ISO and ISV are two extremely common terms in the payments industry, but, despite a couple of common letters, the two acronyms describe companies that do very different work – independent sales organizations and independent software vendors. But while ISOs and ISVs have little in common on the surface, the rise of online digital payments and the desire for more frictionless, vertically integrated payments solutions are starting to blur the lines between the two in some industries. So, what exactly is an ISO, what is an ISV, and how are modern electronic payments opening up new opportunities for both?

 

What ISOs Do

Independent sales organizations are a key component of the overall payments ecosystem. The core of their business is selling merchants payment services on behalf of payment processors. The ISO acts as an intermediary between the merchant and the payment processor, taking care of merchant recruitment, sales, and ongoing merchant support, while the processor handles transactions behind the scenes. Without ISOs, a relatively small handful of global and regional payment processors would each be forced to interact with thousands of merchants directly, which would unquestionably lead to poorer service and higher fees. Having ISOs as the middle level distributes the load and ensures payment services can be delivered to merchants in an efficient, affordable manner. 

ISO Services

The primary service ISOs provide is payment processing. The average ISO works with multiple payment processing partners – perhaps as many as half a dozen or more – allowing them to place merchants with the right services for their needs and ensuring the highest possible chance of acceptance with at least one processor. ISOs can also offer additional value-added services to merchants, including payment gateway resales, advanced reporting tools, and more. However, when comparing ISOs with ISVs, the key differentiator with any add-on services like gateway sales is that the ISO is generally reselling a third party’s software, rather than developing or selling their own, which is less common. 

The ISO Revenue Model

ISO revenue is almost entirely generated from residuals – tiny fractions of each sale an ISO’s merchants make. Whenever a credit or debit card sale is processed, the merchant pays a small fee, generally ranging from one to four percent, depending on the processor and the type of transaction. Most of that fee is passed on to the card company, with a smaller chunk going to the payment processor, and an even smaller amount to the ISO. However, even a few cents per transaction adds up very quickly, considering an ISO may serve hundreds of merchants doing potentially hundreds or even thousands of transactions each per day.  

 

What ISVs Do

Independent software vendor is a category that covers an absolutely enormous number of businesses across almost all industries. Technically speaking, every software publisher is an ISV. Traditionally, they sold software that was shipped on discs or downloaded and installed on a customer’s computer or network. Today, most ISVs use cloud delivery to make accessing software more frictionless for customers, who now only need a connection to the internet and an active license to utilize a product. That opens up new opportunities for ISVs to expand deeper into the value chain, including integrated payments.  

ISV Services

On a high level, it’s simple to explain what ISVs do: they build and sell software. However, for the purposes of this discussion, it’s useful to separate ISVs by who they serve. Some ISVs serve retail consumers. For example, video game companies like EA and Epic Games provide apps and software to the retail consumer market for personal use. The ISVs that matter most from a payments perspective are ones that serve commercial markets, providing software to businesses who then use it to enable or sell their own products and services. For instance, a customer resource management company sells its customers CRM software that helps them build better relationships with their customers and make more sales. That CRM’s data storage is likely built on Amazon Web Services (AWS) – itself another type of ISV. From DIY website builders to ecommerce gateway software to creative tools like Adobe Photoshop and beyond, the vast majority of ISVs are B2B in nature, focusing on helping other businesses succeed. 

The ISV Revenue Model

Once upon a time, ISVs made money by selling software directly to customers, who would then own a copy outright that they could use as long as they wanted (or as long as the software stayed relevant and useful.) Today, ISVs generally opt to sell software using renewable licenses and cloud-based delivery – known as software-as-a-service (SaaS). Many ISVs bill on a monthly or annual per-user basis, while some provide unlimited users. In all cases, the SaaS model offers significant benefits to ISVs, who generate more revenue from recurring license sales than they would from sales of single, locally stored copies of their products. The SaaS model also benefits customers in some ways, specifically by enabling them to constantly upgrade their software as it evolves to ensure they have the most up-to-date tools available at all times. 

 

Where ISOs and ISVs Meet in the Payments Space

ISOs and ISVs have very different business models, but they do have one thing in common – a B2B focus. That common ground can make for natural partnerships between ISOs and ISVs. For instance, ecommerce payment gateways are a necessity for most companies selling online, and many ISOs partner with gateway ISVs to create a more frictionless onboarding experience for merchants while simultaneously opening up new revenue streams. While these types of reseller partnerships represent solid opportunities for all parties, there is another option that’s becoming increasingly popular with ISOs and ISVs looking for more vertical integration – the payment facilitator model. 

The Payment Facilitator Model

If partnerships between payment processing vendors and software vendors are a natural fit, then it stands to reason combining the two into a single entity would make a lot of sense too, and that’s where payment facilitators come in. Payment facilitators offer payment processing services to merchants just like ISOs do, but they do it under their own master merchant account and MID, treating their clients as sub-merchants. That allows ISVs to become payment processors and offer their clients processing services in a single integrated solution. For instance, a DIY website service like Wix can offer their ecommerce customers payment processing right through the Wix platform, rather than forcing them to engage with a separate merchant account provider and a separate gateway provider.

Likewise, ISOs looking to specialize in certain industries can switch to the payment facilitator model to gain total control over which merchants they accept. That freedom could then allow an ISO to expand its services beyond just processing into SaaS as well. 

 

While ISOs, ISVs, and payment facilitators all operate differently, one similarity they all share is a need to carve out a competitive advantage through areas like improved efficiency, better customer relationships, and smarter data use. IRIS CRM – the payments industry’s leading customer resource management system – is the ideal tool to help payments companies of all types compete better in an industry with no shortage of challenges or competition. 

To find out how IRIS CRM can help your ISO, ISV, or payment facilitator maximize revenues while reclaiming an enormous amount of wasted time, schedule a free guided demonstration today.