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Software enabled Payments to build valuable merchant portfolios

“Nothing in the world is as powerful as an idea whose time has come,”

— Victor Hugo

Mercury Payment Systems was sold to Vantiv Inc. for $1.65 billion. Congratulations to Matt Taylor, CEO of Mercury, and his management team. This is a spectacular deal.  Let us look at some simple comparative numbers.  Vantiv’s market capitalization is $6 billion and it processes $400 billion in credit and debit card volume, which works out to  $15M for each $1 billion processed. Looking at another example, Heartland Payments market capitalization of $1.5 billion while processing $100 billion in credit and debit card volume, also works out to ~$15M for each $1 billion processed. Vantiv paid a > 3x premium at $48.5M for each $1 billion processed to acquire Mercury. What makes Mercury the most profitable and the fastest growing payment processor? The answer is software. While Mercury does not develop application software themselves, they have focused singularly on embedding their payment driver within point-of-sale software from over 600 POS developers, and sold through a sales channel of over 2,000 POS dealers.  The Mercury business was built over the last decade, and has worked out well for its founders, executives and investors. What are the lessons from this for the payment processing industry ?  The payment industry needs to integrate with and sell MORE SOFTWARE.

The  payment affiliation of local merchants is going to go to those that can add value beyond commodity payment processing. The typical ISO is hesitant to check in on their merchant customers because there is a good chance of getting drawn into a conversation about price. Many merchants perceive the traditional payment processing channel as not adding a lot of value, unless when something goes wrong. This is a terrible situation for the payment industry.  But there is also opportunity. The market is increasingly compelling payment processors and ISOs to sell payments embedded within differentiated software solutions that help business grow customers and revenues. The successful payment processors will adapt and become able to change the merchant conversation from price to value.  Those who do not will go the way of the dodo bird, as the traditional metrics of valuing payment portfolios change with deflating value placed on portfolios that can easily churn.

ISOs that become software-centric can easily add value to a merchant’s business. Getting engaged with software and customer data allows ISOs to build healthy merchant portfolios whose attrition rates are dramatically below the industry average of 15%. BuyFi helps transform the ISO into a software vendor selling payment+ software solution under their own brand, building valuable merchant portfolios. The time has come..