ISVs Are The New ISOs

Independent sales organizations (ISOs) have been providing payment processors with sales reach into additional markets since the 1990s.

Why? Because the ISOs have geographic, vertical, or cultural specialization that helps bring in new clients the processor wouldn’t have been able to with its direct sales force. “Retail” ISOs are purely outsourced sales channels, while “wholesale” ISOs also provide some customer service components on behalf of the processors. But at the end of the day, all ISOs are resellers of payment processing.

Also during this same time period, independent software vendors (ISVs) grew rapidly, providing businesses with purpose-built, specialized software to support their business. Drycleaners, hair salons, and restaurants all needed software to track sales, inventory and customers.

Initially, business software was separate from the payment terminal, but over time, companies built payment modules into their software so the payment could be tied directly to an order, and the software could provide reporting and reconciliation that had previously been very manual. The ISV would integrate payments functionality into their software from a processor – or an ISO – who had often already been providing their credit card terminal hardware and processing.

In this manner, ISOs and ISVs coexisted, with the ISOs serving niche markets with processing services either through standalone terminals or as part of the ISVs’ integrated software and ecommerce platforms.

A shift was occurring, however.

Software grew more and more integral to how merchants ran their business, and it became more important than the particular payments service or expertise of the ISO. Merchants shopped for software first, and would use whatever payments service was part of the software.

ISVs learned they could monetize the payments part of their software (provided by an ISO or processor) by establishing a referral relationship with one primary payments provider and collecting a revenue share. This further defined the importance of the ISV over the ISO, since now the software companies were deciding which payment provider their customers would use.

The control the ISVs had over payments (and the revenue they received from it) had one more step to take.

Despite earning a revenue share from the payment volume, ISVs still relied on a third-party company to provide the payments service to their customers. The ISV’s customers had to submit a third-party payments application (possibly using a fax machine), spend days or weeks in back-and-forth underwriting discussions, and overall receive disjointed service and support – despite being “integrated” with the software.

The final evolutionary step making ISVs the new ISOs has occurred as ISVs have taken control of payments in their software by becoming payment facilitators.

Now the ISV can offer a branded, customized merchant application (integrated to their CRM for a seamless sales experience), set the processing rates and fees, and provide instant approval and onboarding. And, they manage the entire experience through a common set of tools and interfaces. The merchant receives a tailored payment program that is part of the purpose-built software they value so much.

Where does this leave the ISO in this new world of embedded payments? Somewhere back in the 1990s with the fax machines.