ETA Expert Insights: Investing in Software – Part 2

What sorts of circumstances lead companies to need new infrastructure/software?

By: Maurice Griefer, Chief Revenue Officer, Maverick BankCard; Member, ETA Payment Sales & Strategy Committee

The ETA Payment Sales & Strategy Committee reflected on the need for payments companies to invest in new software. Below, committee member Maurice Griefer analyze how user and consumer requirements and preferences – and the resulting competition with other companies seeking to tap these consumers – are driving this need. Click here to read part one of this series, from Payscout CEO Cleveland Brown, Chair of the Payments Sales and Strategy Committee. 

Over the last several years, technology has rapidly permeated the payments industry. Driven largely by consumers and merchants, the desire for smarter, safer and quicker payment systems has led to more innovation and disruptions than the industry has seen in many years. Consumer-focused merchants strive for an optimized transactional environment and the ability to offer their customers a more frictionless omni-channel experience. Disrupters, such as Stripe and Square, have changed the payments landscape forcing established payment providers to race to improve their offerings. New payments companies are popping up and evolving on what seems like a weekly basis leading us to this question: what sorts of circumstances lead companies to need new infrastructure or software?

At the core of every extraordinary business lies a creative solution to a real-world problem. Innovation stems from the combination of great minds and the frustration with inapt and inefficient systems that are not meeting the user’s needs. This is the primary driver behind companies building new infrastructure and software. A great example is a Point-of-Sale (POS) company called Springboard Retail. Before launching Springboard Retail, the founders owned a chain of specialty retail stores in Boston. As the company grew, the owners were in need of a new POS. They began to test out nearly every POS imaginable in hopes of finding the perfect fit for their business’ specific needs. With little luck in finding the right solution, they created what is known as Springboard Retail. This company’s innovative software solved their own unique challenges, while also helping businesses find a solution to similar POS frustrations. Real life trials and errors similar to Springboard’s experience are one reason why many companies build new systems altogether.

The Springboard example also brings up the idea of control, another key circumstance leading to new systems. Speaking from the ISO point of view, most of us are using other vendor’s software for virtually all our business operations (e.g. Salesforce as a CRM). Then, we resell the equipment and payment gateways that our merchant customers use (e.g. Poynt and Authorize.net). While it might be easy to white label the payment gateway calling it our “own”, at the end of the day, we are at the mercy of another company. What happens if your POS partner removes features your customers like, or they start offering an integrated payments solution in direct competition with you? The latter fear is very real. In today’s API economy, there is a lot of customization that can be done to an existing software or application to meet our direct needs, but it boils down to a company’s priorities. Innovative thinkers who desire the control over building and manipulating their own program, and perhaps, are backed by some capital, might thoughtfully consider taking on this challenge.

When you acknowledge the increasingly competitive nature of the payment’s ecosystem, building your own software becomes even more enticing. Residual income makes merchant acquiring very attractive to entrepreneurs and investors. As more sales agents and ISO’s enter the market, gradual price compression occurs. Merchants have more options and may switch providers just to save a few bucks or get a free terminal. As merchants are swimming in their options, portfolio revenues decrease, and the rate of attrition increases. The high rate of competition puts an enormous amount of pressure on payment companies to retain their merchants. How do these companies gain the competitive edge needed to retain and entice new businesses? Offering the sole product of payment processing is no longer a sustainable business model. Merchants expect more from us in that they want to work with fewer vendors. In turn, payment companies are looking to find new innovative products to satisfy and attract as many merchants as they can. If competition in one’s area is at a maximum, investing in your own software may prove to be most beneficial to your company.

What I love about working in payments is that almost every business that accepts plastic is a potential client. Targeting a new niche or underserved market can pay big dividends. Some of these verticals come with increased risks or compliance requirements. Companies that delve into this kind of niche might need an internal system to better monitor various aspects involved with riskier merchant processing. Whether they need a program to monitor merchants’ websites, card sharing activity or debit-only acceptance, these circumstances lead businesses to search for new tools that will minimize potential losses from fraud, chargebacks and even fines. If no such system exists or current ones are insufficient, then, developing a proprietary software could be the best option. Acquisitions, too, force companies to consider building new infrastructure or software to better manage their new book of business to maximize ROI. Improving operational inefficiencies through automation, even if that means building your own new systems, is a priority for any business looking to save time and money.

There are many circumstances that may lead companies to build new infrastructure and software, whether it is merchant-facing, such as a POS, or for operational purposes, like a new CRM or automated onboarding. Investment in change requires both capital and resources to build and maintain. While it might be a large investment, it is extremely beneficial in today’s constantly evolving and competitive industry. Companies looking to simply build and sell a portfolio will likely continue to rent or resell software. Long-term players will continue to build their own systems to better compete and monetize on solving the latest challenge.