Alphabet Soup: Why ISVs Should Also Be ISOs

With the business of selling merchant accounts growing more technology-based every day, how are processors going to recruit new independent sales organizations that have the necessary expertise? For at least some processors, the answer lies in inducing independent software vendors, known as ISVs, to become ISOs as well.

“Two very distinct industries are morphing into one,” said Greg Cohen, president of iPayment Inc., a New York City-based ISO and processor that has initiated a new program to seek out sales agents among ISVs. Cohen spoke last month in Orlando, Fla., at RetailNOW, a trade show for ISVs and value-added resellers focused on point-of-sale technology.

Historically, ISVs have built POS systems for retailers and then turned to ISOs to plug in the payment function. Meanwhile, processors have struggled to find, and keep, highly qualified sales agents who can master and then sell new technology like EMV and mobile payments. And some ISOs that have tried becoming ISVs have found it hard going.

Cohen argues ISVs stand to earn more by bringing the distribution function of payments in-house, and processors can find knowledgeable sales agents by helping developers to become ISOs.

ISVs have a built-in advantage in making the transition to the ISO world, Cohen adds. “The ownership of the merchant relationship is with the developer, but the economic value is with the processor,” he told the audience at RetailNOW. “It’s time to flip it around.”

An established example of this kind of “flipping” is Intuit Inc., a long-time developer of software tools for small businesses that has also become an important acquirer, Cohen said.

Processors have often benefited from referrals from ISVs, and in a number of cases have acquired developers to leverage their POS expertise and contacts with merchants. Processor Heartland Payment Systems Inc., for example, in February acquired two such companies, pcAmerica and Dinerware Inc., which specialize in POS systems for restaurants.

But iPayment says both it and developers can benefit by helping ISVs to become ISOs. To that end, the company in July launched a program called TiSO, which assists developers in registering as ISOs and offers training as well as technology support. The key, Cohen says, is to streamline the process as much as possible. “You have to make it really simple,” he tells Digital Transactions.

So far, about 10 ISVs have responded to iPayments’ overtures to become ISOs, he adds.

ISVs may gradually move upstream to become processors themselves, but Cohen recommends they stick with merchant sales to begin with and partner with a processor. “The majority of the revenue is made in distribution,” he told the audience. “We coach people to start with sales.”

Programs like TiSO have emerged, in large part, because of the rapid development of POS payments technology in recent years. This has caused the payments function to become a central part of the POS system for major merchants and for most smaller ones. Technologies like EMV and near-field communication, which enables Apple Pay and other mobile-payments services, are now front-and-center topics in POS development.

“Payments is the app, POS is the solution,” Cohen said.

—John Stewart