An ISV is short for independent software vendor. Historically, the term has been used to define companies that produce intellectual property. ISVs aren’t just service companies; they have a software products and intellectual property, making them part of a larger software ecosystem.
The term originated when IBM had several software platforms in the financial services and banking industries. Many other smaller software players wanted to be a part of IBM’s ecosystem, which led to the term ‘Independent Software Vendor’ or ISVs.
Today, every sizable software company has a large partner ecosystem. If you look at it from the customer’s perspective, they don’t just need software; they also need innovation, which comes from the ISVs.
Understanding Payment Facilitation
The idea behind payment facilitation is to reduce friction when onboarding new merchants. Most of the time, payment facilitation reduces the amount of time-consuming paperwork that needs to be completed during the onboarding process. It further helps speed up the process and meet underwriting requirements. Many B2B software vendors are now improving their services and providing integrated payments that help them earn additional revenue.
Conventionally, merchants have had to rely on either banks or bank-sponsored firms that act as merchant acquirers with the expertise in payment acceptance processing services. These entities are responsible for receiving card transactions and then moving them forward to a specific network to continue processing. This way, merchant acquirers act as mediators that facilitate the transaction of value.
In the payment facilitator interaction, an ISV forms a payment acceptance account with an acquirer and uses it to receive payments on behalf of clients. These clients are also called Submerchants, who then use the payment facilitator’s account to easily carry out transactions to card networks with the help of the acquirer.
Becoming a Payment Facilitator
After becoming payment facilitators, software vendors can expand the range of services that they can provide. Integrated software vendors usually have various kinds of software at their disposal. These services include billing systems, accounting, and other market applications that offer different solutions.
These ISVs now have the opportunity to leverage emerging trends and revenue streams and integrate payment transaction and receiving mechanisms in the software they provide. Overall, they also smoothen out the boarding process and offer sub-merchants a unified solution in the form of support and management.
Now, independent software vendors are now becoming certified software vendors to streamline the customer experience, create more revenue, and ensure a seamless retail process.
When an ISV becomes a payment facilitator, they take up the additional role of a merchant acquirer and a software provider. This allows them the opportunity to add an additional income stream. Then, the acquirer can offer the ISV different benefits, depending on the type of revenue they are willing to offer.
In other words, the customer will receive beneficial payment services in software packages ISVs provide. And master merchant accounts will be on the table as well, available for acquirers to utilize. Software vendors can use merchant accounts for their client submerchants and process transactions for them. This allows them to reduce their workload.
Motivation to Become Payment Facilitators
Payment procedures are undergoing a massive change, and businesses now have a number of different ways to accept payments. Monetizing payments has never been easier for software companies as they are using software interfaces to receive and forward transactions. Today, they also have the power to take up the role of banks and integrate payment processing.
For the users linked with ISVs, there are plenty of benefits. Integrating the payment processing system into software means that merchants no longer have to rely on a third-party provider in order to source their payments. Furthermore, incorporating the payment processing role means that they can now generate more customer data.
Data in this day and age is critical as it helps provide insights that contribute to better decision-making for businesses. This, in turn, leads to an improved business model, enhanced customer experience, better risk management, and more. All major card companies such as MasterCard, Visa, Discover, and American Express are adopting the facilitator model, thereby embracing software vendors entering the payment processing revenue stream.
Traditionally, ISVs were only associated with ISOs through referral basis relationships. In this model, the ISO is responsible for ensuring that the merchant gets approval for enabling card payments. This allows them to divide some proceeds with the ISV.
Enabling the PayFac system helps speed up the onboarding process, making it a much better option for eCommerce platforms that are new to the world of retail and need to kickstart things right away. In addition, integrated payments provide stickiness (stored and tokenized cardholder data) as well as additional revenue as a core value.
An ISV acting as a payment facilitator can provide its consumers with an enhanced and more convenient experience. They also gain more credibility among clients by providing a single entry point and payment system to speed up all processes. With this model, ISVs can manage user experience, integrate reports back into their systems, and offer a one-stop-shop for partners.