What is a virtual terminal? A comprehensive guide for UK merchants

If you’re planning to start your own business or looking at ways you can streamline payments, you may have come across the term ‘virtual terminal’ and wondered what it refers to.

In today’s remote-first world, many merchants need the flexibility to process payments through several different channels and scenarios to keep customers satisfied and their business delivering.

If you run a personal training service, create customised products, or run any other business where you’re required to take orders or reservations over the phone, virtual terminals can be a very useful tool. 

This technology will allow you to take payments remotely in much the same way you would at a Point of Sale (POS) system, without the need for the customer being physically present.

In this guide, we’ll take a closer look at virtual terminals, answering questions like:

• What is a virtual terminal? 

• What situations would I use them in? 

• How can my business benefit from virtual terminal technology?

What is a virtual terminal?

Virtual terminals operate using web-based software which enable merchants to process cashless payments without a physical POS system. 

Virtual terminals allow you to do everything you would with a physical card reader or similar technology, with the key difference being that the technology is totally virtual and hosted online.

Modern virtual terminals can be accessed through practically any device with an internet connection, such as a computer, phone, or tablet, and allows customers to complete purchases via a phone call, email, or text.

Unlike physical point of sale equipment like card readers or self-serve kiosks, virtual terminals require merchants to enter a customer’s payment card details manually. 

Aside from this, the software effectively allows you to turn any computer or internet-connected device into a POS system.

How does a virtual terminal work?

As web-based software, the specifics of how virtual terminals work can vary from one provider to another. Having said that, the process of taking a payment using a virtual terminal generally follows 3 basic steps:

1. The customer contacts the merchant via phone, email, or another method with their payment information.

2. The merchant logs into an account maintained by their virtual terminal provider and enters the outstanding amount for the purchase, the name of the customer, their payment card details and their billing address.

3. The merchant processes the payment from their end and uses the virtual terminal to create a record of the transaction, sharing a confirmation with the customer.

The pros and cons of using virtual terminals

Though virtual terminals are convenient solutions for businesses who need to take payments remotely, there are also some potential drawbacks to consider when you’re considering your payment processing options as a merchant.

Here are some of the key pros and cons of using this solution to bear in mind:

The benefits of using a virtual terminal

Convenience

For many merchants, the biggest appeal of virtual terminals is their convenience. Provided you have a reliable internet connection, you can accept payments at anytime and place, and allow customers to make payments via a simple phone call or other communication methods that might suit them better. This allows you to offer your products or services to a larger customer base, without the limitations of a physical POS system.

Reduced costs

Because virtual terminals are completely software-based solutions, they eliminate the up-front cost of hardware that you’d need to account for when setting your business up to take in-person payments. 

When using a virtual credit card terminal rather than a physical system, you can spend less time worrying about purchasing equipment, ongoing maintenance costs, and other expenses.

Enhanced security

Like many online payment methods, virtual terminals are held to strict security standards. Due to this, virtual terminals stick to robust encryption and data transfer standards to stay compliant with security and privacy protocols like PCI DSS and GDPR. 

This enhanced security helps you build trust in your customer base, improving customer loyalty and reducing the risk of cyber security threats, attacks or breaches.

Accessibility and flexibility for growing business’

Being a software-based solution, virtual terminals provide an accessible payment processing solution for businesses of any size. 

When scaling a business, a virtual terminal will enable you to take deposits and payments instantly, instead of relying on invoices or having to wait a long time for payments to be finalised.

Virtual terminals also offer great flexibility for new businesses, and can be adapted easily to new product or service offerings as they’re launched.

The risks of using a virtual terminal

Potential for human error

Because virtual terminals rely on human users to enter payment information manually, it opens up the risk of human error which isn’t present with physical POS systems. 

Though a rare occurrence, incorrectly entering card numbers, CVV codes, or expiry dates can cause declined transactions, operational inefficiencies, and discrepancies in your business’s financial records. 

When processing virtual terminal payments, it’s essential to use uniform processes that take precautions to prevent human error.

Increased risk of fraud

Although most virtual terminals come with several layers of security, the fact that customers can use them to make purchases without a physical card can increase the risk of fraud. 

Card-not-present (CNP) transactions like those carried out using a virtual terminal are a popular target for fraudsters using stolen payment card information for CNP fraud. To minimise the risk of this happening and maintain trust among your customer base, you’ll need to ensure you have trustworthy payment security layers like two factor authentication to protect purchases.

Because these are not in-person transactions, enabling fraud tools, such as: 

• Address verification service (AVS)

• Credit card verification value (CVV)

• Card identification number (CID)

• Two factor authentication (2FA) 

These will help to confirm the customer is the actual cardholder.

Higher transaction fees

With most payment providers, the fee per transaction for virtual terminal card payments tends to be higher than the fees for card payments where the cardholder is physically present, such as contactless or chip and pin payments. 

This is due to the increased need for customer verification and risk management, and the potential for a dispute or chargeback that can arise from manually entering payment details.

What types of UK businesses can benefit from virtual terminals? 

There are many types of business which could benefit from having virtual credit card terminals as part of their payment options. 

Even if the majority of your payments are processed in-person or through another remote channel, having virtual terminal credit card processing among your payment apparatus will mean you won’t have to put off or delay purchases or bookings that have to be made remotely.

Though virtual terminals have universal benefits, there are certain types of business which can benefit from them more than others:

Retailers

Retailers need to remain flexible to accommodate the demands of their customer base. With the modern retail market’s emphasis on personalisation, it’s more important than ever to accommodate remote purchases and meet customers where they want to buy products. 

If, for example, you sell custom made scented candles and beauty products from a brick-and-mortar location, but regularly participate in local trade events, having a virtual terminal will allow you to take advance orders from people who can’t usually access your physical store.

Hospitality

When taking reservations for an event, it’s common for restaurants, bars, and other businesses in the hospitality sector to receive advance orders and process payments over the phone.

Adding a virtual terminal to a hospitality business’ payment setup can allow staff to process transactions in advance and ensure a smoother, more positive experience for customers when they arrive in-person.

Activity and experience day services

If you operate a business where customers pay for a certain experience, for example kayak rental or paintballing, it often helps to minimise the amount of time spent preparing on your business’s site. 

A virtual terminal will give your customers the option to ask questions and make a booking in a single easy session, while expediting the process of getting started on the day of the booking.

Service-based businesses

Many kinds of service-based businesses, such as personal trainers, attend to their clients and take payments in person. If this is part of your business model, using virtual terminal credit card processing will allow you to take down-payments on your services over the phone without having to be in the same space as your clients.

Traditionally cash-based businesses

Niches where small, independent traders have traditionally been cash-only businesses, such as construction or auto repair, can give their customers greater flexibility with the option to make deposits or final payments for merchant services in a remote virtual terminal setting. 

Furthermore, because virtual terminals don’t require any specialised hardware, merchants can process payments from any internet-connected device and stay mobile when they need to. 

Using a virtual terminal can also make record-keeping much easier and eliminate the risk of loss or theft that can come with large cash payments.

New businesses lacking resources

No matter the details of your business model, using a virtual terminal is a great solution for when you need to start accepting payments but want to invest heavily in hardware, or are just starting out. 

Virtual terminals allow you to process payments in much the same way as physical POS systems, but only require a fraction of the up-front costs. They’re a great choice either as a cash-saving solution for new businesses or as a temporary placeholder while you wait to install a physical POS system.

How much does a virtual terminal cost? 

Many virtual terminals aren’t stand-alone products and can have their price affected by additional features wrapped up in broader subscriptions. Because of this, it’s hard to give a simple answer to the question ‘how much does a virtual terminal cost’?

While some providers offer virtual terminals for fixed merchant credit card fees combined with a transaction fee, others provide the service for a transaction fee alone. 

Most major providers set their transaction fee as a percentage of the purchase combined with a fixed amount. However, other companies have a fixed monetary amount or a percentage alone.

3 types of virtual terminals

When experienced merchants hear the term ‘virtual terminal’, most people think of a web page format. While this is the most common kind of virtual terminal, there are 2 other formats that virtual terminals can typically take.

It’s a good idea to articulate the role that virtual terminals are going to play in your business and familiarise yourself with these forms when you’re in the market for a virtual terminal.

Web page

The most common form, web page virtual terminals are accessed through a web browser by the merchant, who then enters the payment card details taken from a customer over the phone or another communication method.

App screen

Many payment providers who offer virtual terminals can facilitate payments through mobile apps. After logging into the app and navigating to the virtual terminal section, this type functions more or less the same as a web page based virtual terminal.

Card reader screen

Payment providers may also offer virtual terminal features that can be accessed via a physical card reader. When using this type of virtual terminal, the merchant navigates to the feature using the card reader and enters the customers’ card details using the pin pad.

How are virtual terminals different from other payment methods?

Virtual terminals are often offered by companies that facilitate other payment methods for their clients, such as payment links, QR codes, and POS systems.

Though there may be some overlap in the capabilities of these payment methods, there are a number of distinctions that it’s important to note for any business owner looking for a new payment provider.

Here’s a brief look at each of these payment methods to give you a better idea of how they might work for your business:

Card readers

Card readers process payments in more or less the same way as a virtual terminal, with payments processed based on the card details given by the customer.

Card readers are a common payment method for a variety of businesses that take payments in-person, from small cafes to solo entrepreneurs like mobile personal trainers.

The main difference between card readers and virtual terminals is that card readers read information from physical cards, whereas virtual terminals are designed to facilitate card-not-present transactions. 

Virtual terminals offer increased flexibility in that the cardholder doesn’t have to be physically present. However, they require the merchant to enter card details manually, and can’t process instantaneous, tap-to-pay contactless payments like many modern card readers.

Payment links

Payment links are hyperlinks that can be sent directly to customers via email, text, or other messaging apps, directing the customer to a secure payment gateway where they can enter their card details and complete a purchase.

This can be a useful method if you run a service-based business, for example as a personal trainer, where an alternative to in-person payments can make the customer experience more convenient.

This payment method works in a fairly similar way to virtual terminals, with the key difference being that the customer enters their own card details, rather than the merchant.

QR codes

QR codes (quick response codes) are barcodes which store various pieces of data that can be interpreted using a smartphone’s camera.

As a payment method, customers can scan QR codes which will give them a URL to a web page, where the customer can enter the amount owed and their payment card details. 

Similar in function to payment links, QR codes can be printed and displayed in your physical premises, for example a bar or restaurant. This allows your customers to reach the payment page without you having to generate or send them anything.

POS (Point of Sale)

POS refers to a physical device which enables merchants to process payments, for example a card reader, tablet-operated full POS system, or self-serve kiosk. These are necessary tools for any business that takes payments in-person, for example a coffee shop or food truck.

Point of sale systems require customers to be physically present in order to insert or swipe their card, or tap it using NFC-enabled cards or smart devices. Many of these devices are also compatible with virtual wallets and apps like PayPal. Virtual terminals are designed to provide a wholly virtual alternative to POS devices.

Here’s a brief look at some of SumUp’s POS solutions:

SumUp Lite

Ideal for solo entrepreneurs and small, single-branch businesses, SumUp Lite allows you to facilitate simple, at-the-counter sales through card and contactless payments. 

It also comes with intuitive item catalogue software and sales performance reports, so you can monitor important variables at your business whenever you need to.

SumUp Pro

The SumUp Pro POS system comes with all the same capabilities as SumUp Lite, along with additional features like multiple order processing, table management, bill splitting, and data from multiple locations. SumUp Pro can also be used to create promotional tools like loyalty programs and gift cards.

These features make SumUp Pro ideal for small brick-and-mortar businesses like cafes and restaurants that are starting to expand and need software that can keep pace with their growth.

SumUp Enterprise

Designed for larger businesses, SumUp Enterprise has all of SumUp Pro’s capabilities, with additional advanced features like promotion and discounts reporting, staff sales reports, and customer data storage.

SumUp Enterprise is ideal for businesses that have very specific ideas about how they want to operate their business, and need the flexibility to tailor their POS system to their plans for the future.

Disclaimer: The contents of this page are intended for informational purposes only and should not be construed as professional advice. For matters requiring legal or financial expertise, it’s recommended to seek guidance from qualified professionals.