From shopping to banking to business and beyond, the modern digital experience is all about convenience. The lower friction a solution is, the more attractive it is to end users. For independent software vendors (ISVs) serving businesses, reducing friction and taking the end-user experience to the next level increasingly means offering their users the ability to access payment processing natively from their software.

Traditionally, an ISV would require its merchant clients to get payment processing services on their own from a third party. The software might provide a payment gateway integration that merchant account details can be plugged into, but users were on their own when it came to getting the merchant account itself. Today, that dynamic is shifting. More and more ISVs are recognizing that forcing users to engage a third party for merchant services not only adds friction to the user experience, but it also leaves a ton of money on the table in terms of the commissions that can be collected on transaction fees. 

One 2022 McKinsey survey found that roughly half of small businesses now get their payment processing from an independent software vendor. A further 15% were in the process of transitioning to ISV payments at the time of the survey. Those numbers make it abundantly clear that today’s merchants are open to getting payment processing from a software vendor rather than a traditional channel as long as it makes their lives easier. That represents an enormous opportunity for many types of ISVs to move into merchant acquiring and opens up significant new revenue channels by keeping transaction fee commissions in-house. 


ISOs and PayFacs – Two Ways ISVs Can Branch Into Payment Processing

Independent software vendors looking to branch into payment processing have two main options: become a payment facilitator (PayFac) or go through an independent sales organization (ISO). Each has unique benefits and drawbacks, but both enable ISVs to streamline the experience for merchants using their software while opening up a valuable new revenue channel. 

The PayFac Model for ISVs

The PayFac model basically sees an ISV become a quasi-payment processor. PayFacs partner with an acquiring bank to set up their own master merchant account and then allow their clients – known as sub-merchants – to process transactions through that master account. It’s a model that’s been gaining steam in recent years, especially among ISVs. 

The most well-known example of a payment facilitator is PayPal, and PayPal is demonstrative of what makes the PayFac model so attractive to ISVs – its speed. Signing up for a PayPal account can take as little as a few minutes because the company has the ultimate say over which merchants it accepts or declines. When an ISV becomes a payment facilitator, it gains that same freedom to choose which users to extend payment services to. That, in turn, enables a fast and frictionless signup process which, in some cases, can even be embedded directly into the ISV’s software. 

The other big advantage of the PayFac model is that it gives ISVs more control over pricing and maximizes their share of the fees generated by each transaction, maximizing revenue – albeit at the cost of increased risk.  

The ISO Model for ISVs

The downside of the PayFac model is that it’s risky and resource-intensive. Because the ISV is processing user transactions through its own master merchant account, it’s on the hook for fraud and bad behavior. That, in turn, requires careful risk management and hyper-efficient underwriting processes. To avoid those risks and costs, many ISVs opt to form a partnership with an independent sales organization or, in some cases, to become one. 

Choosing the ISO route sends an ISV’s user merchant applications through a third party. The upside is risk is transferred away from the ISV, as the processing partner is responsible for underwriting merchants and, in turn, for their risk. One downside is that the ISV has to share commissions on transaction fees with the ISO partner, shrinking their slice of the pie. But the big downside is that the ISV loses control over merchant approval, which can potentially slow down the signup process and make it less attractive to merchants. 

Choosing between the PayFac and ISO models really is a question of balancing risk management against control and user experience. Both models are great choices, and having the option means each ISV can select the path that best fits its operations and appetite for risk. 


Driving New Revenue Growth with an ISV Payments CRM 

There are certain challenges that come along with offering payment processing, regardless of which model an ISV chooses to pursue. While merchants are unquestionably ready to trust their payment processing to their existing software partners, payments is both a highly complex and highly competitive space, so ISVs need to prepare themselves for success. First and foremost, ISVs looking to capture as many of their users as possible and maximize payments revenue need to outcompete traditional payment channels and other ISVs. A payments-specific CRM is an ideal tool for the job, enabling software companies with zero payments experience to operate like a seasoned provider without the need to staff way up.   

Automated Merchant Onboarding

The first big way an ISV payments CRM helps ISVs integrate payment processing while minimizing growing pains is by automating user onboarding. In payments, onboarding is the process of taking in a merchant’s application, evaluating it, and getting the merchant set up with processing. Traditionally, it’s a slow, error-prone process that involves manually transferring dozens of fields of data and could easily take an inexperienced ISV an hour or more per user. Automated onboarding through a payments CRM reduces the entire processing to minutes, or in some cases even seconds, making it a must for ISVs looking to provide an efficient, elevated user signup experience. 

An automated boarding system like IRIS CRM (an NMI company) TurboApp fully digitizes onboarding. It uses eSigned digital applications to streamline the merchant signup process and feeds the data from the digital application directly into a boarding portal connected to seven of the industry’s top payment processors. For PayFacs, sub-merchant data can be sent to the acquiring partner in minutes or even instantaneously in low-risk cases. ISVs partnering with an ISO that uses IRIS CRM can also onboard merchants with the same speed, and ISV commissions can be set through the system to ensure prompt and laser-accurate payouts each month. 

Automated Residuals Management

In the payments industry, the commissions earned on transaction fees are known as residuals. With a brand new revenue stream opened up, ISV excitement is high when the residuals start rolling in. But it will quickly become apparent that tracking and managing those residuals is anything but exciting. Instead, it’s a slow, cumbersome, and frustrating process that takes dozens of hours each month – unless it’s automated with a payments CRM.  

A good ISV payments CRM makes tracking and managing residual data easy by automating the most time-intensive aspects of the process. For ISVs working as or with an ISO, the CRM automatically combines the data from potentially half a dozen or more different processing partners, eliminating the need to manually wrangle reports. The CRM also provides in-depth analytics that make it fast and easy to generate useful business intelligence on revenue generation and profitability from payment operations. Residual splits – the divvying up of transaction fees – can even be calculated automatically, saving even more time and ensuring the ISV’s commissions are accurate down to the penny regardless of which model they’re generated through.  

Built-In Direct Support

Certain payments CRMs include built-in helpdesks that make it easy for ISVs to track, manage, and resolve support issues that specifically relate to merchant payments. This is especially important in cases where an ISV is partnering with an outside ISO for merchant payments. Since the expert support needed to deal with payment issues exists on the ISO side, the ISV needs the ability to separate payments issues from their in-house support system to ensure proper passthrough. With the right platform, private labeling makes it possible for ISVs to provide merchants with a fully self-branded portal that drives the entire support process directly through the CRM, making it easier to manage issues and resolve them quickly – a must when it comes to a merchant’s critical ability to accept payments. 

Better Merchant Data

The merchant reporting tools included in a good payments CRM provide a wealth of information to ISVs about how their users process payments, including amounts, transaction volumes, payment types, and more. That advanced picture of payments activity enables ISVs to track top-performing merchants and categories, manage risk better, and identify opportunities to upsell additional value-added services. While ISVs operating without a CRM may be able to extract some merchant data from their existing systems, it won’t be anywhere near as comprehensive or useful as the data generated by a CRM designed specifically to capture and report on merchant activity.  


The Time to Take Action on Payments is Now

With small and medium-sized businesses increasingly interested in streamlining their suppliers and accessing payment processing from software vendors, ISVs need to act fast to maximize market share. Many businesses work with multiple ISVs, and being late to the party on payments could mean the opportunity to capture users has been lost to one of their other platforms. Luckily, it has never been easier for ISVs to integrate payment processing than it is today. 

NMI offers a complete, one-stop solution for ISVs looking to start offering merchant services and payment processing. With NMI full commerce enablement, the signup process is fast, easy, and convenient for both ISVs and their eventual payment clients.

In addition to an industry-leading payment gateway and advanced underwriting tools, NMI offers ISVs access to IRIS CRM – the payments industry’s top customer resource management system. IRIS CRM provides ISVs with automated onboarding, in-depth automated residual reporting and instantaneous calculations, a built-in customer helpdesk, advanced merchant metrics, and the full suite of sales and productivity tools expected from a leading CRM. 

To find out more about how NMI and IRIS CRM can help your ISV start accepting payments and open up new revenue channels, schedule a free guided demonstration today.