Page 32 - GS221101

Education

Why ISV/VARs sell processing

Two factors drive ISVs and VARs to also want to sell pro-
cessing: profit and competition.
Legal ease:
The profit incentive is straightforward, as payment process-
ing gives them a chance to participate in an entirely new
revenue stream that is separate from their original business
objectives. The ISV/VAR looks at their merchant customers
the way others do: as sources of revenue with an associated
cost of acquisition.

ISO VAR/ISV relationships: Adding payments to an existing portfolio has a relatively
low cost of acquisition for both the ISV/VAR and the pro-
cessor behind it. In fact, in the contemporary landscape it
Legal opportunities probably costs more—from the supply side and also the
merchant's purchasing side—to procure payments in a way
and challenges that is not integrated with the merchant's core operating
platform.

By Adam Atlas Competition as a motivator is more complex. ISVs/VARs
need to boast to merchants that their platform is no less
Attorney at Law effective than that of the competition, but they also want
to create ever-more reasons for merchants not to leave. As
hese days, an ISO without VARs/ISVs isn't an ISOs know very well, merchant processing agreements
ISO. That's an exaggeration, but today's savvy come with terms, early termination fees, integration costs
ISOs are negotiating agent relationships with and other elements that—when added to an existing ISV/
T value added resellers (VARs) or independent VAR platform—result in less attrition.
software vendors (ISVs). In this article, I'll highlight some
of the legal issues around these relationships, which are Payments helps the ISV/VAR attack both of these aspects of
becoming central to the ISO business. competition at the same time. All things being equal, pay-
Jargon breakdown ments integrated with an existing platform is superior to
the opposite. At the same time, a merchant using an ISV/
So what is a VAR or ISV anyway? There is no official indus- VAR platform together with payments is going to have a
try definition of these terms, but in plain language, VARs harder time leaving. Stated in a more optimistic may, the
and ISVs already sell something to merchants who might merchant will see more reason to stay for the added value.
have merchant accounts with ISOs. Why ISOs sell through ISVs/VARs

As an example, consider a dentist practice management For ISOs that spent years selling accounts one-at-a-time, the
software-as-a-service (SaaS) provider that has a portfolio ability to board hundreds or thousands of merchants in a
of a few hundred dental clinics. Through its SaaS, this ISV single integration is a treat they cannot refuse.
helps dentists maintain client records, set appointments,
communicate with patients and create invoices. This ISV What is more, ISVs/VARs sometimes underestimate the val-
may see value in adding payments to its own offerings or ue they bring for the ISO by adding payments because the
at least in integrating to the payment services of a given addition of payments adds value even if they do not earn
processor or ISO. any residuals from merchant processing fees.

Once that integration is technically possible, the ISV can Finally, digital distribution of services is the norm, which
easily solicit its dentists to offer them payments with the points to a future where perhaps the only way to sell to
unparalleled convenience of the payment services working merchants is through an ISV/VAR.
hand-in-glove (pun intended) with the SaaS dentist plat-
form. From the point of view of the ISO, this ISV adds value A clash of business models
to the resale of merchant services, and they are therefore a
value-added reseller (VAR). The ISO business is premised on a merchant using a single
acquirer for at least a few years and hopefully for much lon-
It's best not to get hung up on jargon, because it often chang- ger. Standard commercial terms in ISO and merchant pro-
es, and different people will understand jargon to have dif- cessing agreements are premised on a degree of stability in
ferent meanings. It's perhaps best to understand the roles of a given merchant portfolio.
the various parties and use acronyms that they like to use
for themselves.
32