ISV and ISO

What do these acronyms refer to, and why should you care?

It’s a great time to be a software vendor. With more and more businesses utilizing software solutions that accept payments, software providers have the opportunity to not only earn a larger share of new business accounts, but to add a new revenue source in the process. How? By integrating applications—like payment processing capability—into their software, thereby becoming an integrated software vendor (ISV).  

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ISV and ISO

Jan 22, 2018

ISV and ISO

What do these acronyms refer to, and why should you care?

It’s a great time to be a software vendor. With more and more businesses utilizing software solutions that accept payments, software providers have the opportunity to not only earn a larger share of new business accounts, but to add a new revenue source in the process. How? By integrating applications—like payment processing capability—into their software, thereby becoming an integrated software vendor (ISV).

The big questions an ISV needs to answer, however, are how to integrate payment processing into the software, and more specifically, who to partner with in this endeavor.

What is an ISV?

According to the Strawhecker Group, an ISV is defined as “a company that provides software solutions that aid in managing different functions of a business operation. Generally, ISVs specialize their solution to a specific merchant vertical, often times at a granular level.”

Examples of integrated applications are inventory management and employee scheduling tools, but ISVs are also prime candidates to add an integrated payment solution. In that scenario, “vendors offer payments companies a complementary solution and open up a new merchant sales channel. The ISV Channel is often characterized by high merchant retention rates, due to the integral role a multi-functional software system provides,” notes the Strawhecker Group on the above-linked page.

One of the big decisions a software provider needs to make is: how much control do I want to have over my user’s experience? It’s a decision that has implications beyond simple user experience. For example, if you choose a web services or full API integration that allows you complete control over the user payment experience, you may need to store, process and transmit cardholder data within your software, which can have potentially costly PCI Compliance implications. On other hand, if you’re willing to forego control, PCI Compliance requirements may be minimized.

Similarly, you may want a payment processing partner who can offer flexibility in terms of onboarding merchants, one that uses a payment facilitator (expedited) model as well as traditional account onboarding. Other functionality that is attractive these days is EMV®-capability, as well as other security features like encryption and tokenization, the latter of which involves exchanging cardholder account information for a randomly-generated digital identifier (or token).

New Revenue Opportunities via Revenue Sharing

One of the primary benefits of an integrated payment solution is the opportunity to create a recurring revenue stream through one of three common partner models.  According to First Annapolis Consulting’s 2016 ISV Study, almost two-thirds of ISVs report that receiving compensation is among their top three criteria when choosing a payment provider. On the other hand, the recent report by the aforementioned Strawhecker Group suggests that ISVs consider customer service the most important factor when selecting a payment partner.

Partner Models

Regardless of your individual priorities, the three standard partner models are the referral model, the agent program, and the ISO program. 

  1. The referral model
    In this scenario, the software vendor simply refers new merchant leads to their payment partner, who is responsible for all sales and support functions. As a result, this model generally provides the smallest revenue share amongst the three models.
  2. The agent program
    With this model, the software vendor is generally responsible for the sales and onboarding process, while the payment processor’s role is limited to training, activation, and customer support.
  3. The ISO program
    If the software provider functions as an Independent Sales Organization (ISO)—hence the reference to ISO in the title of this article—the organization keeps all sales and support functions in-house. With this model, the software solution has the most control over the user experience and can maximize revenue generation, though the associated costs and share of responsibility are higher as compared to the other two models.

Regardless of the partner model you utilize, it’s helpful to work with a payment partner that provides a dedicated team of sales specialists who are: experts in your vertical, willing to learn your software, and possess an understanding of your clients’ needs. Ideally, your partner ought to work hand-in-hand with you to create customized, co-branded marketing campaigns that are in line with your client engagement philosophy.

Are you Processor Agnostic?

One last issue to carefully consider is whether to be processor agnostic. Many software vendors choose to certify their software to numerous different payment platforms, which is sometimes referred to as being “processor agnostic.” The advantage of this approach is that it gives your customers numerous options, and if their current provider is among the offerings they don’t need to make a change.

The disadvantages of this approach are many, though, as you have to manage all the different integrations, which increases your costs and can expand your responsibilities concerning PCI Compliance. Also, the payment processors you’re working with probably won’t feel a strong sense of loyalty to you, or be willing to offer customized service and support—strong arguments for forming an exclusive partnership with an experienced partner that can mold its services to fit your unique needs.

Learn about integration solutions

If you have any questions about our solutions for integration, don’t hesitate to call us at 1.800.654.9256 or contact us online. TSYS’ integration specialists have successfully completed hundreds of integrations and can work with you to customize a program that works for you and your clients.

 EMV is a registered trademark or trademark of EMVCo LLC in the United States and other countries. ©2017 Total System Services, Inc. TSYS® is a federally registered service mark of Total System Services, Inc.

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