AI Overview
Summary
Allen Kopelman argues that the payments industry is shifting from selling “agnostic” processing to selling an integrated “product” (software, POS, or specialized systems). The core risk for Merchant Level Salespeople (MLSs) and Independent Sales Organizations (ISOs) is relying on agnostic third-party software vendors, which often leads to stolen residuals and devalued portfolios when those vendors are acquired and monetize payments (e.g., Lightspeed switching to Stripe). Kopelman asserts that MLSs must partner with ISOs who fully own their technology stack (gateway, software, POS) to create a “safe harbor” that protects long-term residual income, valuations, and business stability. The future belongs to those who sell integrated business solutions, not just credit card rates.
Payments Industry Shift: Why MLSs Must Own Their Technology Stack (Not Just Sell Processing)
🎯 Are You Selling Products or Processing? The Future of Payments
The payments industry stands at a crossroads. On one side, Independent Sales Organizations (ISOs) are developing their own gateways, software, and POS systems. On the other side, formerly “processor agnostic” third-party providers are actively stealing accounts from merchant acquirers by making payment processing a mandatory part of their services.
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Protect Your Residuals: The Risk of Agnostic Systems
What would we tell a third-party service provider that promises never to touch our accounts? Some of it is unprintable. Can you blame us for being jaded, after seeing the same movie repeatedly? Agnostic systems have repeatedly hurt our agents, stolen our residuals, and hog-tied our merchants into long-term contracts with no price protection.
People who have only been in the business for a few years may not be aware that the days of selling agnostic software are fading. Therefore, Merchant Level Salespeople (MLSs) need to work exclusively with ISOs that fully own their technology stacks. While you may make less money upfront, you’ll protect your long-term residual income. These ISOs provide a safe harbor for selling without the constant threat of lost accounts and stolen residuals.
Protect Your Valuations: The Shift to Integrated Solutions
In the current environment, having a portfolio of countertop terminal merchants is worth less than having a portfolio of merchants using non-agnostic software or POS systems. MLSs need to protect their valuations by working with companies that offer a full suite of in-house solutions.
The payments industry is changing rapidly; companies that do not own technology will not be around in five years. ISOs need to move fast and either build or acquire software companies. Conversely, partnering is not enough and is no longer a good strategy. What’s to prevent a third-party partner from selling down the road and the new owners switching the merchant accounts to monetize the payment revenue?
Remember when Lightspeed switched their (our) merchants to Stripe? Merchants wanting to keep their current processor had to pay $400 or 50 basis points, whichever was greater. It didn’t make financial sense for merchants to stay with us, so they left, and there was nothing we could do about it.
Protect Your Business: Selling a Product, Not Just a Rate
Terminals are still around, but hardware sales in general are going away. Toast, original equipment manufacturers (OEMs), and other companies offer Hardware-as-a-Service (HaaS) and Software-as-a-Service (SaaS). This approach enables merchants to continuously refresh their technology without fear of obsolescence. This effectively shifts the focus from simple mechanisms to solving business problems.
At a time when any company can sell software to your customers online, it’s time to figure out what you’re going to sell and build your business around a few integrated products. Do you think Toast, Square, or Stripe users care what rate they’re paying? They’re buying a product.
Product or Processing?
In my recent presentation at the Southeast Acquirers Association (SEAA), I asked attendees if Toast sells processing. Almost everyone in my session raised their hands. Toast does not sell processing. They sell Toast with very high rates. How do they get away with that? It’s simple: They sell product.
If you’re still thinking of yourself as a credit card person, consider changing your title to Business Solutions Provider. This business is changing faster than ever, and AI is pouring gasoline on software development, accelerating our time to market.
When ISOs try to recruit me, I only ask two questions:
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Tell me about your technology.
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Tell me what kinds of merchants that you will approve (including so-called high-risk).
Other than that, I do not care about the Schedule A, terminals, or cash discount. Everyone has that. I want to know if you own your own POS, software, and gateway.
To quote Mike Nardy in a recent Facebook post, “If you start building tech today, you’re already too late.” And I agree with that assessment.
Fool Me Once: Choose Your Partners Wisely
Despite rumors to the contrary, the terminal is not dead. Some merchants use countertop terminals; others prefer vertically focused apps and software. ISOs and MLSs need to offer solutions based on each merchant’s unique preferences while protecting their hard-earned residuals.
The SEAA exhibit hall recently featured over 70 software and POS vendors out of 136 booths—over 50 percent of exhibitors. I’ve never seen that many before in 24 years. I can’t help but wonder how many of them will be around next year and how many will be bought by ISOs and no longer be agnostic.
MLSs, I encourage you to get out and talk to those companies and forget about the processor-agnostic players. Do not make the same mistake that I and countless other ISOs have made by trusting “agnostic” providers. They mean well, but none of them has a crystal ball that tells them when they’re going to sell. Once that happens, private equity will do whatever they want, and the first thing they will do is monetize payments. We saw it with Lightspeed and others, and we’ll see it again.
Every experience is a lesson, and this is one lesson I don’t want to repeat. Choose your partners wisely, and make sure they own their technology.
Allen Kopelman, a serial entrepreneur, is co-founder and CEO of Nationwide Payment Systems Inc. and host of B2B Vault: The Biz to Biz podcast. Email him at allen@npsbank.com and connect on LinkedIn https://www.linkedin.com/in/allenkopelman/ and Twitter @AllenKopelman.
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FAQ: Frequently Asked Questions
What is the fundamental shift Allen Kopelman argues is happening in the payments industry?
The fundamental shift is moving away from selling basic “agnostic processing” (just the rate) toward selling an integrated “product”—a complete software solution, POS system, or specialized vertical application.
Why are "agnostic" software systems considered a major financial risk for Independent Sales Organizations (ISOs) and Merchant Level Salespeople (MLSs)?
Agnostic systems are risky because they often lead to stolen residuals and devalued portfolios. When the agnostic third-party vendor sells to private equity or a larger tech company (like Lightspeed selling accounts to Stripe), the new owner monetizes payments, cutting out the original ISO/MLS.
What specific historical example is cited to illustrate the danger of trusting agnostic partners?
The specific example is when Lightspeed sold its merchants, requiring those who wished to keep their current processor to pay a steep penalty ($400 or 50 basis points), which made it financially illogical for merchants to stay, costing the original ISO their accounts.
What single action does Kopelman recommend MLSs and ISOs take to protect their long-term residual income and portfolio valuations?
They must partner with ISOs that fully own their technology stack (POS, software, and gateway). This creates a “safe harbor” that prevents sudden, hostile account migration.
Why is a portfolio of merchants using integrated software or POS systems considered more valuable than a portfolio of countertop terminal merchants?
Portfolios tied to non-agnostic software are considered more stable and harder for competitors to displace. The high retention rates and integration depth protect the long-term valuation of the portfolio.
What two questions does Kopelman ask recruiters to determine if an ISO is prepared for the future?
He asks: 1) Tell me about your technology (do you own it?), and 2) Tell me what kinds of merchants that you will approve (including so-called high-risk merchants).
What is the key difference between selling "processing" and selling a "product," as exemplified by Toast?
When selling a product (like Toast), the merchant values the integrated solution and features (e.g., inventory, table management) more than the cost of processing. This allows providers to charge higher effective rates because they are solving a bigger business problem.
What does Kopelman suggest MLSs change their title to, reflecting the industry shift?
He suggests changing the title from “credit card person” to “Business Solutions Provider.”
What are HaaS and SaaS, and how are they replacing hardware sales?
aaS (Hardware-as-a-Service) and SaaS (Software-as-a-Service) are models where hardware and software are provided for a low monthly fee. This allows merchants to continuously refresh their technology without fear of obsolescence.
