Today’s digital economy reshapes how we think about and use financial services. The rise of mobile, social media, big data, artificial intelligence, and virtual reality has made it easier for individuals to manage their money digitally. This means that consumers demand more convenience in accessing and using their financial services.
In response to these changing needs and habits, businesses are reimagining the scope of financial services as a “Payments as a Service” (PaaS) model. Financial service providers can harness the power of PaaS by providing customers with modular products such as payment gateways, risk management tools, and transaction monitoring software on an as-needed basis. So what does this new paradigm mean for the future of financial services?
What Is Payments as a Service?
Payments as a Service (PaaS) is an evolution of the Business-to-Business (B2B) model of software as a service (SaaS) and digital subscription models. PaaS is a subscription-based model for financial assistance that allows users to pay for software and services per month rather than on a one-time, upfront basis.
With PaaS, companies can choose financial services in the same way that they would subscribe to a music streaming service like Spotify or a streaming service like Netflix. PaaS is a very flexible and scalable model that allows financial service providers to elevate payment experience while giving customers more choice and flexibility. This model also allows businesses to pay only for the services they use and nothing more.
Why is PaaS Important for Financial Services?
The fundamental reshaping of the financial services industry that is caused by payments as a service is a result of three major disruptions:
- There is an increasing trend toward digital payments. Consumers are changing how they use their payment cards, with contactless payments and cash-free transactions taking up an increasingly more significant market share.
- The rise of subscription-based models is reshaping the visible business models of various industries.
- The growth of cloud computing is making it easier to implement scalable, flexible, high-performance business solutions.
How Payments as a Service Work?
In its simplest form, Payments as a Service helps banks, payment providers, and non-bank financial organisations to modernise their banking products, services or solutions by leveraging cloud-based platforms. A business subscribes to a payment service hosted on the cloud and can make, receive payments online as well as manage its cash flow. If a different business subscribes to the same payment service, those two businesses can easily transact with each other through the platform. This model is helpful for companies that operate in a highly regulated industry and must comply with strict data security regulations.
PaaS providers are responsible for data security and compliance, providing a fully managed service that eliminates the risk of executing a complex security infrastructure. Beyond the basic functionality of payments as a service, providers have added other features to their platforms that extend the service’s functionality. For example, payment service providers specialising in B2B payments offer a wide range of functions related to sending, receiving, reconciling, and monitoring payments.
The Future of Financial Services: What’s in Store?
The disruption caused by PaaS will not only change how we use financial services but also how financial services are delivered. This is especially true for financial services that are heavily regulated, such as payment services, lending, and insurance.
With PaaS, companies can quickly scale their business and respond to demand by deploying new services and adding new users almost instantly. Financial service providers that use PaaS can promptly adapt their offerings to meet the specific needs of different customers, regardless of their size and location.
PaaS enables a new level of flexibility and agility that allows providers to respond more efficiently to regulatory changes, market fluctuations, and changes in customer demand.
The Rise of the PaaS Model
The rise of PaaS can be attributed to several factors. First, the cost of entry and ongoing maintenance of traditional infrastructure is increasing, driven by the increasing cost of computing technology. At the same time, the demand for more sophisticated and highly scalable cloud services is also growing.
The rise of PaaS has also been driven by the increase in customer expectations for always-on service. Consumers expect more seamless, effortless experiences across all facets of their lives. They expect financial assistance to be no different.
Customers who subscribe to a financial service expect the same level of convenience as they experience with other subscription-based services like Spotify or Netflix. Finally, the rise of PaaS is also a reaction to increasing customer demand for data privacy.
More and more businesses are choosing PaaS because it allows them to host their data in the cloud while retaining control over data ownership and the ability to maintain data on-premise if desired.
The Machinery Behind Payments as a Service
The customer experience is only part of the story when it comes to payments as a service. Behind the scenes, providers use several technologies to power their operations. In addition to standard cloud hosting services, PaaS providers use various technologies to scale their operations.
Some essential technologies PaaS providers leverage include artificial intelligence, blockchain, distributed ledger technology, digital identity management, and machine learning. These technologies enable PaaS providers to integrate with existing systems, drive greater operational efficiency, onboard new customers, and scale more rapidly. This means that providers can better handle spikes in demand during high-volume events like online shopping events.
Payments as a Service or PaaS is reshaping the way we think about and use financial services. The rise of this agile payments model is reshaping the visible business models of various industries. The growth of cloud computing makes it easier to implement scalable, flexible, and high-performance business solutions. These contribute to a rise in PaaS adoption among financial service providers and are driving a new level of disruption in the industry.