As credit card imprinters gave way to electronic processing, an entire industry emerged around selling payment terminals to merchants. Decades later, however, advancements in payments technology seemed to cast doubt on the future of that very industry.
Yet reports of the demise of independent sales organizations (ISOs) have been greatly exaggerated. While some ISOs were crowded out of the market, many adapted their business models to remain competitive.
As Don Apgar, Director of Merchant Payments at Javelin Strategy & Research, discusses in The Evolving ISOs: How Changes in Payments Influence Their Ongoing Shifts report, this full-circle evolution has not only restored ISOs’ role in the payments ecosystem, it has expanded their footprint and made them a critical component of the merchant payments landscape.
Door-to-Door Sales
In many ways, the original ISO model resembled the door-to-door sales approach once associated with vacuums and encyclopedias.
“When we lived in New York, Verizon wired our neighborhood for fiber, and then we had a Fios salesman coming around knocking on the door,” Apgar said. “That’s kind of what happened in the credit card business. They hired the sales companies to go out and knock on all these doors. ‘Here’s a list of all our customers, go see them and convince them to buy a payments terminal.’”
“It grew into an industry because banks figured out that if I’m paying salesmen to be out there talking to my customers, they could go talk to my competitors’ customers at the same time,” he said.
The industry was highly lucrative, as individual sellers earned residual income based on a percentage merchant revenue. For example, if a sales agent sold a payments terminal to a local bike shop, they might earn $50 a month from that single account. Scaled across many merchants, this could quickly grow into a substantial revenue stream.
However, this attractive opportunity also drove fierce competition among ISOs, leading to rapid market saturated. Over time, more merchants adopted payment terminals, many of them locked into long-term leases.
The landscape shifted further when point-of-sale (POS) system providers introduced proprietary software tied to their hardware, making it harder for merchants to switch providers. This marked the beginning of a challenging era for ISOs.
“The software company started bundling payments,” Apgar said. “Square was a big example of that—you sign up for the software and it comes with payments built into it. You don’t have a choice to use anybody else, it all works together. It’s like the Apple ecosystem, you just get everything, and it all works. You don’t go somewhere else for your email and your music library and TV, you just use the stuff that’s there.”
Coming Full Circle
These bundled ecosystem effectively sounded the death knell for the traditional door-to-door model, because they left ISOs with fewer opportunities to sell payment systems. Many ISOs reached a crossroads: exit the industry by selling their portfolios, or evolve and find a new path forward.
For those that chose to adapt, continued innovation in POS systems ultimately created new opportunities.
“What happened was that the POS system started to get more complex because the systems were kind of basic—the Clovers and the Squares of the world,” Apgar said. “You could just go online and say, ‘Yes, send me one,’ and it was kind of like a MacBook. You open the box and it’s got the red card that says, ‘Stop, do this first. Plug it in, turn it on, put in your Wi-Fi password, and it’s all ready to go.’”
Modern POS systems are far more complex, moving well beyond simple plug-and-play solutions. This added complexity has restored the value of ISOs, as most merchants are not payments experts.
They often require guidance in selecting the right system, as well as support with installation, configuration, and ongoing operation. This renewed demand has once again positioned ISOs as trusted advisors in the POS landscape—an evolution that merchants have broadly embraced.
“The merchant wants somebody to sit down and say, ‘Here’s what I think you need,’” Apgar said. “’Do you sell online? Do you sell via mobile? Do you have a food truck? Do you take reservations? Tell me how you run your business, and here’s what I recommend. I’ve got these three different platforms, I’m going to set you up with these two stations, a kitchen printer, a handheld, and we’ll do payments at 3%.’”
Getting Vertical
Another factor sustaining ISOs is the increasing granularity of POS systems. Today’s systems are not just designed for broad categories like restaurants, they can be tailored to specific needs, from pizzerias to fine dining establishments.
On the surface, these vertical software-as-a-service (SaaS) solutions, which often include integrated payments, might appear to threaten ISOs. In reality, their complexity has only increased the need for personalized guidance.
That said, the growing sophistication of POS systems has required ISOs to evolve.
“It’s a big investment to be able to train all your independent salespeople to sell POS, because when you think about vertical SaaS, payments are a small portion of what that system does,” Apgar said. “The system basically runs the merchant’s entire business. So, now you’ve got a sales guy who’s used to talking about payments who has got to talk about everything.”
The specialization in these systems has largely forced ISOs to focus on verticals as well, such as retail or restaurant sales. These new-look ISOs represent a significant evolution from their original model—and their continued success stands as a testament to their adaptability in the face of disruption.
“This thing is coming full circle,” Apgar said. “We thought that the door-to-door sales guy was like the Fuller Brush Man, he was going to get replaced by merch, where you can just go online and order it yourself. That started to happen. The ISOs that that did not embrace technology pretty much retired or got bought or got forced out.”
“But the ones that made the investment and said: ‘This is the future, I’m going to partner with a POS platform and I’m going to train my sales guys,’ these guys are doing better than ever,” he said.
