Integrated payment solutions have emerged as a potentially lucrative revenue stream for many independent software vendors (ISVs). Where in the past ISVs and payment providers served distinct roles in the point of sale (POS) market, those lines are blurring as POS systems evolve to incorporate new types of hardware, software, and features. As payment options become more complex, merchants are looking to their ISVs to provide more guidance and advanced solution features. At the same time, payment companies are rapidly consolidating, making it more difficult for ISVs to find payment partners that can offer the mix of customer support, flexibility, and profitability they are looking for.
Traditionally, ISVs have offered payment solutions via traditional revenue-sharing partnerships with processors, but new sources of income and investment have developed. Large processors and ISOs are consolidating and in some cases acquiring or investing in ISVs or buying their customer portfolios.
That has left many smaller and mid-tier ISVs in a difficult position. Because of industry consolidation, their needs aren’t being met by larger payment providers (many of which are beginning to actively compete with those same ISVs). These ISVs also aren’t active acquisition targets because of their sizes or the nature of their portfolios. This makes it difficult to adequately serve their own customer base and also makes it challenging to maximize profits when it comes to payments.
A number of payment partnership structures are available for ISVs – everything from referral-based partnerships to becoming or payment facilitator (PayFac). Many ISVs have, in fact, rushed to become ISOs or PayFacs in hopes of snagging a larger share of the revenue stream or having their portfolios acquired by larger entities.