The Green Sheet Online Edition
May 26, 2025 • 25:05:02
Street Smarts
Winning and keeping residual income
Imagine how boring merchant services would be without its long line of game changers. Every time someone smashes a cherished business model, naysayers declare that merchant services is over. Surely, the sky was falling when Mercury Payments started their Data Cap program and we slowly lost accounts to POS dealers. And who could possibly survive the adopt-or-die antics of software companies during the massive 2015 EMV migration?
But we’re still here, and we’ve got what it takes to weather this new storm!
As I’ve said before, a former technology partner can become a predator in the blink of an eye. This has happened to me and other ISOs and agents around the country. In the last several years, I’ve lost residual streams to software companies that reneged on standing agreements and had no interest in sharing revenue. When a large enterprise acquires a POS dealer, payment processing revenue sharing is usually the first thing to go.
This trend has been around since 2015 but has recently become a bigger threat. These companies saw the value of combining payments and software-as-a-service (SaaS) revenue and changed their business models.
In 2001, software companies made money from software licenses, hardware sales and service contracts. In 2025, these companies make money from SaaS, hardware-as-a-service (HaaS) and payment processing revenue.
The new business model creates problems for stakeholders all the way down the line:
- ISOs: Businesses have been losing as much as $30,000 to $50,000 a month over the last 2 years when other ISOs or private equity firms take over POS systems. Most of these companies do not want to share revenue, and they do not have to. This trend is not stopping.
- POS dealers: The software companies have also been cutting out their own distributors, reducing their dealer footprints to very few or no dealers at all, and selling direct to merchants. Remaining dealers must split revenue with the software company.
- Merchants: Businesses are getting locked into contracts not only with software and hardware, but payment processing. Most of these contracts would require a merchant to pay thousands of dollars in penalties for switching software or processing.
Choose partners wisely
Having weathered many storms, year over year, and decade over decade, ISOs and merchant level salespeople (MLSs) know that staying apace with evolving trends and pivoting when necessary are key to surviving and thriving in this business. My friends, it’s time to pivot once again and choose our tech partners wisely. Look for partners who do more than promise to be processor-agnostic and share revenue. Look for firms that walk their talk and fully own their technology and processing. It’s also best to deal directly with the software firm and not a POS dealer, because dealers have no say when software firms are acquired. In the long run, you may sacrifice a bit of processing revenue, but your residuals will be safer, and your customers will stick around longer.
Jim Battista, managing partner at MAPP Advisors, pointed out that integrated payments have changed the game, but ISOs and MLSs who understand the new playing field have plenty of opportunities to compete and win.
In the current environment, merchants are shifting from standalone payment terminals to SaaS and fintech partners because they want to provide their customers with speed, efficiency, security and a better user experience. These are the same deliverables that MLSs and ISOs have offered from Day One, before anyone ever heard of SaaS, HaaS or fintechs.
Same game, different names
I’m reminded of our industry’s strength and resilience every year when I attend the annual Southeast Acquirers Association conference. As I listen to presentations and walk the show floor, I see many of the same people I’ve known for over two decades. Names and faces are the same; only the badges have changed. The same goes for our competitors. A few years ago, our biggest competitors were other ISOs. This year, it’s companies like Square, Stripe, Toast and a long list of ISV’s.
I look forward to discussing this evolving threat at SEAA 2025 at the JW Marriott Orlando Bonnet Creek Resort and Spa. Join me and Jim Battista on Tues., June 3, 2025, from 3:30 to 4:20 p.m., as we share winning strategies for ISOs and MLSs.
Want to know more? Keep reading The Green Sheet and consider following me on LinkedIn, where we can share ideas and support each other. 
Allen Kopelman, a serial entrepreneur, is co-founder and CEO of Nationwide Payment Systems Inc. and host of B2B Vault: The Biz to Biz podcast. Email him at allen@npsbank.com and connect on LinkedIn https://www.linkedin.com/in/allenkopelman/ and Twitter @AllenKopelman.
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