By Terry H. Zeigler, President/CEO, Datacap Systems, Inc.
Over the past few years, certain bank card acquirers/processors have purchased independent software vendors (ISV) in an effort to vertically integrate the delivery of integrated payments. This is effectively the same market verticalization that processors had traditionally executed for stand-beside terminals. That said, there is a significant difference between delivering a stand-beside terminal for handling payments versus a full blown POS system for operating an entire enterprise. More important, the target merchant markets are substantially different for those respective products.
From Datacap’s extensive experience in agnostically collaborating with processors and ISVs to deliver integrated payments to the market, it has been clear that many of these ISV acquisitions were the result of enormous frustration on behalf of the processors in gaining the cooperation of the retail systems reseller channel to drive sought after mid-size merchant accounts to that processor. Let’s face it, dealers have to sell to merchants with at least modest sales volumes so that the account can be a profitable product sale to the dealer. By default, that is a prime target market for processors, but admittedly harder to get to for processors due to the complex systems needs of those merchants. Hence the interest in dealer relationships that have historically driven the value of the early success stories for processors focused in the integrated payments space. Those processors that understood the channel and engaged were successful with integrated payments. Those that did not engage were simply not successful with integrated payments. Will buying up the channel help those processors understand it better?
Because the processors that engaged in this acquisition process are largely publicly traded companies, or companies looking to an Initial Public Offering, they simply did not want to incur the time and cost of building out a reseller channel capable of doing needs assessment, programming, training and support for increasingly complex systems. So if they couldn’t build it cost-effectively and timely, they simply decided to buy it.