For forty years, the merchant acquiring industry has been a stalwart of the financial services sector, constantly outperforming the chronic predictions of its own demise from its own founders and leaders. Prevailing theses included fragmentation-induced consolidation, digitalization, a constant race to the bottom on pricing (with the attendant downward pressure on profitability), and most recently, a microbial induced cataclysm from the COVID-19 pandemic. And yet, at all times, and through all challenges, the payment processing industry, and its core distribution engine, the merchant processing Independent Sales Organization (ISO) has proven itself to be all but invulnerable.
The traditional model for selling merchant services (payment processing) that has survived and thrived for over four decades was originally the product of the disintermediation of the services from the banks who lacked the technical expertise, technology (switching capabilities), implementation wherewithal, and customer support to support the sale of the processing and point-of-sale hardware. Perhaps most notably, the banks lacked the very essence of what the ISO came to be – an extremely efficient sales, distribution and servicing hub.
The ISO has always been a reseller, walking into dry cleaners, dental offices and restaurants, signing up owners to processing agreements with either a bank or third-party processor, and collecting a residual on every card swipe for as long as the merchant remained in good standing, under contract, and active. And the ISO’s business model has been relatively immune to attack, largely due to two factors: the intentional opacity of the true cost of the payments processing, and the direct relationship with the merchant.
The opacity of pricing has historically made switching providers an unworthy exercise due to the inability to accurately compare pricing schemes, and that the need for payment processing trumped technology solution providers – SaaS providers with verticalized business management solutions – in importance, preventing the same from capturing the primary relationship with the merchant. Hence, the merchant acquiring ISO business model has been highly defensible due to its ownership of the distribution and the inertia resulting from the intentional informational asymmetry on pricing.
But that’s all about to change. Storm clouds are gathering.
The traditional ISO model is soon to be buffeted by two tectonic shifts: the acceleration of distribution capture by software companies (ISVs) and the onset of agentic commerce.
Distribution capture by ISVs has been around for a while now but the movement is being sent into overdrive because of the new world order of “AI everywhere”. Merchants are far more likely to explore AI solutions, and answers to their questions regarding the same, from what they perceive to be their pure tech partners, like ISVs, than their merchant services providers. This is a marked dynamic change. It’s no longer a directionally one-way distribution model where the ISVs are seeking out the merchants, the merchants are now seeking out the ISVs.
Then there’s the advent of agentic commerce. Though not an immediate threat – much more hype than reality at present – it’s important to understand that in an agentic commerce world, businesses who desire to be visible to purchasing agents will have to expose all their data. For ISOs that will mean that the purchaser’s AI agent will have full visibility into interchange, markups, per-item fees and chargeback costs. All of this information will be readily available through APIs. The takeaway here is that pricing opacity will disappear.
Taken together, these two shifts could easily rise to the level of an existential crisis, as the most defensible elements of the existing ISO model are destroyed: ownership of distribution and protective pricing schemes.
The storm clouds on the horizon – Software Platforms and ISVs
The commercial trend in payment processing today is to receive it as an embedded feature in a software-based business management solution. This could be in the form of a salon booking engine, a restaurant POS system, or a veterinary practice-management suite. What’s fundamentally changed here is that the purchasing decision for payments is now being made at the time of the software demo, not at a table with an ISO sales agent. In fact, more and more the ISO won’t have a seat at the table at all.
For those who question the validity of this premise, there’s data to support it. Verticalized software and embedded payments specialist Rainforest’s 2026 Vertical SaaS Embedded Payments Benchmarking Study found that nearly four in five software platforms are targeting payments adoption of 71% or more of their customers, while only a quarter have reached it. The gap can be accounted for, in large part, due to an incumbent ISO relationship. According to a summary of the same study, only 8% of software platforms still refer merchants to outside processors, and 90% cite seamless software integration as the primary driver of adoption (only 21% cite price). This is an enormous change in marketplace economics. The ISO’s oldest and most effective value proposition, a lower processing rate, no longer decides the sale. Merchants want a seamless, bundled software and payments solution. That’s what’s driving value. Not price! To further the point, Deloitte expects software platforms to control 60% to 70% of SMB acquiring volume by 2030.
And again, AI is accelerating this trend. All businesses are trying to figure out how to meaningfully and efficiently implement AI. This dynamic is driving them even faster toward both horizontal and verticalized software providers as the go-to resource.
The storm clouds in the distance – Agentic Commerce.
I’m very much in the camp that agentic commerce is much more hype than reality today and that the oft proffered hypothetical of having an AI virtual assistant schedule, coordinate, and purchase a family vacation with minimal human input, borders on the ridiculous. However, when agentic commerce does come, the most likely use case, at first, will be executing the most mundane, tedious and mindless purchases. For an SMB merchant shopping for merchant services, this is exactly what agentic commerce will address.
Agents will cut right through today’s obfuscation of costs and unlike their human counterparts, they have all the time in the world to perform the end-to-end comparisons (in real-time no less), from price, features, reputational/trust score, delivery, and scope, cost, and timing of installation.
The infrastructure for this is being built right now by OpenAI, Stripe, Google, Visa and Mastercard, and Gartner predicts that AI agents will intermediate 90% of B2B purchasing by 2028.
The storm breaks.
Both sets of storm clouds are threats in themselves. However, together, they pose an existential threat to the existing merchant acquiring model. One eliminates the ownership of distribution. The other eliminates the informational asymmetry in pricing.
The storm will not break overnight. Median embedded payments adoption through software platforms still hovers near 48%, and merchant comfortability with their existing providers remains real. Further, J.P. Morgan cautions that fully autonomous shopping will take some time. But the trend, direction, and forcefulness of these shifts is not in doubt, only the speed.
It’s also important to acknowledge that merchant acquiring will not disappear. Banks and processors will persist as licensed, regulated, low-margin infrastructure concerns operating beneath the software platforms. The ISO, however, owns neither the rails, custody, or switching technology. Some will adapt as integration partners or resellers for platforms, such as what Square’s New ISO program is demonstrating, but that is a different and smaller business.
For forty years, this merchant services industry and the ISO have outlasted every forecast of its demise. This time, however, the forecast is not about pricing or consolidation. It’s about who owns the merchant relationship, a new calculus of value, and who (actually, what) is performing the price comparisons.
Adam T. Hark is the Founder & Managing Member of Wellesley Hills Financial
