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We know what it is like to compete for a merchant’s payment processing against First Data, B of A, Heartland, super-ISOs with merchant level sales (MLS) people and the like but there is a whole new breed of ISO stealing market share every day. These new ISOs come with an entirely different tool set and approach than the traditional payment players. They look at payments as a value-added service or a toll road for something much more important to a business: their enterprise or business management solution (BMS.) An example of a BMS for a restaurant would be Radiant’s Aloha system. Aloha offers modules for point-of-sale, operations, back office, management & reporting and marketing. The BMS in many cases runs the entire enterprise and merely adding integrated payments to the solution creates tremendous efficiency for the business and adds an incremental revenue stream for the BMS provider. In many cases, the BMS provider is better positioned to sell simple services (such as small merchant payment acceptance) to a business than any other entity. As the BMS providers look to add increased value to their clients and drive incremental revenue, they are beginning to cut-out the existing payments channels and many only look to the existing players for settlement services. By the way, Radiant has created a JV called Radiant Merchant Services.
As I stated, a BMS runs an entire enterprise. It is one of the most critical, often one of the first and definitely one of the most expensive purchases a business makes. In addition, the provider and servicer of the BMS is one of the most, if not the most, trusted advisor of the business as it is often customized around the nuances of a specific enterprise. The relationship of the BMS provider is often stronger than the relationship with any banker and definitely stronger than an ISO or a trade association. Lastly, integration of payments into the BMS adds efficiency for a business. Whether it is integrated at the point-of-sale or through an invoicing solution, the ability to pull information from the BMS and avoid duplicate data entry creates tremendous efficiency and makes things simple. For these three reasons, the BMS provider is often in a much better position to drive a merchant’s payment choice than a traditional acquirer, ISO or MLS.
Over the past few years we have seen more and more BMS providers becoming ISOs, some even super ISOs and processors. Interestingly, many of the large processors have seen this trend emerge and have been aggressively pursuing BMS providers and their channel partners, often called “dealers,” with ISO- like deals. BMS providers are now going directly to processors getting revenue share relationships as high as 80% (varies based upon who is actually selling the merchant the payments services.) The infrastructure payments organizations are even allowing some of the larger BMS providers to assume liability, manage risk and boarding, procure rent-a-BIN relationships and create back-office divisions that look much more like payments companies. In fact, VISA is even approaching certain BMS providers and offering them Direct Exchange (DEX) solutions so they can get authorizations directly from the networks (opposed to using a third-party processor.)
With the cost of the personal computer coming down and the proliferation of the internet, more businesses are using BMSs. The BMS market is highly competitive and these providers are looking to grow revenue in any way they can and many are now playing an active role in payments: from referral to full-service. Some have even started giving away the solution and looking for payments revenue to drive their revenue. With more BMS players entering the payments arena it will be important to understand their role and position so you can partner with and/or compete against this new breed of well-positioned ISO. 
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