By Brooke Ybarra
Editor's Note: This article was originally published in the April 2016 edition of First Annapolis Consulting's Navigator. Copyright © 2016 by First Annapolis; reprinted with permission.
Integrated point of sale (iPOS) solutions and particularly, acquirers' use of software developers (ISVs) and their dealers (VARs) as a distribution strategy, have received much buzz in the last several years. We estimate more than 10,000 software developers of one sort or another, over 60 percent of which generate less than $500k in annual revenue, make up the highly fragmented market. Acquirers have, rightly we think, recognized the developer market as a distribution opportunity and increased focus on the channel.
Large processors have acquired and organized business units around networks of software developers and dealers. Notably, Vantiv's acquisition of Mercury Payment Systems and Element Payment Services formed Vantiv Integrated Payments, and Global Payments' formation of OpenEdge from its acquisition of PayPros and Accelerated Payment Technologies lead the market. Others have pursued a similar strategy.
Despite the focus on using software developers for distribution, we estimate the ISV and VAR channel is generating less than 10 percent of new merchant accounts each year and makes up less than 5 percent of total volume. (See Figure 1.) By contrast, we estimate the bank and ISO channels each sign three to four times as many merchants annually. In short, traditional forms of distribution, including ISOs, banks, and field sales, still make up the vast majority of new merchant count and total volume.
ISV distribution is growing, however. Vantiv reports 20 percent plus growth from its high-growth channels, which include Integrated Payments, and Global reported growth in the mid-to-high teens for OpenEdge. There is a secular shift in the merchant community toward iPOS solutions (not all of which are signed through ISV channels).
The EMV migration has somewhat slowed the shift because merchants have opted for new terminals, which have proven faster and simpler to certify and deploy than their integrated counterparts, but we expect iPOS growth to resume. With it, ISV and VAR distribution will make up a bigger share of new merchant flow as acquirers currently pursuing the strategy expand its use amid their broader sales tactics and more acquirers follow the leaders into this channel. 
For more information, please contact Brooke Ybarra, Senior Manager, brooke.ybarra@firstannapolis.com, specializing in Merchant Acquiring.
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