So far, 2019 has been a year of mergers, refashioning the roster of big (and getting bigger) payments solution providers, bringing myriad services under collectively fewer roofs, and perhaps leaving independent sales organizations (ISOs) and integrated software vendors (ISVs) wondering what’s next.
In an interview with PYMNTS, Chuck Danner, chief product officer, North America at RS2 Software, said that ISVs and ISOs have a role in the transformation of the payments landscape. That transformation is being driven by consumer and merchant experiences that are being enhanced through software.
“Despite the number of mergers in the payments world, the United States is still convoluted and lacking any significant innovations,” he said.
Even though the transformation is occurring, a majority of merchants in the United States still have a fragmented experience. For example, Danner said, if a merchant has an issue with their point-of-sale software, they often call their processor or ISO and are pointed to their software provider – but having been sold the software by a vendor, they may not even know the identity of the software provider. It can be a disjointed, time-consuming and frustrating experience for merchants.
“The goal should be for the ISO or ISV to turn the integrated payments experience into the embedded payments experience,” Danner noted. Embedded payments are seamless, he explained, making it easier for technology partners to integrate products and services into their platforms, while also offering global processing through a single integration.
“By embedding payments into their platform, they are also solving the merchant’s most important business need, which is making payments part of the overall solution,” he noted. “Providing all of the services needed for the merchant, with one source, provides the value and experience a merchant wants.”
The merchant, then, is not receiving multiple bills from multiple providers. The reduction of the number of players in the value chain can reduce costs for the solutions provider, allowing them to maintain margins while the merchant benefits from reduced costs.
Rewiring the Payments Ecosystem
The need to provide this type of experience will continue to drive technical ISOs and ISVs to search for a better way to completely service their merchants. For evidence of this trend, Danner points to the emergence of technical ISOs and payment facilitators in the past five years.
“By providing a single experience for the merchant, they are also creating new revenue opportunities for themselves by taking control of their payments solutions, services and support,” Danner said. “Combining a sales, marketing and support organization with business solutions provided by technology is very powerful to the market.”
How solution providers make money also needs to change, Danner said. Recurring monthly fees from SaaS technology is shrinking and revenue margins are compressing. Solution providers like ISOs and ISVs need to understand their margins and realize that the days of the merchants getting bills from multiple sources to run their businesses – including payments – is slowly being stripped away.
“I’ve interacted with a multitude of ISVs and traditional ISOs. At this point, they understand they need to change how their business model functions to thrive in the long term,” Danner said. “It’s just not easy to take the big steps needed to get there.”
The Long and Winding Road
Against that backdrop, the road to becoming a payments facilitator or a technical ISO is long and winding, Danner noted. The steps are numerous, from finding a processor to securing sponsorship of registration to satisfying possible reserve requirements to managing risk and hiring staff.
Some of the things to consider before evolving into a more tech solution-focused business model is finding the right sponsor bank, understanding the underwriting process, choosing which merchants to support, hiring additional staff and creating policies to manage things like risks and chargebacks.
These considerations can be worth more in the long run, Danner said. “The convergence of all of these companies should not lead to more reselling and referral partnerships,” he noted. “Solution providers being able to take ownership of their payments business is of utmost importance. If they find the right processing partner, they can expand into global markets and create new value-added services with multiple recurring revenue streams – all of this can be driven by payments.”
To move beyond the limited revenue upside of software licenses or service contracts, Danner said, ISOs and ISVs can find value in helping merchants provide what he called an experience that is “more delightful from a payments perspective than it would be otherwise.”
That delightful experience translates into a cost reduction for merchants right at the front end, where transactions can increase and customer relationships can prove sticky.
Time, after all, is money: For the consumer who finds ease in the checkout experience, shopping carts are less likely to be abandoned; for the merchant who has to spend less time on technology, more time can be spent on consumers.
As Danner told PYMNTS, “technology is absolutely the driver” of change, predicting that “the consumer and merchant experience is going to start taking over versus ‘here’s what you get,’” – a mindset that once may have sufficed for ISVs and ISOs, but no longer will.