Over the last two years, PaaS (Payment-as-a-Service) providers have entered the market at an increasingly rapid pace. As PaaS expands its breadth of cloud-based services to the payment value chain, the question for financial institutions and businesses is how PaaS can help them deliver cutting-edge consumer products and grow within hyper-competitive industries. 

Amid growing concerns about security, fraud, and regulatory change, PaaS providers are helping banks and businesses address these issues and decrease payment infrastructure costs by as much as 70%. Today, PaaS providers are reshaping the entire payment value chain to accelerate service commercialization and provide a cost-benefit to customers. But how does it work? Who can benefit most from it, and why? 

What is Payments-as-a-Service (PaaS)?

"Payments-as-a-Service" (PaaS) is the practice of outsourcing one or more components of the payment value chain to provider platforms. 

PaaS comprises both software-as-a-Service (SaaS) and Infrastructure-as-a-Service (IaaS). PaaS providers leverage cloud-based infrastructure and software to provide modular solutions to businesses and financial institutions that require modernized payment services. 

Who can benefit from PaaS, and why?

Outsourcing payment services is becoming increasingly relevant — and necessary — as a business strategy. This is especially true in hyper-competitive industries experiencing increasing consumer demand for innovative payment methods. 

Traditionally, banks prefer to outsource resource-heavy projects — which is often more cost-efficient to facilitate through a vendor partner than conduct themselves. 

For example, ATMs are a typical use case of an outsourced service by financial institutions. While the ATM equipment belongs to a third party, the network and cash management stay under the bank's control. This partnership allows the bank to provide a key service — cash access — to consumers without significantly increasing their overhead costs associated with delivery. 

Similarly, businesses and banks are turning to third parties to address their needs for innovative payment services that deliver enhanced customer experiences. This includes payment collection, A2A payment processing, blockchain technology, payment orchestration, multi-currency solutions, and more. 

PaaS providers are initiating a paradigm shift across the payment industry. The demand for their services is skyrocketing. And the primary objective for the businesses that use them is to keep pace with rapid growth. 

Typical challenges for banks and businesses in the payment industry

The solidification of e-commerce has accelerated the need for software and infrastructure improvements to provide world-class consumer experiences. Additionally, the growing threat of fraud activity makes information security vital across the payment chain. 

There are five common issues that banks and businesses face today:

1. Total cost of ownership: Developing a proprietary payment ecosystem makes it difficult to remain innovative and control costs. 

2. Regulatory compliance: Global data privacy and security regulation is becoming increasingly complex. Businesses operating across borders must implement strict controls across the payment ecosystem, including with third-party service providers. 

3. Security and fraud: Payment activity is the primary source of fraud. These risks will grow as more businesses become involved with payments.

4. Technology: Many banks inherit aging infrastructure such as legacy software and payment systems that aren’t adaptable to today’s demands. 

5. Delighting customers with value-added services: Consumers need more ways to pay for goods and services, especially as e-commerce grows sharply worldwide. And consumers and businesses are requiring banks to deliver features like anti-fraud measures, multi-currency options, and credit solutions. 

These challenges are much more surmountable when equipped with the robust features offered by a modular, cost-effective PaaS solution. 

What to expect when implementing a PaaS model

PaaS offers several benefits to banks and other businesses integrated across the payment ecosystem:

• Lower costs to access leading technology: Since the PaaS provider owns the hardware and software, they're responsible for maintaining it. As a result, moving to PaaS lowers costs for banks and businesses.

• Transparent pricing: The typical SaaS model offers flexible pricing. Many PaaS providers will modify their pricing structures based on customer needs, from small businesses to enterprises.

• Reach the market faster: Launching new products is much simpler when businesses leverage PaaS. PaaS provider product offers are often readily available to go-to-market. 

• Improved scalability and reliability: PaaS operates from cloud-based platforms optimized for high-traffic use and greater system availability.

• Enhanced compliance outcomes: Managing global compliance programs is costly but essential. PaaS providers offer assurance by assuming the responsibility for compliance with ISO 27001, the Payment Card Industry Data Security Standard (PCI-DSS), and other standards.

• Offer valuable features through third-parties: PaaS centralizes key platforms that enable new payment services. This quickly increases the number of desirable payment methods that customers can access. 

• Better STP rates: Removing manual coordination helps to eliminate human error and bottlenecks. A PaaS platform seamlessly integrates core systems for continuous data flows and faster processing rates.  

PaaS is leading the future of payments

As innovations in fintech and payments continue being released, many startups will focus on supplying value-added services across the ecosystem. PaaS will likely accelerate these fast-paced changes occurring in the payment supply chain. 

PaaS providers can enable banks and businesses to pursue a more agile model by offering optimal products through cloud-based third-party platforms. And by doing so in a cost-effective way, it delivers innovative products and payment methods to the market faster and delights customers sooner. 

But for the PaaS model to realize its full potential, financial institutions need to reconsider their operating processes and be adaptable to change. The only question that remains is how organizations will take advantage of the evolving payments ecosystem to delight customers, protect sensitive data, and enable successful outcomes.