Independent software vendors (ISVs) are companies that create, develop, and sell software that operates on third-party platforms. These vendors do not manufacture the hardware their software runs on and are not owned by the companies that do, which is why they’re referred to as independent. Their products can range from specialised applications for individual industries (e.g. healthcare, finance) to general productivity tools such as office software and graphic design programs.

ISVs focus on function and ease of use when developing software for their clients. By integrating payment capabilities, ISVs can improve both and address up to $35 trillion in payments annually. Below, we’ll explain what ISV integrated payments are, how they work, and their benefits and challenges for software vendors.

What’s in this article?

• What are integrated payments?
  
• How do ISVs use integrated payments?
  
• Benefits of ISV integrated payments
  
• Challenges with integrating payments as an ISV – and how to solve them
  
• Best practices for ISVs regarding payment integration
  

What are integrated payments?

Integrated payments are payment processing capabilities built directly into business software. This integration allows businesses to manage payments within the same system as other operational tasks such as accounting, inventory management, and customer relationship management.

How do ISVs use integrated payments?

ISVs use integrated payments to enhance their software and make it more user-friendly, particularly in industries where operations can be challenging such as retail, healthcare, and hospitality. Here’s how ISVs incorporate integrated payments:

• Easier workflows: ISVs embed payment processing to create better software workflows. For example, a retail point-of-sale system with integrated payments allows cashiers to handle sales and accept payments without switching between systems. This speeds up transactions and integrates sales data with customer profiles, which enables businesses to offer personalised service and promotions.

• Automated data management: When businesses integrate payments, transaction data automatically syncs with business analytics, accounting, and inventory systems. After a successful sale, the system records revenue in financial reports and adjusts inventory levels in real time for better stock management and fewer discrepancies between physical and recorded inventory.

• Custom solutions: ISVs develop payment integrations that cater specifically to the workflows and compliance needs of different industries. In healthcare, for example, they design payment systems to handle complex billing that includes private and government insurance claims. In the hospitality industry, integrated payments can link charges to room accounts, manage reservations, and even facilitate check-ins and checkouts directly through the software.

• Compliance and security: Integrated payment solutions come with built-in security protocols that help with regulatory compliance and can protect sensitive customer information. Features such as end-to-end encryption, tokenisation, and fraud detection systems strengthen security without compromising user experience.

• Better customer experience: By incorporating a variety of payment methods into their platforms, ISVs ensure that end users can choose their preferred way to pay (e.g., digital wallet, QR code). This flexibility can improve customer satisfaction and retention.

• Recurring billing management: Integrated payments help manage recurring billing by automating the renewal process, applying discounts or promotions, and handling prorations or changes in subscription plans without manual intervention. This reduces the administrative burden of subscription management and helps businesses maintain a steady revenue stream.

• Additional services: Beyond handling transactions, integrated payments can enrich software with features such as split payments, loyalty rewards tracking, and comprehensive business analytics. These services can help businesses attract and retain customers.

• Flexibility: Software with integrated payment capabilities can typically handle increased loads without the need for major system overhauls. Cloud-based solutions allow ISVs to push updates and new features globally so that users can benefit from the latest advancements in payment technology without downtime or disruption.

Benefits of ISV integrated payments

Here are some benefits of integrating payments directly into software:

• Simpler workflows: Integrated payments consolidate into one simple workflow tasks that would usually require multiple platforms. This means users can manage transactions in the same platform where they manage everything else, whether that’s scheduling, invoicing, or customer management.

• Stickier software solutions: Integrating payment processes directly into software makes the software more valuable to clients. Users can grow reliant on its convenience and efficiency and become less likely to switch to another provider. This built-in dependency improves customer retention for the ISV and strengthens the product’s value proposition.

• Diversified revenue streams: Integrating payment functionalities opens up additional revenue streams for ISVs beyond traditional licensing fees. ISVs can charge transaction fees or incorporate premium features related to payments such as higher security options and customised reporting tools. These boost overall revenue and incentivise ongoing improvement of ISVs’ payment features.

• Operational cohesion: Integrated payments eliminate the need to reconcile data across systems. This leads to fewer errors and discrepancies and more accurate financial reporting and insight.

• Security and compliance: By controlling the payment integration, ISVs can control payment security and compliance and customise these features to the specific needs of their markets and regulatory environments. This protects end users’ sensitive payment information and builds customer trust.

• Competitive edge: In a crowded market, an integrated payment solution can distinguish an ISV’s offerings from the competition. This feature can be especially compelling in sectors such as e-commerce and healthcare, where the ease and security of financial transactions are top priorities.

• Flexible solutions: Integrated payments can expand to accommodate increased volumes and more complicated transactions without businesses needing to switch systems or manage costly upgrades. This flexibility makes ISV software a long-term solution for users and boosts customer lifetime value.

• Data analytics: Integrated payments come with powerful analytics that can track and analyse every transaction and provide businesses with insight into sales trends, customer preferences, and financial health. This data helps with strategic decision-making and can be a key differentiator for software in any industry.

• Less relationship management: Integrated solutions reduce the logistical hassle of managing different contacts, contracts, and tech support lines across multiple software vendors and payment processors. This can be a substantial hidden cost in managing business operations.

Challenges with integrating payments as an ISV – and how to solve them

Integrating payments into your ISV software comes with technical, regulatory, and user experience challenges. Here’s an overview of common difficulties and some tips for how to navigate them:

• Integration: Integrating payment gateways or processors typically means handling complex systems, transaction protocols, and data synchronisation. A mismatch between your tech stack and the payment solution can create lasting problems. When assessing potential providers, look for clean application programming interfaces (APIs), thorough documentation, software development kits (SDKs) in your preferred languages, and a track record of easy ISV integrations to minimise these problems.

• Security: A security breach or non-compliance with standards such as the Payment Card Industry Data Security Standards (PCI DSS) can cause major financial and reputational harm. Choose a PCI Level 1 payment partner that offers advanced security features such as tokenisation, encryption, and fraud detection. Conduct regular audits to stay ahead of evolving threats.

• Costs: Payment processing comes with transaction fees, gateway costs, and potential chargebacks. ISVs must provide competitive pricing for customers while maintaining a healthy profit margin. To keep costs in check and maximise revenue, negotiate fees based on volume projections and transaction types, implement intelligent fraud prevention measures to minimise chargebacks, and explore value-added services such as recurring billing or invoicing for additional revenue streams.

• User experience: A clunky or confusing checkout flow can quickly derail a sale, especially when smaller businesses are competing with the simplified payment experiences of industry giants. To address this issue, pay careful attention to user interface design and include features such as a variety of payment methods, mobile compatibility, and customer feedback at every step. Test rigorously and iterate based on user data.

• International expansion: Payment preferences, regulations, and fraud patterns vary across international markets, which can complicate expansion. Partner with a payment provider that has a global footprint and multi-currency support and localise your payment experience to account for cultural nuances and regional payment trends. Stay informed about evolving compliance requirements in each target market.

• Scaling: Your payment system needs to handle peak traffic and transaction spikes gracefully as the business grows. Design your payment integration with scalability in mind and choose a provider with a track record of flexible solutions and handling high volumes. Monitor performance metrics closely and plan proactively for capacity upgrades.

• Post-launch support: Payment integration requires ongoing support, maintenance, and updates to adapt to new technologies and evolving customer expectations. Prioritise payment providers with responsive support, transparent communication, and a road map for future improvements.

Best practices for ISVs regarding payment integration

Here are some best practices for ISVs to follow when integrating payment processing into their software:

• Choose your payment processor carefully: Think of your payment processor as a long-term strategic partner, not just a vendor. Assess its technical capabilities, security posture, experience with ISVs, and cultural fit. Before proceeding with a partnership, consider whether it understands your vision and growth trajectory, supports your global ambitions, and offers developer-friendly APIs.

• Prioritise security: Rigorously protect cardholder data. Choose a PCI Level 1 provider and implement strong security measures throughout your software stack such as tokenisation, encryption, fraud detection, and regular vulnerability assessments.

• Enhance the user experience: The payment flow should feel like a natural extension of your software. Design an intuitive user experience that’s mobile-friendly, offers multiple payment options, provides clear instructions, and handles errors gracefully.

• Analyse transaction data: Payment integration means access to transaction data, which can give insight to help refine pricing, marketing tactics, and customer experience. Track key metrics such as conversion rates, average transaction values, and chargeback ratios to make data-driven decisions.

• Plan for future growth: As the business grows and transaction volumes surge, payment systems need to keep pace. Choose a provider with the infrastructure and expertise to handle future growth, and regularly assess performance to plan for capacity upgrades.

• Support multiple payment methods: Supporting a variety of payment methods such as credit cards, debit cards, digital wallets, and cryptocurrencies can boost user convenience and increase adoption rates. This is especially important if your software targets global markets with different payment preferences.

• Update and maintain regularly: Payment technologies and security threats are constantly evolving. Regular updates to your payment integration help keep your product secure, effective, and compliant.

• Monitor and analyse transactions: Implement monitoring tools to track the performance and security of your payment integration. Analysing transaction data can help you identify trends, detect potential fraud, and understand user behaviour.