Integrated Software Vendor - Structure of Market and Key Trends within the Payments Industry.
The use of Integrated Software Vendors (ISVs) is increasing as many companies, especially small businesses, turn to them to help meet their payment processing needs. Those needs include implementing a solution that works specifically with their business’ unique needs to protect customer data while delivering to the client a smooth, user-friendly experience. To that end, a period of both market consolidation and verticalization is currently occuring within the ISV space in the context of payment processing. ISVs are both acquiring and being acquired by payment processors and are beginning to specialize in servicing niche market segments. The biggest trends concerning ISVs are occuring both in the payment space and in the larger payment industry as a whole. These trends include vertical integration between ISVs and payment processors, specialization by industry, alternate payment channels, payments embedded in the Internet of Things (IoT), and more. Detailed information about the nature and structure of the ISV market as well as key trends existing within the payments industry are included below.
Nature and structure of the market
The use of Integrated Software Vendors (ISVs) is increasing as many companies, especially small businesses, turn to them to help meet their payment processing needs. Those needs include implementing a solution that works specifically with their business’ unique needs to protect customer data while delivering to the client a smooth, user-friendly experience. The ISV market as incorporated within the payments industry is rapidly becoming more consolidated and vertical as ISVs both acquire and are acquired by payment processors. The companies involved in these acquisitions know that they companies they acquire or are acquired by must have a strong contractual relationship with their clients in order for the acquisition to be successful.
Payments processing, once overlooked as a service offering and revenue stream by ISVs has risen in prominence as a means of both ascertaining an ISVs existing value proposition to its end users, and as a long term strategic play for enterprise value creation through the high quality, recurring revenue it generates. The increased recognition by ISVs of the value found in payments processing has exacted changes in the relationship that exists between ISVs and payment processors, particularly when it comes to forming strategic partnerships and the resulting vertical integration of the market.
The vertical integration that is occuring as a result of the increased number of acquisitions involving ISVs and payment providers is not occuring as a one-size fits all approach. Merchant Services Providers (MSPs) and Independent Sales Organizations (ISOs) are being impacted by the increased consolidation and vertical integration occurring within the ISV market. ISOs, in particular, will need to develop niche business models specialized for the companies they do business with if they wish to stay competitive.
According to a 2016 study by First Analysis Consulting Group, “Roughly 51% of ISVs have enabled payments to be made directly as a feature within their product-set.” That adoption rate is on the rise, causing many ISVs to “reevaluate the role payments could play in their platform.”
According to Double Diamond Group, the role of “ISVs in key vertical markets will drive most of the growth in GVP.” The key markets Double Diamond Group is referring to include digital commerce, nonprofits, government, utilities, healthcare software firms and more. The market potential for ISVs who also act as payment facilitators is promising with the market potential equaling $10.5K for B2B SaaS Providers and $1.6T GPV.
The integration of services resulting from the consolidating is occurring for a variety of reasons. Vertical integration leads to a process that is simpler but also more effective and more secure. It allows for layers of protection and encryption that aren’t necessarily as available to a stand-alone service or process.
Trends in the ISV market can be found both in the payment space and in the payment industry as a whole. New technology is fueling trends including open networks and integrated payments, alternative pricing plans, and entirely new business plans that take into account the changes happening within the market.
Other trends are the result of business looking for a vendor that does more than simply accept a credit card. These trends include embedding payments into the Internet of Things (IoT), increased co-opetition resulting in partnership that were once unthinkable (like PayPal and Visa), SMB challenges, and more consolidations.
Still other trends are impacting not just ISVs in the payments space but also the payments industry as a whole. These trends include improving the customer’s experience, payment monetization, and dealing with the regulatory environment and the risks associated with handling financial information. Additional trends include banks aiding in collaboration by becoming platform players, infrastructure rationalization, open APIs that enable stakeholder collaboration, instant payments processing and many more.
ISV use by companies is increasing as demand for payment processing that does more that just accept a credit card grows, The market is in a state of flux caused by an rise in ISVs both acquiring and being acquired by payment processors. The trends in ISVs market are found in both the payment space and in the payments industry as a whole. These trends include alternative pricing plans, embedding payments into the Internet of Things (IoT), infrastructure rationalization, instant payments processing, and more.