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Why should Payment Service Providers be thinking about adding an ISV?

 
 

Banking | Steven Purton |
13 December 2022

There’s yet another acronym to digest, ISV (Independent Software Vendor). But what is an ISV? Why is it so important in today’s ever changing payments landscape and why should Payment Service Providers (PSPs) be thinking about adding one?

Competition in the payments market is becoming ever greater as merchants look to reduce transaction costs, improve upon the customer experience, and offer value-added financial services. As digitisation of the payments market accelerates, financial institutions such as merchant acquirers will need to assess how they offer any digital solution and how they go to market. ISVs provide one potential solution to these problems. Many of the fastest growing ISV platforms already come with a catalogue of PSP options that can be plugged in, but this is changing with the growing number of ISVs who are grabbing more and more market share by integrating and embedding payment processing.

Value added turnkey platform

An ISV is a term used for a software publisher, an individual or an organisation that develops, markets, and sells software that is created and produced for a specific sector or mass market. Rather than a merchant developing its own platform, ISVs typically offer a turnkey platform that is hosted, managed, and maintained saving a merchant time and providing value added services.

For a merchant, an ISV platform solves multiple problems, such as one contract, enhancement of customer reach, improved marketing tools, and gaining more traction today, cloud hosting. ISVs are continuously evolving as they look to enhance their capabilities to stand out from the competition by adding new features and functionality. A key component that many ISVs offer is an ‘out of the box’ integration to key platforms and hardware. This might include a retail platform for a CRM provider, an accounting solution for billing providers, or payments hardware like Point of Sale (POS) for PSPs.

Seamless embedding of payment services

Embedded payment services were traditionally provided by payment vendors but rather than a business needing to buy the software and then have a second contract with a payment vendor, ISVs seamlessly embed payment into the whole process. For the ISV, this model enables them to share the revenue stream with the payment vendor. Merchants like it because it is simple and PSPs often see far more rapid merchant growth or access to a subset of business that they would not typically address, for example SMEs.

ISVs target specific verticals, some examples include retail, accounting, hospitality, health and many more, offering tailored solutions to fit their needs. As ISVs integrate or embed payment processing into their existing software, they bypass the need to direct customers to an external third party. This provides a much-improved customer journey and reduces the number of steps needed to make a payment.

Merchants are reviewing their existing technology and infrastructure, looking to use ISVs to assist them with introducing new ways of growing their business and take advantage of the latest technologies. With the latest digital enhancements and more ISVs using cloud-based solutions, they can provide more robust solutions at a lower cost. This is driving merchants to move away from their current and often outdated technology and bringing them in line with market trends, better social media reach and new and innovative ways to pay.

The slick and accessible ISV

With ISVs providing a more digital option to industry verticals and being the likely ‘go-to’ for new merchants, merchant acquirers will be concerned. ISVs are attractive as they don’t only provide a payment solution but additional value-added services. There are hundreds of ISVs in the market today, with many more on the horizon to suit specific needs. For retail there is Epos Now, Lightspeed and the restaurant platform Toast. There is Gusto or Sage for accounting, Yoyo and KuulEats for hospitality and more that cover healthcare, dentistry, legal and car parking. ISVs offer less complicated setup and integration, vastly improved onboarding times and industry specific, digital solutions that include payments. Add competitive transaction costs that include the latest payment solutions to the equation, and you can see why merchants are moving away from traditional payment solutions and opting for a slick and robust ISV solution. Furthermore, this much simplified approach makes payments accessible to the millions of micro businesses that previously found the process too costly or complex to consider.

How PSPs can stay in the game

Some PSPs are losing market share to ISVs, however, there are options to retain business, win back or even win new business if the correct strategy is implemented. Merchant acquirers need to first ensure that whatever digital solution they offer adequately meets sector needs. For example, not offering POS in hospitality is likely to be a problem. Next, ensure that digital services are simple and accessible for merchants. This needs to include everything from the tools offered to customers for reporting and managing payments to the payment pages and POS devices to collect payments. Lastly, and most critical, there needs to be a slick and seamless onboarding experience. Merchants today expect payments to be entirely online, simple and with decision making in minutes.

Integration challenges

So, these are the key components for success, but is the solution easy to integrate? ISVs are used to best-in-class integration solutions, many won’t entertain working with you if you don’t offer this. They expect simple and easy to understand documentation and frictionless access. If you have this, then you need to ensure your payment service has plug-ins to support the ISVs you wish to add.

However, the model is evolving. ISVs will expect to be able to fully embed the service into theirs so they can control everything from onboarding through to reporting, seamlessly linked to their platform. Also, be ready for the changing landscape, some ISVs will insist that integration is with them and not the other way around.

As the number of ISVs continues to grow within the market, and with SMEs being attracted to them, PSPs must evolve to compete and even retain business. To do so PSPs need to implement the right strategy now and offer value added services to merchants.

Steven Purton

Principal Industry Consultant

Steven has over 22 years of experience within the payments industry, enjoying a number of different roles across major payment providers. Prior to joining Endava, Steven worked for a multinational universal bank, where he worked with several tier 1 merchants to design and implement payment solutions. Steven applies his wealth of experience to assist a vast array of merchants and financial institutions to accelerate their digital aspirations and keep up with the ever-evolving technology and payment trends. Outside of payments, Steven has a passion for travelling and exploring new places, going skiing and following football and Formula One racing.

 

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