In a March 2023 LinkedIn post, Faysal Oudmine, the co-founder of Fintecture, offered some insights into Stripe and Adyen – two huge players in the payments space – and how each company was seeing such different results in profitability at large scales. Oudmine noted that Stripe and Adyen both processed similar amounts in 2022 – $770 billion and €767 billion, respectively – yet Stripe lost money while Adyen enjoyed roughly 60% margins. There were a number of factors Oudmine and his commenters posited might be contributing to Stripe’s poor profitability. One was the sheer size and headcount of each organization, with Adyen operating on a staff roughly one-third the size of Stripe’s. Another was the larger chunk of fees Adyen keeps as an acquirer compared with Stripe’s facilitator model. While no definitive answer emerged, Oudmine’s post does bring up an excellent question that applies to smaller ISOs and ISVs just as much as giant processors: how does scale impact profitability in payment processing, and how can companies protect and ensure the latter while chasing the former?

Scaling Challenges in the Payment Processing Industry

Margin Compression

One of the most significant challenges facing the payment processing industry as a whole is margin compression. As the industry rapidly expands and competition increases, companies of all sizes face pressure to lower fees, offer more value-added services, and go further to attract and retain merchants. The result is shrinking margins across the entire industry, making it harder for businesses to maintain profitability as they scale. Margin compression is a serious problem that all growing ISOs need to think about, and it’s especially dangerous for smaller, newer companies. 

Technological Disruption

The rapid forward march of technology has unquestionably created plenty of opportunity in the payments space, but it has also introduced some significant challenges. As new technologies emerge that make payments faster and more convenient for consumers, acquirers and service providers are forced into rapid adoption in order to stay as relevant as possible. Constant adoption of new services and technologies often means constant new investment – a potentially significant strain on the resources of growing ISOs that can make scaling more difficult. 

Fraud and Security Risks

As we move further from a cash-based economy and electronic transactions become the norm, payments become a bigger and bigger target for fraud and cyberattacks. The rise in cybercrime during the global Covid-19 pandemic was a perfect example. As people were forced into their homes and onto the internet, criminals wasted no time in ramping up attacks on everything from payments to passwords to ad-hoc remote work connections and beyond. The expanding payments space brings with it expanded fraud and security risks, which requires ongoing security investments from service providers at all levels. The larger any payments company becomes, the larger the target on its back grows, making security a major cost driver in rapid scaling. 


Specific Challenges Faced by ISOs

Merchant Acquisition and Retention

ISOs are on the front lines of merchant acquisition, and they also face the highest threat from merchant flight. If a merchant leaves one ISO and moves to another, they may very well end up with the exact same payment processor, but the first ISO has lost the residuals for good. As a result, strong merchant retention is arguably more important for ISOs than any other provider in the payments space. As competition grows along with the market, retaining customers must become a top priority. ISOs need to offer competitive pricing and value-added services that differentiate them from competitors – a potentially difficult task, especially for smaller ISOs with limited resources.

Revenue Optimization

ISOs must optimize their revenue streams by negotiating favorable contracts with payment processors and identifying the most profitable merchant segments. Bad contracts can be the difference between success and failure, especially with the economy changing as quickly as it has throughout 2022 and 2023. Optimizing revenue also requires ISOs to look for new ways to pull more from each merchant account. Finding latent revenue sources like gateway resales is one way to do that. Another is to use improved risk management and onboarding strategies to ensure merchant pricing is always as accurate as possible. 

Efficient Operations

As ISOs grow and take on more and more MIDs, it can be easy to get caught up in organizational bloat that can send costs through the roof – not unlike the problem Stripe faces with its 8,000+ employees. ISOs looking to grow quickly and profitably must ensure their operations remain efficient and cost-effective. Streamlining sales processes, automating manual tasks, and optimizing resource allocation are all keys to success, and failure in any of these areas can lead to decreased profitability as the business scales.


How a Payments CRM Can Help ISOs Overcome These Challenges

A payments CRM is a comprehensive customer resource management platform designed specifically to help ISOs scale both effectively and profitably. By addressing the unique business and operational challenges faced by ISOs, a payments CRM enables its users to do more with less, grow revenue without runaway staffing costs and, ultimately, achieve sustainable growth.

Streamlined Onboarding Processes

One of the most valuable tools a payments CRM can offer ISOs is automated onboarding – systems designed to cut onboarding time down significantly, in some cases from 30 minutes or more to five minutes or less. In low-risk cases, some automated onboarding tools even enable ISOs to board new merchants straight from a web-based application instantaneously, with a single click. 

The ability to streamline and automate onboarding can’t really be overvalued. Merchant onboarding is a mission-critical task, yet it’s also extremely time-consuming and expensive. ISOs that fail to streamline and automate it may quickly find that onboarding represents one of their biggest costs as they grow, dampening their ability to generate strong profits. 

Revenue Optimization and Reporting

Payments CRMs provide powerful analytics and reporting tools that help ISOs optimize their revenue streams. CRMs allow businesses to monitor and analyze their performance, enabling them to identify profitable merchant segments, negotiate better contracts with payment processors, and develop targeted marketing strategies. These insights contribute to improved decision-making and help drive revenue growth in a way that just isn’t possible without advanced reporting. 

Better still, certain payments CRMs offer residuals reporting tools that fully automate the entire residuals management process, streamlining another of the most time-consuming and expensive tasks and saving growing ISOs dozens or even hundreds of hours per month. 

IRIS CRM (an NMI company) even offers residual optimization tools that compare a given month’s reports to previous months, automatically flagging any changes in costs and identifying opportunities to plug leaks and improve pricing efficiency. 

Integration with Third-Party Tools

One of the key ways payments CRMs enable scaling is through seamless integration with a wide range of third-party tools and software. For instance, IRIS CRM  integrates NMI gateway resales and Agreement Express automated underwriting to become the core of a truly complete merchant services solution called NMI full commerce enablement. A good payments CRM must also integrate with all the industry’s top processors, a variety of common business tools like Gmail and Outlook, and, ideally, even Zapier – a third-party integration system that enables a CRM to connect to hundreds of different applications. A wide set of available integrations ensures scaling ISOs can bolt on the services and systems they need as they grow in the most efficient manner possible. 

Scalable Infrastructure

Modern CRMs are cloud-based, making them ideally equipped to scale at whatever speed an ISO needs it without ever running into the problem of having to invest in expensive computing capacity to keep systems running. IRIS CRM also offers growing ISOs something few other systems can – unlimited users. IRIS CRM operates on a “pay-as-you-grow” model that doesn’t bill on an expensive and inefficient per-user basis like Salesforce or other major competitors. As a result, companies can scale up without worrying about costs increasing before new revenue growth is successfully achieved and new MIDs are onboarded. 


IRIS CRM and USB Payments: 

USB Payment Processing was a long-time Salesforce customer, but was running into problems as it grew. Issues like inadequate reporting and zero onboarding capability were limiting Salesforce’s ability to support USB as it scaled. Salesforce’s per-user pricing model also made cost an ongoing consideration. 

“The cost of Salesforce was too expensive to have all of our employees on board, so it was mainly used administratively for support management”, said Jennifer Shore, USB Payment Processing’s client relations manager.

The company was looking for a turnkey solution that could offer eSignature, direct-to-processor boarding integration, integrated merchant reporting, and residual income calculation for agents. USB Payment Processing decided to move to IRIS CRM after hearing positive reviews and taking specific note of its unlimited-user model.

With IRIS CRM, USB Payment Processing now benefits from all the powerful sales and productivity tools of a major CRM like salesforce, while also gaining the ISO-specific systems they needed to scale rapidly and cost-effectively. Productivity is up, and the unlimited-user model ensures that CRM cost is no longer a deterrent for providing access to all members of the growing team and extended sales network.

“Productivity has increased for our reps and our support staff. We use [IRIS CRM] daily and will continue to customize the features to fit our needs,” Jennifer added. “IRIS CRM has exceeded our expectations thus far and we are excited to see what the future holds and how we can continue to customize the system to fit our office.”

Download the full USB Payments case study now. 


A Clear Challenge Ahead for ISOs

The industry trends driving costs and threatening profitability, like margin compression and constant technical disruption, are unlikely to reverse any time soon. Independent sales organizations looking to stay ahead of the curve and outcompete the field need to find ways to squeeze more profit from each merchant account, carefully manage costs – especially during times of rapid growth – and offer an elevated merchant experience that stands out above the crowd. 

To find out more about how IRIS CRM and NMI’s other full commerce enablement offerings can help your ISO scale efficiently and improve profitability in the process, schedule a free guided demonstration today.