The Differences Between a Payment Gateway and a Virtual POS

Consumers have so many different ways to make in-person, online, and over-the-phone payments these days that it’s hard to keep track of all the nuances of technology. The good news is that there are certainly lots of options, ways to pay, and super-simple techniques for conveying funds from your own bank account or card to a merchant’s account. Probably everyone has encountered payment gateways, like card readers, in stores and restaurants. In fact, many eateries have begun placing mini-readers right on customer tables so diners can pay as soon as they finish eating. That means no waiting for a server to take your card, run it through a machine, and return a receipt for you to sign.

The obvious advantages of payment gateways for both consumers and sellers is quite obvious. Both parties save time and avoid the hassle of dealing with redundant paperwork and trivial tasks. But, what about one of the newer wrinkles in the payment processing universe, virtual POS systems? Merchants are opting for these new methods of payment processing in order to add mobility and versatility to their financial capabilities. The goal of any new payment strategy focuses on getting funds from a customer to a seller as quickly and seamlessly as possible.

If you are unfamiliar with the key differences between traditional payment gateways, like card readers, and newer virtual POS arrangements, here are the main points along with a few ways that virtual POS can enhance any company’s bottom line and make a host of management tasks easier.

Basic Definitions

In order to fully comprehend the ways in which payment gateways differ from virtual POS processing, begin by reviewing the definitions of each method:

Payment Gateways
Generally speaking, when people use the term “payment gateway,” they’re referring to either an in-store device like a card reader or card-swiping machine, or to an online section of a website that allows for input of payment information. For example, when you purchase fuel at a convenience store by inserting your debit card into a counter-mounted machine, you’re dealing with a payment gateway. Similarly, when you visit your favorite online store and buy something, you have to input your CC data into a field to complete the order. The page on which you enter your card data is a payment gateway.

Virtual POS Systems
When merchants use their phones, tablets, laptops, or even in-store PCs to process payments by entering customer data themselves, they’re using a virtual point-of-sale system. Why would a seller need to do this? There are plenty of reasons, the primary one being versatility. For example, if you meet a prospective customer on the street or at a conference, you likely won’t be carrying a card reader with you. However, using your phone, you can simply gather the necessary payment data, like CC numbers, from the customer and enter it yourself. The phone conveys all the pertinent information to a web-based server. The distinguishing feature of virtual POS payment is that the seller, not the buyer, enters the payment data, and the data travels through an internet-based portal.

Benefits of Virtual POS Systems

There are multiple advantages for merchants who use virtual POS systems, including much lower costs and zero maintenance expenses.

Keep in mind that most merchants use both methods, namely card-readers for in-store transactions and mobile, virtual POS payment for remote sales like those that take place at conferences and during chance meetings with customers. And don’t forget that there are costs associated with both kinds of payment, which means some small companies might not be able to afford both. When that happens, the obvious choice is the less expensive system, or the virtual POS method.

At a glance, here are the main benefits that virtual POS payment systems have over standard payment gateways like card-readers and online payment pages that require customers to enter all the necessary payment data:

  • Versatility:Accept mail order, off-site, over-the-phone, and any other non-store payment from customers. As long as you possess the necessary information, like CC numbers, name, address, phone, and a few other things, it’s possible to sell from literally anywhere
  • Offline Capability: In areas with no computer connectivity or phone reception, sellers can collect CC and other payment data manually (with pen and paper) and enter it later, without missing the sale. There are more offline sales locations than most managers suspect, including on airplanes, at campgrounds, on interstate highways, in national parks, in secure buildings like those owned by government agencies, or when systems in otherwise connected areas are temporarily down
  • Control: If you like to be in total control of the sales process, this is the way to go. Not only is the customer out of the loop, but you have the ability to handle the sale from beginning to end
  • Expenses are Low: Most virtual POS systems come with very low monthly fees or even lower annual charges if you pay in advance for an entire year. Plus, there are zero maintenance expenses because the system is web-bases and includes no special devices of its own
  • Backup: What happens if your card-reader stops working in the middle of a busy work day at your store? Most of us have seen this happen from the customer side of things, and it can lead to total chaos for merchants. However, sellers who have virtual POS payment systems can always use them as a backup method until the regular payment gateway (card-reader system) returns to life

Why Use Both?

For merchants who can afford to use both systems, there are some major advantages, including the following:

  • They never miss a sale, no matter where they are
  • In-store sales are easier because the customer does most of the work
  • Remote sales require minimal data entry even when merchants have to input payment data
  • When payment gateways break down, you can always use a virtual POS as an in-store backup

What If You Forget Your Phone?

Say you’re at a campsite and encounter a prospective customer who wants to purchase your goods or services immediately. If you have a virtual POS service, all you need to do is whip out your phone and capture the sale. But, what if you either forgot your phone or are in a geographic area that has not connectivity? All you need to do is write down the customer’s payment data and complete the sale as soon as you get to a working device. It might take time for you to find a phone or computer terminal, but you’ll have the essential payment information and can finish the sale on your own time.

Is One System Superior?

It’s best to view virtual POS and payment gateway systems as being complementary rather than competing ways of doing things. They each have their own strong and weak points. Gateways provide a sense of security to buyers who are protective of their personal financial information and capture in-store sales with minimal management effort. Virtual POS systems allow merchants to make sales anywhere, any time. For sellers who can afford the fees for both, it makes sense for growing companies to utilize both methods.