Businesses aren’t getting their card readers from banks anymore. Instead, they’re signing up for all-in-one software platforms that handle bookings, inventory, scheduling, and payments. In 2023, 54% of independent software vendors (ISVs) embedded payment capabilities into the systems businesses already use to run their day-to-day operations.

This change is redefining who owns the customer relationship, who controls the margins, and what it means to be in the payment business. Below, we’ll discuss how ISV payments are reshaping the payment environment and what that means for platforms, processors, and businesses.

What’s in this article?

• What is an ISV in payments?
  
• What is the difference between ISO and ISV payments?
  
• How are ISVs different from traditional payment processors?
  
• Why are ISVs transforming business relationships?
  
• How do ISVs fit into the modern payment stack?
  
• What does the rise of ISVs mean for acquirers and platforms?
  
• How Stripe Connect can help
  

What is an ISV in payments?

An ISV provides business software such as point-of-sale (POS) systems, booking, and billing platforms. Vendors have started bundling payments directly into that software. For example, a gym’s scheduling platform might also take credit card payments, or a software-as-a-service (SaaS) billing tool might let users invoice clients and collect payments. The business that relies on an ISV gets an all-in-one experience: the ISV becomes its go-to for running the business and getting paid.

ISVs typically don’t process payments directly. Instead, ISVs often partner with payments infrastructure providers such as banks, processors, and platforms to move money behind the scenes.

ISVs haven’t replaced the traditional payments infrastructure. Instead, they’ve built such tight integrations that they have direct access to the business relationship, which allows ISVs to act as a payment intermediary in a new way.

What is the difference between ISO and ISV payments?

Some ISVs become independent sales organizations (ISOs). ISOs and ISVs both connect businesses to payment processing, but that’s where the similarity ends. Their value propositions and business models are fundamentally different.

ISO

An ISO is a third-party reseller for payment systems. It partners with acquirers or processors to onboard businesses, set up accounts, and handle some level of support. Its core business is distribution. The ISO generates leads, closes deals, and earns a share of transaction volume. Any software, if offered, is secondary or resold from elsewhere.

ISV

An ISV builds tools that businesses run on, such as POS systems, booking apps, and billing platforms, and many embed payments into those offerings. A business signs up once, and the payments flow through the same system that handles its daily operations. The result is tighter integration between workflow and transaction, cleaner onboarding, and more control over user experience, pricing, and support.

How are ISVs different from traditional payment processors?

A traditional processor handles core infrastructure such as transaction authorization, card network connections, and funds settlement. An ISV builds the platform a business uses to do work, whether that’s selling products, managing customers, sending invoices, or booking appointments. Payments are often embedded into that platform so the transaction becomes part of the workflow instead of a separate task.

That difference shows up in a few ways:

• The processor handles the backend, while the ISV manages the interface.

• The processor focuses on uptime, while the ISV focuses on usability.

• The processor provides the core infrastructure, while the ISV manages the customer relationship.

Even when they rely on the same networks underneath, ISVs reshape how payments feel and how a business interacts with customers.

Why are ISVs transforming business relationships?

In payments, control has traditionally followed whoever owns the business relationship. For decades, that meant banks, acquirers, or payment processors. But today, ISVs that own the software interface shape the customer relationship, and they’ve rebuilt the business-provider dynamic around it.

ISVs offer platforms that combine features such as scheduling, inventory, payments, communication, and reporting in a single stack. Because payments are integrated directly into that workflow, the software provider often serves as the system of record.

Here’s why that’s important.

The sign-up is the sale

ISVs make it easier to turn on payments at the point of software onboarding. Businesses don’t need to work through third-party paperwork or chase down an underwriter, and the Know Your Customer (KYC) guidelines are handled in the background. Payment acceptance is built in.

This is a new distribution model—and a better user experience.

Pricing is simpler

Pricing has always been a frustrating aspect of traditional payments services. ISVs sidestep many related issues by folding payment costs into a flat SaaS subscription or by selling a simple rate that’s easy to explain and forecast. Because ISVs can generate meaningful revenue from payments, they can also subsidize other parts of the platform. That enables more flexible pricing models, especially for smaller businesses.

The relationship gets stickier

ISVs embed payments in tools that businesses use dozens of times a day. For example, at a dental practice, an ISV’s platform might schedule appointments, send reminders, accept co-pays, track follow-ups, and reconcile payouts with the clinic’s accounting system. That’s far beyond payment processing. The ISV is part of a wider infrastructure for running the practice.

That proximity builds familiarity and dependency. It makes the ISV the first place a business turns to when something breaks or when they need something new. And if the business is seeking an alternative, the switching costs rise fast.

All of this puts ISVs in a unique position. These vendors can shape how businesses think about money: how they accept it, track it, reconcile it, and grow it.

How do ISVs fit into the modern payment stack?

ISVs have reshaped the core infrastructure of payments. What used to be separate layers (software, terminals, processors, and gateways) is often now one unified flow led by software. How an ISV fits into the stack can depend on how much responsibility and control that ISV chooses to take on.

ISVs generally plug into payments in one of three ways.

Referral partnership

An ISV refers businesses to a third-party processor. The ISV adds payment functionality via application programming interfaces (APIs), but it leaves the onboarding, underwriting, and compliance to the processor. The business signs up separately, although ideally through a handoff inside the ISV’s product.

This approach is fast to implement and doesn’t require too much work. But the ISV is left with limited control over user experience, support, and pricing.

ISO model

Some ISVs go one step further and become registered ISOs. That can give them more say over the business relationship while the processor continues to handle settlement and risk.

This model comes with more compliance responsibility but might also mean a better revenue share and more control over the brand experience, without having to manage the flow of funds.

Payfac model

The ISV becomes a payment facilitator (payfac). The ISV underwrites, onboards, and manages businesses as subaccounts under its own master account. Payouts, disputes, and risk controls all route through the platform.

This model has the highest level of integration and the strongest economics, but it can be complex to operate. Many ISVs partner with infrastructure providers to offload some of that burden.

Ultimately, the interface is what matters. Businesses think according to their workflows. And when the software controls the workflow, it defines the payment experience. Whether the ISV is a referral partner or a payfac, the platform becomes the face of the transaction.

What does the rise of ISVs mean for acquirers and platforms?

With ISVs, the platforms businesses rely on to run their day-to-day operations are the same ones that handle onboarding, transactions, and payouts. That shift has consequences, especially for the players who used to sit at the center of business.

Here are some of the growing impacts.

Acquirers and processors are losing their dominance

Traditional acquirers used to own the business relationship. Now, many are buried in the stack. They still authorize transactions and settle funds, but they’re often less visible to the businesses they serve. The processor often settles into the background too. As a result, ISVs can capture more of the margin, while acquirers in some cases face more pressure on pricing power and brand recognition.

Some incumbent acquirers are responding to this new reality. These organizations are buying ISVs outright to fold the software into their businesses. They’re building new tools to create bundled solutions, or they’re partnering with ISVs to supply backend payment networks for that vendor to build on.

Platforms gain responsibility

For platforms, embedded payments open up a new revenue stream, deepen product stickiness, and simplify the business’s experience. But oftentimes owning payments means taking on additional risk, whether that’s KYC checks, dispute resolution and chargebacks, or regulatory compliance. A scheduling app or retail POS system might not have started with plans to handle these things, but once payments are embedded, they have to.

This shift has created a new class of software platforms that behave like fintechs. They build tools and coordinate money movement all under the same platform.

How Stripe Connect can help

Stripe Connect orchestrates money movement across multiple parties for software platforms and marketplaces. It offers quick onboarding, embedded components, global payouts, and more.

Connect can help you:

• Launch in weeks: Use Stripe-hosted or embedded functionality to go live faster, and avoid the up-front costs and development time usually required for payment facilitation.

• Manage payments at scale: Use tooling and services from Stripe so you don’t have to dedicate extra resources to margin reporting, tax forms, risk, global payment methods, or onboarding compliance.

• Grow globally: Help your users reach more customers worldwide with local payment methods and the ability to easily calculate sales tax, value-added tax (VAT), and goods and services tax (GST).

• Build new lines of revenue: Optimize payment revenue by collecting fees on each transaction. Monetize Stripe’s capabilities by enabling in-person payments, instant payouts, sales tax collection, financing, expense cards, and more on your platform.

Learn more about Stripe Connect, or get started today.