When you’re new to retail, you want to give your business room to grow. Traditional retail restricts you to local foot traffic, involves hefty real estate costs, and requires staff presence during business hours—all of which can hinder growth. Shifting to a virtual merchant model could free you from these barriers and increase customer satisfaction.
Take businesses like Allbirds and Glossier, which grew from small startups into retail giants by adopting a virtual merchant approach, enabling them to reach customers everywhere. But running a virtual merchant business requires a few upfront considerations, in particular keeping customers’ data safe when handling online transactions.
What is a virtual merchant?
A virtual merchant is someone who sells products or services through an online store, giving customers a secure way to pay over the internet. Virtual merchant services connect your business with a secure payment processor so you can accept credit cards and handle transactions through your website.
To operate as a virtual merchant, partner with virtual merchant providers to set up a merchant account—a business account for payment and credit card processing. This enables you to accept payments through a secure payment gateway. Your merchant services provider automatically handles all payment processing, taking a small percentage—typically 2% to 3%—of each transaction, similar to how physical stores process credit card payments.
This approach is increasingly popular among business owners looking to reach customers beyond their local area. It offers the flexibility to sell products 24/7, without the overhead and limited hours of a physical storefront.
How do merchant accounts work?
A merchant account is a specialized bank account that lets you accept and process electronic payments from customers. When a customer makes a purchase, their payment information travels through a secure gateway to verify funds. The virtual merchant provider then processes the transaction and temporarily holds the funds in your merchant account before automatically transferring them to your business bank account. This typically happens within one to two business days, minus any processing fees.
To obtain a merchant account, you need to apply through a payment processor or bank, which evaluates your business type, sales volume, and credit history before approval. Many businesses choose all-in-one platforms like Shopify, which bundle the merchant account, payment gateway, and online store tools.
Here are the key elements that enable online businesses to process payments:
- Payment gateway. The secure system that encrypts and transmits transaction data between merchants and card issuers.
- Virtual terminal. A web-based tool that lets merchants manually process payments for phone orders.
- Payment processor. The service that handles the movement of funds between customer and merchant accounts.
- Point of sale (POS). The physical hardware or software that processes payments at in-person locations, working alongside online systems for unified sales tracking.
Virtual merchant security
With online stores, security isn’t just a feature—it’s an essential. When you’re processing payments and handling sensitive customer information, a single data breach could devastate your business and destroy customer trust.
That’s why modern virtual terminals employ multiple security measures to protect every transaction, from the moment a customer starts online ordering until the payment clears.
Here are a few key security measures virtual merchants use:
- Multiple firewalls. These digital barriers create layers of protection around your payment systems, blocking unauthorized access attempts before they reach sensitive data.
- Data encryption. Software scrambles every piece of payment information into unreadable code during transmission, making it useless to potential thieves.
- Tokenization. Instead of storing actual card numbers, systems use unique tokens to represent payment data, adding an extra layer of protection.
- SSL certificates. These digital certificates create secure connections between customers’ browsers and your payment system, verifying your site’s legitimacy.
- Fraud detection software. Smart algorithms constantly monitor transactions for suspicious patterns, flagging potential threats in real time. For example, Shopify’s Fraud Control app monitors risk levels, tracks chargebacks, and analyzes order patterns to help merchants block suspicious transactions.
- Payment Card Industry (PCI) compliance standards. These industry-wide security rules set the baseline for how businesses must protect card data. All Shopify stores come with built-in Level 1 PCI DSS compliance, which meets the highest security standards for protecting payment data across key PCI categories, like securing network systems and implementing strong access controls.
Virtual merchant FAQ
Are virtual merchants secure?
Virtual merchants can be highly secure when they use industry-standard protections like PCI compliance, data encryption, and fraud monitoring tools. This level of security depends on your ability to choose a reputable platform and follow security best practices.
What is an example of a virtual merchant?
Warby Parker operates as a virtual merchant that sells eyewear through its website while maintaining physical retail locations.
What does a virtual merchant do?
As a virtual merchant, a business sells products or services through its website, processes customer payments digitally, and handles ordering and fulfillment online—whether that’s its only sales channel or part of a broader retail strategy.
