Understanding Payments as a Service (PaaS)
You are probably already familiar with the term SaaS (Software as a Service). However, you may not be as well-acquainted with PaaS (Payments as a Service). This acronym can also refer to Platform as a Service, but here we will be exploring Payments as a Service.
What PaaS Means for Financial Institutions
PaaS (Payments as a Service) – as defined by the McKinsey Global Payments Report:
While outsourcing of the full payments stack is a possibility, a new generation of technology providers has emerged, allowing banks to expand quickly and modernize their payments product portfolio without incurring high upfront investment. Payments-as-a-Service (PaaS) players operate cutting-edge cloud-based platforms to provide specialized services, such as card issuing, payments clearing, cross-border payments, disbursements, and e-commerce gateways.
The Rapid Growth of the Payments as a Service Market
According to a report from Grand View Research, the global Payments as a Service market size is projected to reach $25.7 billion by 2027. This rapid growth can be attributed to the digital acceleration that has already been in progress, combined with the pandemic, which has increased the demand for quick money transfer methods.
How PaaS Providers Enable Real-Time and Scalable Transactions
Due to the rising number of digital payments and financial transactions, the need for cloud-based payment processing infrastructure and money transfer platforms (which make it possible to manage higher volumes of transactions faster and at low cost), has increased.
Traditional payment system hubs are built on legacy technology stacks for on-premise, batch-based deployments. These batch-based ecosystems are a huge roadblock to modernization for payment providers, particularly for the rapidly growing real-time payments market.
Payment as a Service providers offer a cost-efficient and scalable alternative to legacy payments hubs, with benefits like:
- Support for real-time, 24x7x365 payment infrastructure
- Fast deployment with minimal tech debt, allowing businesses to integrate quickly
- Lower total cost of ownership compared to traditional hubs
Transforming the Way Financial Institutions Handle Payments
As we mentioned earlier, PaaS enables financial institutions to grow to higher volumes of transactions at relatively low cost as you scale, freeing you from the burden of tech debt associated with traditional monolithic payments hubs. While hubs can cost anywhere from $1m-$25m, with PaaS, you pay for what is needed over time, leading to a much lower total cost of ownership. This is the type of scalability that you should be looking for as the market for emerging payments grows. Additionally, the speed to market of PaaS payments solutions is a key differentiator. Traditional hubs take years to get to market, while PaaS takes weeks to get you to market.
When an organization uses PaaS, they are also outsourcing third-party integration and compliance concerns, freeing up resources and increasing efficiencies.
Key Features to Look for in a PaaS Provider
Here are some key functions and features to look for in PaaS solutions:
- ISO20022-native services provide richer, better-structured, and more granular data for payments messaging
- Real-time payments help your organization deliver real-time payment services to customers quickly and easily, leveraging new payment rails
- Embedded Fraud and risk management helps you manage risk and maintain regulatory compliance with advanced security measures
- A cloud-native platform, built for speed, responsiveness, and reliability, provides a strong foundation for innovation
- Intelligent payment routing options can be tailored to your needs and payment scenarios
- Reporting and analytics provide deep and actionable insights into your payment products and services operations
- Microservices-based architecture allows innovation and change without disruption, supporting agile development and business models
- Open APIs provide simple/fast integration with existing systems such as core banking, digital banking, fraud, and risk management
- Advanced security features to ensure data and privacy protection
Why PaaS Is the Future of Banking and Payments
By outsourcing payment processing to a trusted PaaS provider, a financial institution can improve agility, leverage new technologies, reduce operational overhead, and deliver modern, real-time services to customers. PaaS provides a reliable way to modernize payment operations, helping financial institutions adapt to industry changes and stay ahead—today and into the future.
Looking to learn more about commonly used payments terms? Check out our blog explaining microservices and API architecture.
Alacriti’s PaaS Solution for Financial Institutions
Alacriti offers PaaS on our cloud-based Orbipay platform, which delivers solutions across the payments ecosystem, including a payments hub, Electronic Bill Presentment and Payments (EBPP), and payouts.
To speak with an Alacriti payment service provider expert, please contact us at (908) 791-2916 or info@alacriti.com.
