A Look at the Partnership Landscape in the ISV Market

Navigator Edition: Merchant Acquiring Special Edition
By: Alicia Francois

Over the last several years, acquirers have increasingly pursued partnerships with Independent Software Vendors (ISVs) as a method to gain new merchants as more merchants turn to iPOS solutions. First Annapolis maintains a database of over 5,000 ISVs that are active today, and we believe this represents only 40-50% of the market. Despite first movers like Mercury having successful and long-standing ISV strategies, the ISV market remains large and fragmented, and there is plenty of room for acquirers to enter the space.

Even with the growing number of referral partnerships between acquirers and ISVs, there is a large amount of exclusivity, or at least defacto exclusivity, in the market. Of the 5,000 ISVs in our database today, very few are certified to multiple acquirers, and those that are tend to be the major players (e.g., Micros, NCR, Squirrel). Of those ISVs that we have certification information on, 84% are certified to only one acquirer, while only 1.6% are certified to more than five acquirers, as Figure 1 illustrates.

Figure 1: Share of ISVs by Number of Acquirer Certifications

Fig-1_-Share-of-ISVs-by-Number-of-Acquirer-Certifications_v2Source: First Annapolis Consulting proprietary research.

Looking at partnerships from the acquirer’s perspective, the share of an acquirer’s ISV partners that can be considered unique certifications (i.e., not shared by any other acquirer) varies. The lowest we have seen is around 50% (that is, 50% of that acquirer’s ISV partnerships are exclusive), while some acquirers have unique partnerships with upwards of 95% of their ISVs. For the most part, there does not seem to be a contractual obligation of exclusivity but rather a de facto exclusivity. The small size of many ISVs, the potentially time- and labor-intensive certification process, and many other factors likely contribute to this trend. We speculate EMV will exacerbate this phenomenon.

For acquirers, the large and fragmented ISV market with potentially thousands of untapped partnerships represents a valuable, albeit daunting, opportunity. Capitalizing on this requires a thoughtful ISV strategy. An acquirer can choose to focus based on an ISV’s industry focus, lifecycle stage, technological capabilities, or size, which allows the acquirer to pare down the market of 10,000+ ISVs into an actionable list of targets for potential partnerships.

For more information, please contact Alicia Francois, Senior Analyst specializing in Merchant Acquiring, alicia.francois@firstannapolis.com.

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