Rising Competition Is Pressuring ISVs, But Also Threatens Existing ISO Relationships

In recent years, independent sales organizations and payment processors have generated plenty of lucrative business by working with software developers and marketers—businesses usually known as independent software vendors, or ISVs. But now a report indicates the software market is getting increasingly crowded, a development ISVs fear is pressuring prices. It’s also raising developers’ demands on their payments partners.

Indeed, some 41% of ISVs said they expect a “saturated” market will push pricing down over the coming year, according to the report “Lost in Transaction,” released this week by the multinational acquirer Paysafe Group. Thirty-nine percent cited “an influx of competition” as a top concern. Those fears outrank all other concerns except challenges related to integrating a full range of payment options at checkout, which registered with 39% of the 200 ISVs surveyed in September in the United States, United Kingdom, and Canada.

“An overly competitive market might explain much about how software vendors perceive their most significant challenges in the next 12 months,” says the report.

More and more, ISOs and other acquirers work with ISVs to integrate payment methods in business software used by a wide range of firms, practices, and other establishments. Yet many ISVs now cite increasing competition as a potential barrier to growth. This is true even as ISVs try to expand internationally.  Forty percent of them said “local competition will present a significant barrier to entry in new target markets,” says the report. This is outranked as a concern only by the cost involved in “scaling” the business, cited by 45%.

Rising competition may feed some of the expectations ISVs express in the report. Their top product priority is risk and fraud services, cited as “crucial” or “very important” by 83% of the respondents. But “range of payment options” ranks second, at 80%, and with 35% citing it as “crucial” compared with 32% for risk and fraud solutions. No other priority ranked as high as a crucial consideration, indicating demand from clients but also a need to meet or overcome competitive offerings.

“[I]t is not surprising that ISVs are actively looking to increase the number of payment methods available in their integrated checkouts,” the report says. Indeed, the survey indicates that while on average ISVs now offer four payment methods, they expect to grow that number to nine as soon as the end of 2020.

Not surprisingly, credit cards at 94% are offered by the most ISVs, but 43% now integrate digital wallets, with another 46% indicating they will offer the product within a year.

But ISVs are also looking for features that their processing partners apparently aren’t offering. This mismatch is most apparent in services such as “automated merchant onboarding via an online app or API,” according to the report, where 91% of ISVs indicate the feature is “appealing” but only 28% now offer it.

“[T]here is a substantial delta between features that ISVs find appealing and the percentage that are currently accessing these features from their payments provider. One potential reason for this is the lack of specialised guidance and support from their integrated payments partner,” notes the report.

In fact, competitive pressures are now such that, while ISVs may have been satisfied with their payments providers in the past, they are now looking farther afield, leading to an apparent contradiction in the data. While 85% of ISVs say they are “happy with my current integrated payments partner,” some 64% are “currently looking” to change that partner.

The explanation, says the report, lies in ISVs’ new—and higher—expectations. “Where payments partners have delivered a competent service that ISVs have been satisfied by in the past, the industry is now demanding an improved partnership,” the authors say. “For integrated payments to continue increasing its impact on a software’s earnings potential and scale, a new approach to integrated payments is required.”