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Virtual POS terminal: what is it, what is it for and how does it work?

Virtual POS terminal: what is it, what is it for and how does it work?

Published: 1 July 2020 • Reading time: 6 minutes
Virtual POS terminal

The term “virtual POS terminal” can mean two different things, depending on the context. The most common meaning, which we will explore in this article, is a payment management platform for Ecommerce sites. There are several synonyms, such as online POS terminal, Ecommerce POS terminal and Ecommerce payment platform that refer to the same concept. The second, less common meaning refers to the tool that allows payments to be handled remotely by entering the customer's card details on their behalf, after receiving a payment order by phone or e-mail. In technical jargon these types of payments are referred to as MOTO (Mail Order/Telephone Order) or manual PAN entry and can take place directly on a physical POS terminal or via digital dashboards.

There are also alternative solutions for handling payments remotely, which combine the advantages of online payments with those of in-store activities.

What is a virtual POS terminal and what is it for? Discover all the benefits.

A virtual POS terminal (or online POS terminal) is an essential tool that transforms a simple showcase site, i.e. a website with the sole purpose of presenting the company and its products or services, into one dedicated to sales. It is an essential service for anyone wishing to sell products or services online via their own website or through another digital platform (e.g. an app), perhaps alongside other sales channels that are more traditional .

The online POS terminal offers certain advantages compared to traditional offline payment tools, making it more flexible:

Zero maintenance and defects
The traditional physical POS terminal is a device that can be broken easily, even if it is simply dropped by accident, and in many cases a technician is needed to fix it or even a replacement of the terminal might be needed. The virtual POS terminal cannot break because there is no physical device and its maintenance is performed centrally without the need to wait for physical maintenance at the store. In addition, a virtual POS terminal is constantly updated, supplemented with new functions and improved to respond promptly to all payment requirements.

Greater offer with many payment systems
Selling via digital platforms today means offering your customers many more payment options, with a more personalised shopping experience. While some digital alternatives to cards are also available for physical terminals, e.g. Alipay and WeChat Pay, opportunities are quickly multiplying online. There are hundreds of alternative payment methods that are widely used around the world, and they are more and more often preferred to traditional methods, either because they have become commonplace in specific countries (e.g. Unionpay for Chinese customers) or because they are more correspondent to certain requirements (e.g. MyBank, which has no transaction limit, and is therefore ideal for the B2B).

Remote payment management
One of the advantages of digital platforms is that they are potentially available anytime, anywhere and from any device. For some time now, shopping experiences have been increasingly losing the distinctive features typical of stores and Ecommerce, converging in a customer journey, in which the consumer expects to be able to move swiftly between physical touch points, such as stores, totems and kiosks, and digital ones, such as Ecommerce sites, apps and online catalogues. The virtual POS terminal has the enormous advantage of not requiring the physical presence of the customer in store. Particularly in the current situation, customers are increasingly looking for a shopping experience that blends the advantages of the offline and online worlds.

What is required to activate a virtual POS terminal

Payment systems are regulated at national and European level, and in order to accept digital payments it is necessary to use certified solutions and tools, both for physical and virtual POS terminals. Precisely for this reason, activation is restricted by certain criteria and follows set of rules, which must be observed by all parties.

In order to finalise an activation request, information and documents related to the applicant company are required, such as VAT number, accounting documentation and specific information on beneficial owners, amongst other elements. Each Payment Service Provider (PSP) may request additional documentation according to the specific characteristics of the company that uses the service, and always in compliance with applicable regulations.

How a virtual POS terminal works

Once the service has been requested and activated, the user connects the payment gateway (the platform) to the website. There are different ways to do this and these can vary depending on who is providing the service and how the website has been developed. To facilitate integration of the virtual POS terminal, technical documentation and plug-ins are often made available to simplify link-up to sites developed using a CMS (Content Management System) .

At this point everything is ready to receive payments. From the Ecommerce site, app or an e-mail sent by the merchant, the customer clicks on the pay button and is taken to a page that is customised to a lesser or greater extent by the merchant, depending on the chosen platform, containing payment information and fields to enter the card details or those relating to the payment system of choice.

Once confirmed, in the case of a purchase made by credit card, for example, a data flow begins, which reaches the financial institution that issued the card (Issuer) via the bank that manages the financial transaction (Acquirer). After verifying a series of elements, for example, the capacity and validity of the payment instrument, the Issuer responds with a approval or rejection. This response follows the same flow in reverse, and is displayed to the purchaser in a matter of seconds.

Activation and management costs and fees

Virtual POS terminal costs vary depending on the separate business models of PSPs and the features and functionalities chosen by the merchant when requesting the service.

However, we can identify cost categories that are common to all or almost all players in the sector:

  • Fixed set-up costs
    As a rule, these are one-off costs to activate the service. There can also be more than one, if additional services are offered to personalise the checkout experience.
  • Fees or variable costs on the transaction
    Use of the platform frequently involves fees or variable costs of the transaction. Again, these may vary depending on the type of platform and the number and nature of optional services activated.
  • Transaction fees
    These can be fixed, variable or a combination of the two. Moreover, they may reduce as the transaction amount increases or differ depending on the type of card (typically cards in the name of a private individual carry lower costs than corporate cards or cards issued in countries outside the European Union).

Other charges
Additional charges may apply. For example, exchange-rate costs in the case of payments in currencies other than the Euro, and fixed or variable fees for alternative payment methods or other categories defined by the PSP.

The above is an examination of costs and application criteria based on our knowledge of the international market; it is always a good idea to carefully evaluate which offer is most cost-effective and best suited for your business.

Ultimately the virtual POS terminal is an essential tool for receiving payments through an Ecommerce store, but it is also ideal for use alongside the traditional POS terminal in store, as it offers additional tools to satisfy consumers who are increasingly moving towards an omnichannel shopping experience in the current situation under unique conditions.

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