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.


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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Get to know modern payment processing and the key components that affect how you do business. 

Payment processing hasn’t changed much since the world upgraded from bartering to currency. You want to sell something and your customers want to buy it – transaction complete. 

But what makes payment processing different today is the ability to do it well at scale, which includes technology, compliance, information security, accounting, tax, shipping, global reach, and other key elements that are integral to selling digitally. 

  • Good news for buyers: getting your next t-shirt online is much faster, greener, and more convenient. 
  • Good news for sellers: facilitating the transaction is trickier than with cash, but infinitely scalable with the right payment system in place. 

Payment Processing in the Internet Age

The marketplace has become increasingly comfortable with digital payments as security, regulations, and compliance have caught up with the internet wave. Today, you could even say we’re dependent on it. As a result, you can now choose between building a custom payments platform or a slew of ready-out-of-the-box payment processing solutions with varying capabilities.  

Both have their perks and downsides, but the most important consideration is functionality and your return on your investment. Whether you’re new to the subject or a seasoned veteran, it’s well worth the time to look before you leap on a solution to ensure it meets your business goals five or ten years from now. 

To lend a hand in this evaluation process, we’ll be diving into these topics the next few months:

Payment Processing Overview blog image

Payments in a Global Economy

Globalization enables businesses to operate across vast distances, nations, cultures, and currencies. According to the Federal Reserve Bank of San Francisco, online or remote purchases doubled in the last 6 years. Even physical money has become rare as people favor debit/credit cards and online payment platforms like Venmo, PayPal, or Zelle – or now even your smartphone. 

As a merchant, you may sell three products to someone in Maine today, seven to a buyer in Portugal tomorrow, and 15 in your Minneapolis brick-and-mortar store this week. Ultimately, this means that any tech-enabled organization needs tech-empowered payment solutions to make the purchasing experience as quick and convenient as your customers expect.

Let’s explore.

Key Features in Modern Payment Processing Systems

1. Basic Payment Flow

When a customer comes to your physical store or online store, they do their shopping and we hope they initiate payment. It tends to look a something like this:

Online Payment Process blog image

You are the merchant, they are the customer, and if they’re using a digital payment method, a payment gateway is a key part of the process.

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2. Payment Gateways: Gathering the Details

In short, payment gateways request certain information about a transaction and a customer to help confirm the validity of the card or direct payment. For example:

  • Brick-and-mortar stores generally use POS (Point-of-Sale) systems to collect payment information, such as credit and debit card numbers. In this case, the information you need about the customer is stored on the card, plus some sort of security like a PIN. 
  • Online merchants use payment gateways to collect the necessary customer information to make a payment. This info is key for facilitating transactions, but it’s just the start.

The latter group of merchants may include eCommerce, eBusinesses, online retailers, “bricks and clicks,” and more. Your customer makes their selection and upon checkout must fill out a form gathering payment details such as name, address, shipping information, coupon codes, card information, and more – depending on the scenario. 

Online payment process - payment gateways

Payment gateways like these typically work with a variety of card-issuing banks and card associations

  • Card-issuing bank: financial institution that offers branded payment cards from card associations directly to consumers. This may include credit cards, debit cards, key fobs, and prepaid cards.
  • Card association: a network of issuing banks and acquiring banks that process branded payment cards. For example: Discover, MasterCard, Visa, etc.

Besides ensuring that the payment details are securely transferred, the gateway can also check the customer’s credit card number and billing address to make sure that they match. Otherwise, the transaction may get flagged for potentially being fraudulent. If everything checks out, the information passes to a payment processor.

Note: Some services like PayPal and Stripe provide combined payment gateway and payment processing services. For simplicity, we’ll treat them as separate. Let’s dive into payment processors next. 

3. Payment Processor: Processing the Transaction

Payment gateways work with payment processors to make the transaction process fast and simple. A payment processor connects customers and their card-issuing bank with merchants and their acquiring bank to facilitate transactions.

Once the payment processor receives payment information, they contact your customer’s credit/debit card issuer, often their bank, or other relevant financial institution (say, PayPal). With credit and debit card transactions, like Visa or Mastercard, a card network facilitates communication and transfers.

The customer’s card issuer or other relevant financial institution (sometimes called the merchant acquiring bank) will then check to make sure that the customer has the necessary funds or credit to cover the transaction. If the financial institution notices any red flags, say suspicious purchases, they might pause the transaction and contact the cardholder/client. Otherwise, if the funds are available, they will approve the transaction.

Online payment process - payment processor blog image

From here, the payment processor will pass the info back to the payment gateway, which will update you (the merchant) and your customer.

4. How Funds Get Transferred from Customer to Merchants

The payment gateway will let you and your customer know whether the transaction was approved or declined. Assuming it was approved, your customer’s bank or other relevant financial institution will send money to your (the merchant’s) acquiring bank, which is the financial institution you use to accept payments.

The acquiring bank will deposit the money either into a merchant account specific to your business’ merchant ID (MID), or an aggregated merchant account. Your money stays in this account in case of chargebacks, returns, and/or other issues later on. After the appropriate time frame, it’ll be deposited into your designated business accounts.

Online payment process - payment settlement blog image

5. Fast and Secure Transactions

Don’t worry if this is still a bit confusing. Fact is, modern payment systems are intricate and have many stakeholders. But what you get is the ability to process payments worldwide within a matter of seconds. This way, customers can get the products and services they need, and businesses can reel in the revenues needed to thrive.

Yet when it comes to money, speed isn’t everything. In fact, payment systems sacrifice a fair amount of speed in exchange for security. This is a trade we gladly make to preserve relationships with customers who expect us to handle their sensitive information with respect and care. Fortunately, modern payment systems are typically quite safe.

6. How Are Transactions Secured?

Where there is money, there will be fraudsters trying to get away with the loot. The internet is massive and data constantly bounces around on different pieces of hardware via highways of digital infrastructure. Often, criminals will try to hijack the data while it’s being transmitted. 

Fortunately, there are many steps merchants, cardholders, banks, and other entities can take to reduce the risk of criminal activities.

We’ll dive into this topic in more detail soon if you need to know more about acronyms like TLS, SSL, SIEM, PCI DSS, GLBA, GDPR, FISMA, and more. But for now, it’s worth noting that when shopping for a payment system solution or team of developers to help modify what you have, security is an essential component.

The Wrap Up

We covered a lot here, but we just skimmed the surface. We love this topic because it’s our specialty and it’s important. 

Modern payment systems simplify purchases for customers in a world where money is invisible and everything rides on how you handle the data. You may find yourself in a situation where you’re choosing between a custom payment system or an out-of-the-box payment system, depending on your business needs and goals. 

It’s worth a hard look, because as business models change and relationships with customers evolve alongside the internet, out-of-the-box payment solutions often fall short of meeting many companies’ need for more flexible, custom payment platforms.

Whichever you choose, Clear Function is always here to lend a hand. Book a call with us at a time that works for you and we’d be happy to help.

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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. 


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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