Vertical Alignment

By Christine Umbrell

Today’s consumers have come to expect and even demand solutions tailored to their needs in every aspect of their commerce interactions—including the payments piece. “Consumer preferences have changed, driven by technology and accessibility,” says Steve Callis, executive vice president of global IPS and e-commerce at Elavon. It’s becoming ever more important for payments companies to provide solutions that simplify the transaction for consumers while adding value for merchants. Partnering with independent software vendors (ISVs) is one way that payments companies are accomplishing those goals.

“ISVs give us the opportunity to provide holistic solutions and get to our customers quickly,” says Callis. And because many ISVs offer solutions targeted to specific verticals, “it helps us as acquirers, through partnership, in not only reaching those niche or specific verticals through distribution, but in enabling us to offer a breadth of products and services … across a wide variety of broad market and specific niche vertical offerings.”

Meeting Consumers’ Targeted Needs

Today’s consumers are seeking on-demand and real-time services as well as convenience and security. “Online, in-store, mobile—whatever the acceptance channel is,” consumers expect a seamless experience, says Callis. “Naturally, ISVs are fitting into the model and solving problems from a business standpoint, with their point-of-sale [POS] capabilities and software capabilities.”

Many payments companies are looking to partner with ISVs for their sophisticated software programs and pathways into verticals—“both core verticals that we [already] support and niche verticals where we have other expertise or areas of focus,” Callis says. ISVs are offering “a tremendous channel of distribution for us that we look to leverage,” and, in turn, those ISVs are seeking payments companies’ ability to offer channel and scale back to them, from a distribution standpoint.

One area where payments companies are finding it particularly profitable to partner with ISVs is in reaching verticals that encompass lots of small businesses. Some of these entities—for example, private schools, wineries, and charities—don’t have their own “tech shops” and need assistance in implementing newer payments technologies into their systems, says Ralph Dangelmaier, CEO of BlueSnap, a company that has experienced a rapid uptick in working with ISVs over the past two years. These smaller entities are often willing to pay a higher fee on the payment side to avoid responsibility for technical configuration, says Dangelmaier, who adds that about half of BlueSnap’s business comes from ISVs.

Working with ISVs and other partners “has been a core component of our strategy over the last few years,” particularly for smaller businesses, says Mark Bunney, director of market strategy at Ingenico Group. “The marketplace is evolving, especially at the SMB part of the market. In the past, they would have a standalone payment terminal. … Now we are seeing more and more companies offering that full business software solution,” he says. “But for that business software to be offered, you’ve got to have that ISV relationship … as you start going into verticals and the different subsegments of the verticals. You have to work with a wide variety of ISVs in order to provide the right solution for the merchant.”

Each vertical requires specific business applications, says Bunney. “When you look at your strategy and which markets you want to go after, you have to look at who are the right software providers. They’re going to be critical in order to have a successful solution that can be deployed, implemented, and then supported throughout the lifecycle.”

Not only can ISV partnerships aid in problem-solving within particular verticals—they also can help prevent attrition, says Garima Shah, chief business development officer at Priority Payment Systems. “When you look at a nonintegrated merchant versus an integrated merchant, the attrition rate for a nonintegrated merchant is close to 18 to 20 percent, and their lifetime value is pretty short,” she says. For an integrated merchant, on the other hand, the attrition level is usually less than 5 percent, according to Shah. Partnering with ISVs allows payment companies to find additional unique products and services for their merchants to help improve their sales and increase revenues.

Upright Opportunities

Certain verticals are evolving so quickly that there is plenty of opportunity for tech-savvy payments companies and their partners. In the recently published “Goldman Sachs-ETA Merchant Acquirer, ISV, and ISO Survey,” 64 percent of respondents said vertical-specific software offerings are the most effective way of increasing market share. And while respondents currently see the greatest traction with integrated software solutions in the restaurant, education, and nonprofit verticals, they expect that hospitals, financial/legal services, and government will gain the most traction in the coming 24 months.

Among survey respondents who believe that integrated payments enable acquirers to create a “stickier” merchant base and improve long-term economics, more than half noted that the most effective strategy to increase market share is via vertical-specific solutions that add unique capabilities tied to a particular industry.

Several payment experts agree that healthcare is one of the “hottest” verticals right now, and that integrated software solutions can help payments companies break into this space. “We are all consumers of healthcare,” explains Callis. Consumers are bearing more of the responsibility from the payments side in terms of deductibles, co-pays, and other out-of-pocket expenses, and they expect a seamless payment experience. Providers need to adapt to patient expectations and offer more flexible payment options in a “retail-type” model, says Callis.

Software solutions can ease healthcare providers’ pain points when responding to consumers’ needs. “By integrating payment technology with an EMR or patient management system, our IPS partners can offer a holistic patient financial experience—for example, bringing together capabilities such as appointment scheduling, insurance eligibility and estimation information, and payment acceptance enables healthcare providers to determine what the patient will owe and collect co-pays, co-insurance, and outstanding balances at the time of service,” explains Callis. “Integrating payment technology with patient profile data available in EMR systems enables healthcare providers to offer patient portals and mobile apps where patients can schedule appointments, review medical records, request prescription refills, pay their bills, and much more—all in one place.”

Bunney agrees that healthcare is an opportunity area for payments providers—with partnerships playing a larger role. “Whether it’s a hospital system or a physician’s office, that’s an area where we’ve found success” working with revenue cycle management software solutions, he says. “It’s very much a partner-centric solution set.”

Bunney also points to retail as a space where significant growth may be coming. “Retail is fully penetrated generally with EMV solutions. … However, what’s starting to happen, and what will accelerate in 2020 and 2021, is that they’re going to refresh.” He explains that retailers, particularly larger retailers, implemented new solutions five or six years ago in preparation for the EMV migration. But now those same businesses are considering updating their solutions, he says—and many of those updates will require software integration.

Similarly, in the restaurant vertical, payments companies are partnering with ISVs to meet diners’ evolving preferences, says Callis. “You look at order-ahead and pay-at-table capabilities—this is rampant in Europe, and we’re starting to see it more and more become adopted in the U.S.”

Integrated solutions are being leveraged in the spa space, too, says Callis. “With an ISV, we can offer everything to run their business, from scheduling massages, facials, and manicures/pedicures to coordinating internal staff schedules, and [we can] layer in payments over their website, loyalty programs, etc. It becomes a more holistic solution,” he says. And similar solutions are needed in gyms, to enable the scheduling of classes and personal trainers while accepting payments.

In hospitality, hotels already have robust property management systems, but many locations are creating more of “a global ecosystem within the hotel experience, through their restaurants and gift shops and cabanas out by the pool—all the things a hotel is looking to provide patrons,” Callis says. “That guest experience has evolved quite a bit—so that ISVs and payments providers need solutions and technology that will be able to integrate into that core property management system to be able to then provide that guest experience.”

Dangelmaier points to education as another bright prospect. “We’re seeing a lot of education. … The schools are very fragmented,” with different companies accepting payments for tuition, books, parking services, meals, and the multitude of other products and services needed on educational 
campuses. BlueSnap has made significant inroads in the education vertical, thanks to its ISV partnerships, says Dangelmaier. “We never would have been able to break into that space without having the platform integration.”

There’s even new opportunity with the government and public sector space, according to Callis: “With funding delays, revenue fluctuations, and rising costs, it’s important for sector institutions to collect those payments faithfully and reliably, and through digital payments means that ISVs within the public sector are able to provide.”

Finding the Right-Fit Partner

Partnering with ISVs provides opportunities to reach more merchants and boost profits—but the partnership must be mutually beneficial. Payments companies looking to tap into a particular vertical “have to understand who are the right software providers to work with,” says Bunney. While some ISVs play across several different verticals, “in other cases, there are very specific ISVs that have been specifically tailored to a particular vertical,” he says.

Bunney cites the example of the golf niche: “There are particular ISVs that only focus on the golf marketplace. And that’s who you would have to go off and work with to provide a solution” at a golf course. “So it can get very, very granular.”

Shah says seeking out ISVs with complementary services is critical. “If a payments company is really good at signing or working with restaurants, they shouldn’t then go and try to find ISVs who are B2B,” she explains. “It’s important to know your strengths. The goal for the salesperson is to find the most products and services that will actually help their clients, thereby increasing their overall revenue. So if I’m really good at selling in hospitality or in restaurants, I should be looking for ISVs that are really good for my market”—for example, online ordering companies.

“Look for companies that will add value to your merchant because, at the end of the day, what we’re trying to do is … bring more value to what we do,” adds Shah.

Transparency is key to these relationships. If one partner is getting all the benefits out of the relationship, it might be because there wasn’t a prior clear discussion about how the two companies were going to work together, suggests Shah. “So, it’s important to discuss things at the onset—like who’s going to handle support? And how is the revenue going to be paid? And what do I get for what I’m giving to you? Those are the things that are really important to discuss up front.”

“Any company that’s looking to get into a new market or a new segment, they really should do their due diligence and understand what the ecosystem looks like,” adds Bunney. Do your research to ensure the ISV can offer the appropriate product or solution to meet the needs of the merchant. “You have to be thoughtful.”

Bunney and Dangelmaier also say a payment company should ensure its value proposition aligns with that of the ISV, and it should be willing to educate the ISV. “It’s kind of like dating before you get married,” says Bunney. “You have to determine the problem you’re going to be solving, and what you want to jointly achieve by working together. And if these things are in alignment, you’re starting off in a good spot to bring a new solution to the market. And if not, it may not be a good fit.”

Dangelmaier offers an example: “If you’re a business that’s selling SaaS data backup storage for businesses, probably putting ApplePay in there is not a good idea,” he explains. “But if you’re running events for consumers—say bike races—you probably want ApplePay. So you really have to sit down and think who is the shopper, and get [the ISV] to write the right product.”

“It isn’t just about product and price,” agrees Bunney. “Is there the right support model? What sales and marketing help or assistance can be involved? What does the provider provide from a market position? … The goals of Company A and Company B need to align. You want to do business with someone you trust. But at the end of the day, you also want to make money.”

Last year, BlueSnap “created a ‘partner team’ that actually manages the ISVs and partners—helps them with training, gives them ‘go-to-market kits,’ makes sure that if there’s a new regulation, we really contact them and make sure they’re integrating to what we think are the latest things in fraud and compliance,” says Dangelmaier. This is particularly important when trying to work within a vertical that may be new to the payments company.

BlueSnap has created a second team that calls on ISVs, “so we’re consistent in how we do revenue shares and integrations,” Dangelmaier adds. This can be useful since some relationships “never really get off the ground,” he says. “So you have to pick and choose who you work with.”

Ingenico similarly has two different sales teams dedicated to its partners. “Two-thirds of our sales team is focused on working with partners and making them successful,” says Bunney.

Partnering for the Future

ISVs will continue to play a critical role in the payments space as companies seek to provide total solutions for merchants, sources agree.

“One of the cool things with ISVs, we can figure out how to get into other industries,” explains Dangelmaier. “We’ve gone to education conferences, fashion conferences, wine conferences, delivery conferences. These are things we never would have gone to—but the ISV is dragging us into it.” In return, payments companies train ISVs on new payments options.

Bunney also believes there will be momentum in the ISV partnership space, but he notes that there may be greater growth in some areas than in others. “The growth will come from different verticals that have not fully implemented EMV solutions,” he predicts. Healthcare, for example, “is a newer market for EMV solutions and is not fully penetrated yet. This is also the case with Tier 3 or smaller hotels and restaurants that are still in process with implementing EMV today.”

And there will continue to be opportunities for payments companies that enable merchants to elevate their businesses, Bunney adds. “We’re seeing that merchants want to do more; they want to interface and interact with the consumer, through simple things like value-added services or wallets, or marketing/advertising, or even loyalty-type solutions. We’re starting to see more people think about how they can drive a better consumer experience.” Because of this, payments professionals that collaborate with ISVs to provide services and systems that enhance the customer experience stand to benefit the most.

Bunney says he tries to put himself in the minds of the consumers and determine what they want out of their transaction experiences—realizing that these preferences will continue to evolve over time. “What does the consumer want? Because that’s going to drive what our solutions are going to be, working with the rest of the partner ecosystem.”

Christine Umbrell a contributing writer to Transaction Trends. Reach her at [email protected].

This article originally appeared in the Fall 2019 edition of Transaction Trends magazine. Click here to read the full issue.