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Insights and Expertise

StreetSmarts SM

Is software the new ISO?

By Allen Kopelman 1. Agents (and by extension ISOs) have a preferred
Nationwide Payment Systems Inc. provider. This is some ISO or sub-ISO or processor
that they have a Schedule A with. Could mean they
s anyone else getting tired of losing residuals to have access to TSYS or Fiserv and so any solution
software companies? After 24 years in this busi- would need to work under those platforms. Agents do
ness, I've seen merchant acquirers and private their best to find a solution – really any solution – that
I equity firms buy ISVs and rip away millions of dol- works on the platform they have access to.
lars from merchant level salespeople's (MLS's) residual
streams. 2. Software devs and POS companies realized the
amount of work and time involved in supporting
I've seen former partners, including Lightspeed, Future POS. Time costs $$. And the monthly SaaS, annual
POS, Restaurant Manager, Positouch, and even Micros, fees, and per-incident fees are not enough to make the
become competitors. In the last two years alone, I've seen time invested worthwhile. Therefore, they go after the
$5 million in processing and close to $10,000 a month in processing.
residuals go out the door.
3. Investors – PE, other larger companies (Shift4), etc.
Today we only partner with all-in-one providers that of- – These look for things accretive to their business. If
fer processing and software. We may make a little less, you find 10,000 sites and all there is SaaS revenue, it's
but we have fewer headaches because these partners han- very easy to monetize the payment residual to your
dle installations and programming and don't stick their benefit. Buy and convert. Very simple process.
hands in our residuals.
Thus, you have this battle: Agents want to have their re-
Fewer issues, more selling time sidual and do not want to entertain a revenue share with
other companies or ISOs or processors once they are com-
In the long run we sell more and service less without hav- fortable.
ing to deal with equipment issues, which gives us more
time to sell. While we no longer make money on hard- Software ISVs want to make more money and are tired
ware, I appreciate having fewer equipment issues and of agents just taking the software vendor for granted and
more selling time. keeping all the acquiring profits while doing none of the
POS support and service. And investors want ROI and
Michael Nardy, CEO of Electronic Payments Inc., con- want to buy assets that they can monetize more than pre-
curred, stating that his company prefers to sell its own viously.
value-added solutions than to private-label solutions from
third-party providers. Valuations are a good example. Dinerware and PC Amer-
ica, with approx. 25,000 installs each, sold for $15 million.
"You hit the nail on the head by saying 'we may make less' If they had processing revenue share of just half the resid-
but ultimately, it is either less or zero," he added, Reflect- uals, and had 15,000 installs instead of 25,000 (due to cer-
ing on his own company's journey," he cited the following tain resellers not interested in selling the product), these
key considerations in a recent Facebook post: businesses would have an EV of more than 10 times the
$15 million they were bought for.

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