Payments-as-a-service: The New Path To Profitability

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Payments-as-a-Service (PaaS) may be the new way for financial institutions to future-proof payments, improve payment offerings and the online payment gateway, and increase profitability. This is why.

When it comes to payments, banks are dealing with a rapidly evolving ecosystem. Not only are regulations tightening, but new technologies are upending traditional payment methods. Non-bank players such as Apple are threatening to take a piece of the pie, making it critical for banks to find ways to increase efficiencies. As a result, financial institutions are outsourcing core payment operations and technology. This Payments as a Service (PaaS) model is quickly becoming the new norm as margins are eroded by both competitive pressure and the necessary investments for updating core systems.

Financial institutions (FIs) and other entities can significantly improve their payment capabilities and efficiency by utilizing the PaaS model. This enables these businesses to handle higher payment volumes more quickly and cheaply than they could otherwise. The key is to find a partner who can deliver iterative features to help ...
... the payments operations become a profit center by acquiring new clients and offering new products while facilitating straight-through processing with acceptance for a wide range of payment types. PaaS is the way of the future for businesses looking to increase revenue while gaining market share in an increasingly crowded competitive landscape — all while remaining compliant and secure.

Making the Case for PaaS
The regulatory changes largely resulting from the 2008 financial crisis have presented new challenges for FIs, many of which are now struggling to update bespoke payment technology stacks to meet the requirements of the Payment Services Directive PSD2, ISO20022 standards, and other ongoing changes in payments. Adopting a turnkey PaaS solution has numerous advantages over developing an entirely new model or attempting to update legacy systems to meet new regulatory requirements. By using PaaS, banks can scale and secure their payments operations while processing higher volumes at a lower cost.

Simplicity and Value
Previously, one could achieve the same results by collaborating with multiple software providers — one for point-of-sale, one for reporting, one for mobile, and so on. PaaS combines all of those channels and features into a single platform, resulting in a single integration. By consolidating operations onto a single platform, billing, fees, and integration with existing systems are simplified. Partnering with a PaaS provider allows FIs to adapt the solution as the market evolves and to meet any unique needs that a FI may have.

Flexibility
With 68 percent of banks confirming this was a priority, the ability to offer flexible capacity was the top reason given by banks for adopting PaaS. PaaS eliminates the need for on-premise, physical servers in favor of cloud-based software and technology, lowering operating costs and shortening the time it takes for new products to reach the market. This is significant because sophisticated consumer behavior is driving new payment types and the best online payment gateway technology.

As online payment methods gain traction, financial institutions, retailers, and other merchants must quickly adapt and offer new options to customers in order to remain competitive. The ability to meet customers at every touchpoint is critical, and organizations must adopt payment methods that their core customers prefer.

Security
Security must evolve alongside flexibility and new payment types and methods. As online payments and overall payment volumes grow, and payments become faster, security must be constantly fine-tuned. FIs and other organizations are required to follow not only PCI compliance standards, but also PSD2, GDPR, and other evolving regulations designed to protect sensitive payment card data.

PaaS solution providers are well-positioned to improve security by providing products that go far beyond traditional security measures. These solutions are simple to integrate with existing systems, allowing organizations to shift their focus away from security and toward customer-centric products and services.

New Revenue, Reduced Cost
New revenue streams are enticing for any business, but especially for banks and other payment organizations that are experiencing margin pressure. Some PaaS vendors provide value through revenue sharing or Interchange Plus (IC+) pricing.

PaaS can also save money because the payment provider owns the hardware and software, removing the need for financial institutions to hire technology specialists. The transition from managing in-house payment infrastructure and operations to partnering with a specialized PaaS provider reduces costs associated with technology management and optimization. It also enables financial institutions to capitalize on economies of scale and redirect resources to more strategic, customer-centric initiatives.

Using PaaS allows financial institutions to fine-tune payments with greater flexibility, simplicity, value, and security — at a lower cost than overhauling existing legacy systems to meet evolving regulations and realities. This not only paves a new path to profitability through improved, faster-to-market payments products, but it also allows FIs to redirect their attention to where it belongs: on how the core business can better serve customers.