transaction without either the customer or their payment card being physically present. At the same time, combining a virtual terminal with a Bluetooth or USB-connected card reader can allow you to process in-person sales as well. Why pay hundreds of dollars for a traditional credit card terminal when you can hook up a card reader to an old laptop and gain the same functionality?
Regardless of how you use a virtual terminal, we’d caution you to pay close attention to your credit card processing rates. Manually keyed-in transactions have the highest interchange rates, primarily due to the higher risk of fraud involved when your customer isn’t physically present to confirm their identity. While providers offer various processing rate plans, card-not-present transactions will be more expensive to process under all of them.
There isn’t a single best provider to choose from when looking for a virtual terminal. With each provider’s virtual terminal being nearly identical in available feature-sets, your best bet is to choose the provider that’s the best overall fit for your business. Processing rates, account fees, contract terms, and customer support will be more important in the long run. That said, Square and CDGcommerce are your best choices if you’re running a low-volume or seasonal business. Larger businesses will benefit from the membership pricing model offered by providers such as Stax and Payment Depot. Finally, if you’re high-risk, Durango Merchant Services is one of the best providers we’ve found that specializes in serving the high-risk business community.
For more information about credit card processing and companies we recommend (and why), check out our post The Best Small Business Credit Card Payment Processing Companies.
In Summary: The 5 Best Virtual Terminal Solutions For Small Business
- Square: Best for low-volume or seasonal businesses.
- Stax by Fattmerchant: Best for high-volume merchants.
- Payment Depot: Best for high-volume merchants.
- CDGcommerce: Best for most businesses.
- Durango Merchant Services: Best for high-risk merchants.