Efficient payment processing is a top priority for any company selling online, regardless of what you’re selling. When your customer goes to check out, their payment must be error free, friction free, and a pleasant experience. 

Any unnecessary barriers between your customer and a complete payment subtracts from their experience with your brand and reduces the likelihood they’ll either complete the transaction or return again next time. 

Optimizing this payment experience on the front end (customers) and back end (you) can be challenging for business owners simply for all the variables involved. There are out-of-the-box payment systems and custom solutions alike to help you accommodate the sheer number of payment transaction types and determine how they affect your business. 

Before you make a decision on what payment solution is right for you, it’s well worth getting familiar with the seven core payment transaction types that may affect your decision. Let’s explore. 

The Charge/Sale

Once a customer lands on your e-commerce site (for example), browses your products or services, makes their selection, and adds it to their cart, it’s time to check out. In contrast to a cash payment, an all digital transaction process like this requires a few more pieces of information from your customer to initiate and validate the sale: 

  • billing information
  • card number
  • expiration date
  • security code (CVV)

With all their information provided, the charge/sale transaction has been initiated. In most cases, your payment gateway validates and captures your customer’s funds and payments in a single call. 

It’s worth noting there are payment processors, gateways, and solutions that do both. In this case, your gateway “calls” the processor to transfer various payment data and confirm the validity of the payment with your customer’s card issuer. 

payment transaction types charge and sale blog image

Assuming a successful call, the card issuer will transfer the secured funds once the settlement process occurs. In a charge/sale, authorization and capture occurs in one call, however the settlement tends to occur later behind the scenes. As the merchant, you will receive a transaction ID from the gateway or processor for potential future requirements, like issuing a refund.

Pre-Authorization and Authorization (“Pre-auth/Auth”)

In certain situations, credit and debit card transactions have to pass through authorization (auth) or pre-authorization (pre-auth) to validate the information attached to a card and place a hold on your customer’s funds. Auth involves more steps than your standard charge/sale transaction above and requires two calls to the processor, which increases the complexity of the transaction as the auth must then be captured or voided. 

Let’s say your customer wants to buy an item for $30, with $3 in tax, and $10 in shipping, the auth amount would be $43. When they run their card, the gateway/processor puts a hold on those funds to reserve them for this purchase, while making them unavailable for other uses. Depending on the processing system, this hold can last up to three days. 

In some cases, the processor/gateway may authorize a higher amount than the transaction total as a safeguard against undercharging. This is common with gas stations where the final sale amount won’t be known until the fuel has been dispensed. 

payment transaction types authorization and capture blog image

Another pre-auth or auth use case is for recurring transactions, like if you sell a subscription service. As the merchant, you might process $1.00 to validate your customer’s card is good for future payments and store it. The upside is you get to confirm the payment method, but the downside is the $1.00 will linger until the hold period expires or you issue a reversal (see Payment Reversal below). 

Another factor to consider is that the auth transaction may show up as an unexpected alert on the customer’s account, making them wary of what’s going on with their funds that they may not have intentionally approved.

Required: An auth typically just requires your customer’s full card number, CVV, and cardholder information, as well as the purchase amount.

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Payment Capture

“Capturing” is a payment transaction type referring to securing funds previously authorized for transfer. Once the capture is final, your payment processor can transfer the funds during the standard settlement process. In nearly all circumstances, the capture will be for the amount previously authorized, although certain types of transactions (such as buying gas above) will often capture less than the authorized amount. There is also a risk that the capture will fail, but the previous authorization and validation of cardholder information make this very rare.

Required: A capture call only requires the original auth ID or transaction ID, as well as the purchase amount. 

Payment Reversal

A reversal is precisely what it sounds like – a reversal of a successful auth or pre-auth transaction where your customer’s funds have been put on hold but not deposited into your account yet. This is different than a refund, which we’ll cover further down. 

A reversal typically removes the hold placed on your customer’s funds, but can also be used in cases where there’s a smaller charge for validation purposes only. 

payment transaction types payment reversal process blog image

Required: In most instances, reversals only require the original authorization ID or transaction ID and will not require the customer’s personal information, card number, or CVV.

Void Payments

Customers can often change their minds, and sometimes you’re in the middle of processing a customer’s purchase when this happens. Thankfully, a void transaction can help prevent funds from being transferred instead of issuing a refund later – which comes at additional cost to you. A “void” is simply a canceled transaction before funds are moved or settled, and if done at the right time, you can avoid transaction fees that come with refunds. 

payment transaction types void payments blog image

Required: To void a sale, merchants only need the original transaction ID.

Payment Refunds

No merchant likes issuing refunds, but they happen for a wide range of reasons and are to be expected in the world of online payment processing. It’s standard practice to take the item back and credit the customer’s card within your refund policy. 

In a refund, your customer’s money has already been authorized, captured and settled – meaning you have to completely undo the payment you just processed and return the full funds. A few things to note about payment refunds:

  • Refunds always return the money to the original card, so your customers cannot move money from one card to another. 
  • Refunds come at a cost to you, the merchant. 
  • You may also be at the mercy of the payment processor or gateway in terms of how long you can issue refunds, such as 14 days from the date of purchase.
payment transaction types refund process blog image

In addition to a full refund, merchants can also issue a partial refund. For instance, maybe a customer ordered five items, loves three, and wants to return the other two. This is where a partial refund would be useful as it allows merchants to refund money up to the full amount of the original purchase. 

Required: To issue a refund, you’ll need the original charge transaction ID from the processor.

Credit

Last on our list of payment types is the credit. Credits are useful if your customer is outside the time limit specified by the processor/gateway for a refund, or if there’s another reason a refund cannot be issued – like if their original card is no longer available. This process works just like a charge/sale, except that the funds are transferred from the merchant to the customer’s payment method. 

payment transaction types credit process blog image

Required: Merchants need the card number, CVV, and the customer’s information to issue a credit.

Why Payment Types Matter in Payment Processing

Cash transactions will always be so much simpler than processing credit and debit cards, but the benefits of an airtight payment process makes your business sales infinitely scalable, automated, measurable, and far more relevant in the world of online purchasing. 

Understanding the various transaction types can help you make sense of services and fees offered by payment processors and gateways so you can spend more time offering unique value to your clients and customers – and build a bigger brand market share. 

As always, Clear Function is here if you ever need a hand figuring it all out. Schedule a discovery call with us and let’s dig in.

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Entrepreneurs are natural innovators – even before they earn the title of “entrepreneur”. An entrepreneur is defined by their innate curiosity, desire to push boundaries, and willingness to explore bold ideas: the same traits that led to some of the world’s top companies and inventions. 

If you’re looking to start your own business, you likely already have an idea in mind. But, how do you test your idea to take it from a dream to a reality? With hard work, strategic planning, and the proper knowledge, you’ll be ready to open your doors in no time.

Why is Ideation the Hardest Step in Entrepreneurship?

Out of all the phases of business development, the transition from ideation to action is one of the most challenging and work-intensive. This stage of the process is where you lay the groundwork for your business to grow. Many budding entrepreneurs don’t know where to start simply because they usually haven’t ventured out on their own before or even experienced the entrepreneurial process up close. 

Veteran entrepreneurs have the leg up in the ideation phase because they’ve been through the process before and likely have continued to develop early ideations throughout their careers. However, for newbies, the ideation phase often coincides with new entrepreneurs getting their feet wet and sorting out the basics of business ownership and what that entails. 

That lack of familiarity with the business incubation and startup process also means that many entrepreneurs, especially first-timers, tend to underestimate the importance of testing their ideas before jumping into action. According to some statistics, a high percentage of startups fail – up to 90% of the time. Unfortunately, many businesses fail early in their lifecycles because they lack planning and proper testing.

Figuring out how to test your idea thoroughly and realistically is a crucial indicator of your business’s success in the real world, so early on, investing in the ideation and testing process is a must. 

There are a few main reasons why you need to put your idea to the test before hitting the pavement:

#1: Avoiding the “Echo Chamber” Trap

In the early stages of ideation, it can be easy to get carried away. Once you stumble upon an idea that feels like a winner, it can be hard to take a step back and think objectively – especially when loved ones are showing you support. We call that the “echo chamber” or “mom test” trap. 

While it’s okay to be excited about your ideas and seek support from friends and family, you don’t want to put the blinders on and rule out other ideas prematurely or fail to self-critique. Naturally, the people that support you and love you most will think your ideas are genius. Still, you don’t want to fall into the echo chamber trap without careful objectivity and examination – especially this early in the process.

If you don’t examine your ideas objectively, you could overlook critical flaws in your idea, miss out on opportunities for improvement, or even eventually regret your choices down the line.

#2: To Collect Data Through Collaboration and Lived Experience

One of the main goals of testing your idea is to collect data, and while it may sound intimidating, data is all around us. Data is the fuel that pushes your ideas into motion and allows you to make essential fixes along the way. You’re collecting data when you share your ideas with others and receive feedback. Now is the time to dive into your experiences as a consumer and get curious about how the experiences of others will impact your idea in the market. 

Entrepreneurship, at its core, is all about being able to take yourself back to a state of child-like curiosity. When we’re children, we test and play and share our ideas without restraint. But, as adults, we start to feel weary of sharing ideas and being open to failure because we’ve been shaped by previous negative experiences leading to feelings of rejection, judgment, and shame. 

Push past the fear of criticism and rejection and embrace data collection from the eyes of a child; play around, be open to mistakes, and remember there is no right or wrong answer. Every outcome gives you more data to work with.

Testing your idea creates the blueprint that tells you where to go next – but data gives you the pencil to design with.

#3: To Ensure Your Target Market is Well-Aligned

Many early entrepreneurs wrongly assume that they are the ideal target audience for their idea: after all, many entrepreneurs’ ideas come from their own lived experiences. However, you must explore the market without bias to determine where your best consumer alignment lies. Unless you are 100% positive that you are your target market, you shouldn’t be trying to test something inside your head. 

To give your idea a fair shot in the business world, you need to take your idea out into the open among numerous consumer markets to determine the ideal target audience and how you can best appeal to them. When you make assumptions about what customers want, you’re jumping ahead and spending money with confidence in a way that you don’t have permission to do just yet – fight the temptation to jump ahead and refocus on where you’re at now and not where you would like to be. Once you’re empowered to take action and put your idea to the test, you need to know how to test your idea. So, where do you start when it comes to testing?

Workshop your Idea 

When first starting out, especially if this is your first venture into entrepreneurship, you want to master the art of the elevator pitch so that when you get to the pitching room floor, it’s second nature – that means the more practice, the better. While many hear the word “workshop” and feel intimidated, workshopping your idea is a gradual process you can approach at your own speed. 

Start with the basics and meet yourself where you’re at, pitch to yourself in the mirror while you get ready, or record yourself on video until it feels comfortable and natural. Surround yourself with inspiration, so you know what a confident and concise pitch looks and feels like. There’s nothing wrong with testing your idea on friends and family first. This is a great place to start, as long as you beware of the “mom test” trap we discussed above.

Early workshopping helps you gauge how audiences will react to your idea and how easily you can explain it in layman’s terms – remember the KISS acronym: keep it super simple. From there, you can workshop your idea on acquaintances, connections you might know in relevant industries, and even on polls and networking forums. Keep detailed notes of your interactions and experiences while workshopping, as they will come in handy later as you grow. 

Once you’ve mastered the casual pitch, you might want to take things to the next level and explore what other resources for entrepreneurs exist. At this stage of the process, it’s essential to lean on the community and resources around you. Remember: entrepreneurship is a journey of self-growth as professional growth – the more you learn along the way, the more you’ll have to pour into your business. 
There’s a wealth of resources for ideating entrepreneurs available for free or low cost, from local business incubators to online courses and networking opportunities to connect with other ideators and successful entrepreneurs that have been in your shoes before. Surrounding yourself with ideators and entrepreneurs can help build your confidence and help you learn from the lessons of others.

Get To Know Your Ideal Customer Through Market Research

If everything goes to plan, the workshopping phase should prepare you to either step back to the drawing board and reconsider your target market or help you feel supported to move ahead. Now, it’s time to start setting some early action in motion to gather data from the market response. Aim to paint a clear image in your mind of how your ideal customer looks and thinks. Consider your ideal customer a close friend. You need to know their pain points, likes, dislikes, and motivations. 

A great way to get inside the minds of your ideal customers is to pick their brains. Market validation services can be a great tool to help you paint a more detailed picture of your ideal customer through direct surveys. While it requires an investment in time and assets, you’ll gather invaluable insights into your predicted customer base – from their likes and dislikes, what products and services they would be interested in, and how they spend money. 

At this phase of the journey, you can also begin developing mockups of branding ideas, early website pages, and advertisements with calls to action to further determine your idea’s strength and where your personal skillset lies. For example, if you have a background in website development, you might feel comfortable tackling that in-house but require outside experts for marketing and advertising needs.

The market research phase is a great time to reflect on the insights you’ve gathered thus far. What lessons did you learn from workshopping? Have you noticed any trends concerning your business idea? How can you set yourself up for success early? What will your needs look like as your business idea develops further into fruition?

Keep Your Friends Close… And Your Competition Closer

Before you hit the ground running, you need to know the arena you’re walking into and what you’ll be up against when your “game time” comes around. In many ways, the entrepreneurial journey is similar to the process that professional athletes follow; while you might not be playing the Super Bowl your first season out, you need to learn about the industry “giants” around you and how they play the game. That’s where industry landscape analysis comes in. 

An industry landscape analysis prepares you to put your research and testing to work as you transition from the development phase into launching your business in the real world. Keep three goals in mind as you compile your analysis: understand the pain points that companies in the field face, competitor wins and losses, and what could be coming next in your industry. 

This report can be as straightforward or formal as you like, but it must include a few key components: insights into the current and future state of the industry and your main competitors. Industry analysis can also be a great place for collaboration – leaning on your networking contacts, especially in-industry, can provide you with a fresh perspective. This is especially important if your product or service exists inside a volatile industry with trends that frequently change, such as technology or finance. 

Remember: a little competition is healthy, and almost no entrepreneur enters a market unopposed. This isn’t about seeing competition as a threat – it’s about identifying ways to make your idea even stronger by learning about what your competitors do well (and the weak points they have that your idea can ideally solve). 

Want to test your idea but need help getting started? Clear Function is here to help. Our team of startup development experts has experience working with real entrepreneurs every day, at every phase of the lifecycle – so you can rest easy knowing your business is in good hands. Our goal is to help you minimize risk and get to market quickly. With marketing specialists, business coaches, and top-notch developers, we’re here to increase your chances of success.

You spend time and money every day developing your digital product into something you are proud of. As much as you try to perfect your products, glitches and bugs will always happen. With a tight schedule, how can you ensure that you find the problems and address them quickly? Welcome to the support department. 

The support department is exactly what it sounds like. A spot for customers to voice complaints or issues they have with your product and a dedicated individual or team to assist. They are common practice for stores that consistently deal with account and shipping issues, but you may not realize that they are just as important for digital products because of the benefit they bring in getting valuable feedback.

Support is so important, that we recommend developing it during the early stages of your digital product build. But if your product is already built, that’s okay! You can meet with your developer to discuss integrating a support department into your product easily. Let’s go through the different support department options to find which works best for you and your product. 

  1. Email

Sending a quick support email to receive help is probably the easiest solution for the customer and creator. With email support, you can automatically send a response email to the customer to let them know that their concern is valid and will be addressed as soon as possible. This also requires minimal development work to place an email address button and text into your digital product. 

  1. Phone

Phone support is an easy and direct way for a customer to receive assistance. You can easily add a phone number or call button to your website, but it is important to train your staff and provide them with scripts to best serve your customers. For small businesses, make sure you set hours that you will answer phone calls and stick to them – you don’t want to be answering calls on your off hours! 

  1. Chat

Chat support allows customers to type a quick question or concern and either a team member or automated bot can reply to them. This frees up employees’ time as they can let the bot handle quick fixes while they can assist complicated questions. The chat option requires more development work as it is more complicated, but there are plenty of pre-built chat tools on the market that you can add to your website with very little effort. 

  1. Social Media

Opening up your social media accounts to allow customers to request support is a user-friendly option. If you decide to do this, check your messages often as it can be easy to overlook them. 

  1. Combination

The best option, and what most companies tend to lean towards, is a combination of some of all of the above-listed options. Letting customers choose which option best fits helps them build trust with your business. While it is more work to integrate every support option into your application, it can pay off in the long run.

Who Offers Support?

With multiple options available for customers to ask for support, you need a clear plan about who will answer the support tickets and exactly what that support is. Clear Function recommends the three-step plan for providing support: founder, founder + one, and finally support team. 

Founder

As the creator of your application, you know the most about its mission and the technical aspects behind it. If anyone is poised to offer the best support, it’s you! Until you feel like you cannot adequately answer the support tickets, they should all be directed toward you. 

Founder + One

When you find that the tickets are piling up and you can’t answer them all on your own, you should consider bringing in another person. When looking for a new employee make sure that they share the same values as your company and that you efficiently communicate your mission and vision. Train them on how to complete tickets and be a resource to them if they have questions.

Support Team

The bigger your customer base, the more support tickets and the more employees you will need to handle them. You could decide to outsource your support team, but they need to be clear on your values and expectations for customer service. Provide scripts, check in regularly, and ask customers to complete surveys.

They should be trained to turn every negative statement into a positive one. For example, if a customer says that they are upset with the user experience of the app, the support team could ask for ways the app could be improved and then offer a discount for any future purchases. That way you are building a relationship with the customer and receiving valuable feedback for new versions. 

Important things to consider:

  • What kind of support will I offer?
  • Internal support team vs. external support team
  • How do you want your business represented on support tickets?
  • Negative feedback can always be turned into positive
  • The more you know about your customers, the better you can help them
  • Don’t start a department until you have a good working system in place for supporting people.

Interested in learning more about how Clear Function can help you start a support department for your digital product? Contact us today to talk with our experts! 

Poor planning is one of the number one reasons why apps fail on the market. When you first release your app it is at its most basic form – an MVP. This stands for Minimum Viable Product and is the first version you plan for including budget, features, and user experience.

Think about your favorite app. How many different versions has it had? Probably even more than you realize! While some are essential for the app to work, others simply add new design elements or a way to make the user experience better.

While many people think that version 1.0 is the most important, you must think about the future to have a successful product. But how can you think about versions 1.1 and 1.2 when you don’t even have a finished product? Let’s take a look at just how to do that with the Clear Function guide to app version releases! 

Step 1: Create a Budget that Points Toward the Future

Creating a budget for your development can be a daunting task. You need to have enough capital to create the first version and the subsequent versions that add new features and fix any bugs that may arise. You could consider raising money through crowdfunding, finding investors, or even taking out a loan. Learn more about funding your app development in one of our recent articles, here.

Don’t expect to earn back the money you spent on 1.0 immediately. Creating a profit on your app takes time and patience. If you decide to wait and release version 1.1 with your profits, your app could be on the market with bugs that cause it to not work and decrease subscription rates.

Step 2: Map Out Your Timeline

Are you on a strict timeline or do you feel comfortable allowing the development to take longer? This is something you will need to consider as you plan for future versions. Local developers can provide relevant face-to-face support, but it can take longer if it is just one developer team. An offshore team might save you time but offer less communication and direction. Time could also affect the budget so it’s important to discuss the pros and cons with your developers.

Step 3: List Out All Your Desired Features

When you first come to a developer or an agency to discuss your app idea, they will ask you what features you want to include. Based on your budget and time until release, you will prioritize features for version 1.0 and then create a plan for feature releases in the next versions. Here are a few tips to prioritize features:

  • Discuss with your developer what features are most needed for the app to work effectively.
  • Survey your potential user base and ask them what features they want in the first version and future versions.
  • Have your developer budget out how much each feature will cost and make your decisions based on your budget.

While some features may be budget-friendly, others could be essential to the design of the app and cost more. It can be helpful to talk with an ideation coach to fully understand the product you are making and your user group. 

Plan Out Versions 1 Through 2

Now that you know what to consider for future version releases, you can plan them out. Start with 1.0 (the initial MVP) and work out from there. Once you have the budget, the timeline, and the features you want, the rest of the planning process will come much easier. 

As you work through releasing a few versions, the process will naturally fall into a cadence. You could do releases every Monday or once a month on the 10th. This consistency will allow your customers to know when to expect improvements and new features. 

A helpful tool for planning releases is the Impact vs. Effort Matrix. You can easily map out the features for each version and see the impact they will have on your audience and the effort it will take to develop them. Download the free matrix below!

Ready To Get Started?

Do you have a new and innovative app idea? Get started planning out your versions and developing them today with the Clear Function team. Schedule a free discovery session to learn more about our process and to let us learn more about your idea! 

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