TSG creates some good content. We were reading through their software survey that they cosponsored with the RSPA and wanted to call out the items that were most salient.
The goal of the survey was to understand how software companies (known as ISVs to payments vendors) are choosing their payment partners.
What’s surprising is still how far the industry has to go in embedding payments. Although this survey represents the responses from only 28 software companies (would have loved to see that number be 10x the size), only 29% of merchants were their own processor.
This could mean they were a payfac, wholesale ISO, or retail ISO.
61% of software companies offered payments through an integrated payments partner.
Also a bit odd that none of the respondents said they operated a wholesale ISO model while 4 were payfacs… maybe because payfacs are buzzy and there exist enabling software (like Infinicept) to stand up payfacs faster?
Worth noting: it feels like more payment volume goes through payfacs even if the absolute number of payfacs is lower. The largest software companies we can think of are payfacs – Square, Oracle, Toast, et al.
We wonder how many software companies would actually be payfacs or their own processor if the survey were 10x the size, or if it looked at payments volume.
Maybe 50% just to err on the conservative side?
Unsurprisingly 80% of software companies had more than 1 payments partner. We suspect this is to give their customers choice and to avoid getting shafted by a bad payments relationship, which gets to this next slide.
Of all the issues software companies had with their payments provider, the top two could be easily predicted:
- Zero R&D spend
- Obfuscated pricing (read any of our To Catch a Predator series)
No surprises to any of the avid readers here. Payments companies lack innovation in their cultures, and because merchant acquirers are out of TAM, most screw customers when given the slightest opportunity.
Slightly fewer software companies were happy with their referral payments partners than the other payment modalities, which might be explained by the lack of pricing transparency.
Consequently what do software companies look for from a commoditized provider that is payments processing?
Competitive pricing, low friction, and APIs so that they can manage more themselves.
Hilariously not one single software company cared about an app store for merchants.
Know why?
Merchants don’t self-discover.
This is especially true for these survey respondents who skew heavily from retail industries.
And on top of that, retailers won’t pay for anything unless it’s absolutely mandatory, ROI be damned.
Everything in the middle of the survey responses is even more commoditized than payments pricing, which is why 73% of respondents have explored different integrated payment options to increase profits, have more control, and ensure the partnership is a good value.
In other words, to make sure the ISV is capturing fair economic value associated with building and supporting the software.
Don’t need a payments bro making money for nothing.
Software companies are getting into payments to drive more revenue for all their hard work. Plain and simple.
If you can’t be competitive on the economics, not much else will matter.
We watched companies like Lightspeed move on from Stripe specifically because of the high cost of processing.
Retail is a penny business.
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