What Is a Virtual Terminal? Definition, Benefits, and Risks (2024)

Customers today have become used to the convenience of multiple payment methods, whether they’re shopping for supplements in-store or sneakers online. One practical tool you can add to your payments options is virtual terminals. This web-based solution lets you accept payments without the need for a point-of-sale (POS) terminal, making transaction management more accessible for businesses and diversifying payment options for customers. 

What is a virtual terminal?

A virtual terminal is an online payment processing platform that turns any internet-connected device into a payment center, letting your business process transactions without specialized physical hardware. This web-based option handles payments through a browser, where you can manually enter payment details, such as cardholder information and transaction amounts. Payment platforms such as PayPal, Stripe, and Square offer virtual terminals in addition to their other payment options. 

Virtual terminals are ideal for phone orders, email payments, mail orders, and in-person transactions. They’re commonly used by freelancers, service providers, and restaurants taking orders by phone. But they also have their place in retail and ecommerce operations. Beyond accepting credit and debit cards, many virtual terminals also process ACH transfers and digital payments, making them a flexible hub for different transaction types.

How do virtual terminals work?

Virtual terminals allow you to easily accept credit and debit card payments from customers who aren’t physically present, or when you don’t have a POS terminal. While the technology behind virtual terminals is sophisticated, the process itself is straightforward: 

1. Access your virtual terminal. Log into your virtual terminal through any device with an internet connection—that might be a desktop computer, laptop, tablet, or smartphone. 

2. Input transaction details. Enter the customer’s payment information, including name, card number, expiration date, CVV, and billing address.

3. Submit for processing. Once you’ve entered the payment details, the system initiates the transaction through secure channels. The virtual terminal encrypts sensitive data and routes it through your payment processor for authorization.

4. Await authorization. The payment processor communicates with the customer’s bank to verify funds and approve the transaction. This verification process typically takes just seconds, providing quick confirmation for you and your customer.

5. Complete the transaction. Once the transaction has been approved, you’ll receive confirmation and can send a digital receipt to your customer. Funds are then automatically deposited into your business bank account, typically within one business day.

Benefits of using virtual terminals

Depending on the kind of business you have and how you receive customer payments, virtual terminals may be an option for you. Here are some benefits to consider: 

• Process payments anywhere. Virtual terminals eliminate geographical constraints by allowing businesses to accept payments through any internet-connected device. 
• Reduce hardware costs. By using existing computers and mobile devices, businesses avoid investing in POS equipment. And because a virtual terminal is web-based, you don’t pay for maintenance costs or hardware upgrades.
• Set up recurring transactions. Most virtual terminals include features for setting up scheduled payments and storing customer information securely. This automation makes it easier to predict cash flow while reducing manual processing time.
• Expand payment options. Beyond standard card processing, virtual terminals often support various payment methods, including ACH transfers. This versatility helps businesses meet different customer preferences.

Risks of using virtual terminals

The primary consideration when implementing a virtual terminal is security; manually entered transactions typically carry higher error and fraud risks than in-person payments. 

For instance, a retail clothing store might take phone orders from customers who missed an in-store sale. Staff members collect credit card information over the phone and manually input it into their virtual terminal to process the transaction.

This scenario introduces a few potential vulnerabilities:

• Staff may write or store card numbers temporarily, which presents a security risk
• Connection issues may require repeating sensitive data
• Card details could be overheard during phone orders
• Manual entry bypasses card reader security protocols
• Remote transactions complicate cardholder verification

The convenience of virtual terminals also comes at a cost: Manually entered transactions generally carry higher processing fees, often adding nearly a full percentage point to standard card-present rates.

To mitigate security risks, consider built-in security features like the address verification service (AVS) and card verification value (CVV) codes to validate cardholder identity. These verification methods are valuable for card-not-present transactions, where the business cannot physically verify the payment card or customer identity. 

Some virtual terminal providers also offer tokenization and end-to-end encryption, protecting sensitive data throughout the transaction process. Implementing two-factor authentication and regular staff training further strengthens your security posture.