Payments-As-A-Service (PaaS): Outsourcing Payment Functions 

The PaaS (Payments-As-A-Service) model offers customers scalability, availability, and cost benefits.

Therefore, PaaS providers help banks address security and fraud concerns and changing regulatory requirements.

PaaS providers partner with the following financial institutions:

• Banks.
• FinTech.
• Insurers.
• Telecoms.
• E-commerce.

It can also partner with other industries to provide customers with access to cloud-based services.

Customers can avail of PaaS offerings based on their business needs. Therefore, it is important to ensure the successful implementation of PaaS.

This implementation includes developing strong governance, outsourcing payment services, and defining processes for swifter integration.

Cloud-based platforms support the entire payment value chain through PaaS offerings.

The article explores Payments-as-a-Service (PaaS) and how it enables banks and financial institutions to offer payment services.

How Did The Payment Industry Develop? 

The payment sector has undergone significant disruption. It has transformed with non-banking organizations like the following:

• Technology companies.
• Iintechs.
• Retailers.
• Telecommunications providers.

In these organizations, the disruption in payments specialized in niches with value-added payment processing services.

Moreover, outsourcing has become a popular business strategy in the hyper-competitive industry.

Banks traditionally outsource non-core functions such as hardware and software, data management, risk management, support services, ATM activities, and third-party service providers.

For instance, banks use service providers to manage ATM equipment. However, the bank retains control of cash management and the network.

Outsourcing payment products to non-banks that offer value-added services represents a paradigm shift in the payment industry.

These new-generation payment as a service solutions like Skaleet enable financial institutions and non-banks to grow and meet customer expectations. Also, these solutions only demand a small upfront investment.

Therefore, financial institutions outsource non-core functions and core functions such as the following from these service providers:

• Transaction management.
• Cybersecurity.
• Payment processing.
• Technology management.
• KYC and AML management.

This practice is referred to as “Payments-as-a-Service” (PaaS), which can be thought of as a hybrid of Software-as-a-Service (SaaS) and Infrastructure-as-a-Service (IaaS).

Understanding PAAS 

In the past few years, the market has seen the emergence of PaaS providers. These providers offer financial institutions specialized services like payment engine hosting, reconciliation and settlement, cross-border payments, and third-party collections through cloud platforms.

Moreover, they help banks address their growing security and fraud concerns while reducing payment infrastructure costs by around 60% to 70%.

Cloud-based platforms provide services that cover the complete payment value chain. These services fall under the PaaS (Platform as a Service) offerings. It can collaborate with various industries, such as fintechs, insurers, telecommunications companies, and e-commerce businesses.

Therefore, these offerings are scalable. Also, they provide high availability, accelerate service commercialization, and offer a cost-benefit to customers.

Why Did Businesses Across Niches Consider Outsourcing Payment Functions? 

The payment industry is experiencing a significant transformation. New trends and innovations emerge, pressuring organizations to meet consumer demands.

Moreover, ensuring security became a difficult task with the heavy digitization of payment.

Therefore, to address these challenges, the industry must focus on five main issues:

1. Lack Of Security 

Financial services fraud is a growing concern in the industry, particularly regarding payment activity. As more businesses offer payment services, the risk of exposure increases.

Therefore, to mitigate this risk, it is important to focus on two key issues: customer onboarding and monitoring activity.

By adopting the right approach to transaction monitoring, you can detect fraudulent activities and block suspicious payments in real-time.

This helps you balance the risks and provides an improved and seamless customer experience, transforming the entire payment process.

2. Managing And Cutting Cost 

In the payment industry, it is essential to maintain low costs without compromising margins.

Despite the benefits of cutting-edge technology and innovative business models, operating margins still need to improve.

Traditional payment models involve significant upfront investments to build full payment stacks. These stacks include licensing, compliance, technology, and program management costs.

Additionally, regular updates and maintenance are necessary to keep up with the latest developments in the industry.

3. Upgrading Technology

In today’s dynamic and ever-evolving tech landscape, a combination of various advanced technologies, such as API, AI, cloud, biometrics, etc., has revolutionized the payment industry.

To keep up with the new industry standards and payment infrastructures, payment solutions must constantly upgrade themselves.

However, many traditional banks need help to remain competitive and adopt interoperability due to their complex payment systems that are difficult to replace or modify.

Moreover, even newer fintechs face a similar challenge in developing and maintaining their payment technology stacks to stay ahead.

4. Regulatory Compliances 

Recently, the payment industry has undergone significant changes due to the emergence of new payment regulations.

One of the major regulations concerns the idea of Open Banking. This is a process that requires organizations to exercise caution in their operations. It helps them avoid incurring regulatory penalties.

The rise of data access and protection concerns has further complicated the industry’s landscape. It gave rise to challenges for cross-border payments all around the world. These challenges created issues in navigating local, regional, and international rules.

Therefore, payment providers must keep up with the ever-changing regulatory environment to remain compliant and avoid penalties.

5. Challenge Of Meeting Customer’s Expectation

As the world advances, consumers are becoming increasingly demanding in terms of the payment options they have available.

The emergence of new payment rails and innovative features is something that they have come to expect.

However, it’s about more than just accessing these payment options. Consumers and businesses also want their banks to provide complementary features and value-added services.

These may include tools to help combat fraud, the ability to manage multicurrency payment services, synchronization with credit solutions, and simplified account reconciliation processes.

Revolutionizing Payment Systems With Payments-As-A-Service

The landscape of payment systems is transforming, causing some challenges for traditional payment businesses.

As a result, banks are faced with two options to address these challenges: either outsource payment functions to third-party providers or collaborate with Financial Technology (FinTech) companies.

The Platform-as-a-Service (PaaS) model can be an effective solution for both Financial Institutions (FIs) and non-bank entities, as it can allow them to manage higher transaction volumes more expediently and at a lower cost.

However, the payment domain is highly regulated, and players must be mindful of how to keep ownership costs low while meeting industry demands for value-added services.

Such demands and emerging technologies and trends can pressure entities to innovate and satisfy consumer demands continuously.

Moreover, security is paramount due to the growing threat of fraud and criminal activities.

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