Despite the Rising Role of ISVs, 49% of Them Still Don’t Integrate Payments Capability

Even though payments processors have been working with application developers for years, independent software vendors (ISVs) still represent a major opportunity for acquirers and processors. It remains the case that 49% of ISVs do not integrate payments functionality into their systems, according to new research from First Annapolis Consulting, an Annapolis, Md.-based payments-advisory firm.

This is in spite of the fact that these ISVs develop software for businesses that are likely to accept payment cards. Some three-quarters of the ISVs surveyed by First Annapolis, for example, work on systems for retailers, restaurants, and service providers.

“It did surprise me. I would have thought more would have integrated payments,” Emily Boese, a senior manager at First Annapolis who worked on the survey tells Digital Transactions News. “There’s still a lot of opportunity for acquirers and [independent sales organizations] that want to work with ISVs.”

She says the complexities of payments, particularly those introduced by EMV chip card processing and the Payment Card Industry data-security standard, are among the reasons nearly half of ISVs have shied away from payments integration. “Every ISV is different. There’s going to be a different reason for each,” she says.

ISVs have taken on a higher profile in the payments business in recent years as they increasingly integrate payments capability in the point-of-sale systems they create for merchant clients. But it turns out fully 47% of ISVs that do work with processors are not committed to any particular acquirer, according to First Annapolis, which canvassed almost 400 ISVs via an online survey in August. The firm calls this an “acquirer-agnostic” strategy. Indeed, 78% of ISVs using an independent gateway claim they are “agnostic” in this sense.

Not surprisingly, pricing is a high priority with ISVs. Nearly two-thirds of the firms indicated “low pricing” ranked among their top-three priorities when it comes time to choose an acquirer. Complicated pricing also puts off the developers. Some 63% said “transparent” pricing ranked among their top three factors. First Annapolis credits this tendency to ISVs’ familiarity with payment facilitators and their “transparent discount rates.” Payment facilitators such as Square Inc. aggregate processing services for multiple merchants and quote a single, simplified rate.

Other considerations that rank high with ISVs include customer service, reliability, and, not surprisingly, ease of integration.

Yet another key factor, according to the research, is compensation to the ISV from the acquirer. Some 65% of ISVs say this is, or will be, a top-three consideration in choosing an acquirer. “ The emphasis on compensation, historically and prospectively, indicates economic sharing from acquirers is of rising importance,” First Annapolis says in a summary of its survey results.

Currently, 51% of ISVs receive some form of compensation from the acquirer. Among these, 57% receive a revenue share, while others have received one-time referral fees, according to Boese. Still others receive non-cash forms of payment, including marketing assistance and integration help, she adds.