How the Pandemic Has Underscored the Crucial Role of Software in Processor Growth Plans

With the Covid-19 pandemic forcing merchants to beef up or add an e-commerce channel to service customers disinclined to enter a physical store, processors that have partnered with or acquired independent software vendors (ISVs) specializing in the online sales channel are well-positioned for growth, according to The Strawhecker Group.

Since the pandemic hit the United States earlier this year, many merchants have adjusted their business model to add, or sell exclusively through, online channels, even if they never have before, the Omaha, Neb.-based consultancy says in its annual report on the U.S. acquiring market, published in March. For example, hair salons have begun selling hair care products online and restaurants launched online ordering for delivery or curbside pickup. 

To serve merchants with growing e-commerce needs, payment providers need to demonstrate a strong knowledge of e-commerce, strategies to support e-commerce growth, and payment applications geared to the online sales channel, the report says.

“In the current environment with the Covid-19 pandemic, merchants need to pivot to the online sales channels, and quickly,” Jared Drieling, senior director of consulting and market intelligence for The Strawhecker Group, told Digital Transactions News this week. “ISVs create the applications that allow them to open an e-commerce store quickly, so it makes them an attractive target for processors to either partner with or acquire.”

Two payments providers/ISVs well-positioned to succeed in the current environment are Amsterdam-based Adyen NV and San Francisco-based Stripe Inc. Both are fast-growing technology companies, the report says. Adyen and Stripe rank 12th and 13th, respectively, among the top payment processors in the U.S. Both have been in existence for less than 15 years.

“As e-commerce continues to take a larger share of the consumer spending pie, expect companies such as Adyen and or Stripe to continue on their strong trajectory,” Drieling says.

Part of Adyen’s and Stripe’s strength is their focus on servicing high-growth e-commerce merchants or online marketplaces with a broad geographical presence. “Broadening of their geographical footprint to support large multi-national online merchants will continue to pay dividends over the coming years for both companies,” says Drieling.

In addition, both companies are known for their flexible, easy-to-use technology, which is critical when it comes to supporting online, multinational merchants, whose needs vary from country to country.

While ISVs are increasingly involved in the payments value chain, one area where they tend to fall down is helping merchants develop a payment strategy. “Although ISVs are ahead of the curve when it comes to technology such as artificial intelligence and machine learning, they are less likely to provide the consulting or customer service merchants need to develop payment strategies, especially when it comes to surviving the Covid-19 pandemic,” Drieling says.

Nevertheless, Drieling adds, processors that don’t invest in developing cutting-edge payment applications in-house or through partnership or acquisition risk falling behind in a rapidly evolving market. “The 800-pound gorillas are still out there, but how well-positioned will they be to meet merchants’ needs in five to 10 years? That’s why software is becoming more critical for merchants and payments players.”