Payments 'as a service' cuts costs from tech that's not competitive
The shift to Software as a Service among banks is significant because only a few years ago this attitude is something most large banks would not even consider.
Banks were concerned with keeping all of their services controlled internally, and were equally reluctant to relocate operations to the cloud. Now, however, attitudes are shifting.
Many banks, large banks in particular, are realizing that, while their payments systems are vital, they are non-differentiating, and there is no loss or risk in migrating those processes to the cloud to be maintained by a third party. As a result, banks are considering—and increasingly adopting—Payments-Platform-as-a-Service (PPaaS) solutions.
Bank graduation to PPaaS solutions represents the latest response to the profound challenges faced in today’s payments environment. Following the 2008 financial crisis, banks saw a litany of regulation restructure the payments landscape, which in turn led to higher performance demands from both customers and stakeholders.
In order to meet these demands, banks need higher performance payments processing that is scalable, compliant and transparent, and that will help them better manage large transaction volumes at a lower cost. However, given that the majority of a large bank’s technology budget is typically earmarked for non-discretionary compliance and maintenance on in-house infrastructure, there is little scope within the existing model for big increases in spending on innovation.
However, according to early adopters, the banking industry is trending towards the implementation of PPaaS solutions, and they may soon become the new normal, as the model reduces complexity and even decreases transaction costs. Upgrades and maintenance become the responsibility of the service provider, freeing up budget and time to allow banks to focus on creating and delivering value-added services for their customers.
In fact, banks that transition their payments model from a self-managed infrastructure to PPaaS can realize measurable benefits across all aspects of their payments operations, including:
A reduction in per-transaction processing costs. Early adopters of PPaaS see tremendous cost savings through eliminating the need to own the payments hardware and software, or staff specialist payments technology teams. The larger the bank’s payments volumes, the greater the potential savings. One bank estimates they will be able to save up to 60% in payments transaction costs by eliminating the need for hardware, software or specialist payments technical teams.
Increased efficiencies in IT spend. The pay-per-use model allows banks to pay only for the processing services they need, freeing up scarce budgetary resources to fuel innovation.
Higher straight-through-processing (STP) rates. Manual repair and reconciliation efforts are reduced.
Shorter time to compliance. The service provider directly manages the technical burden of any regulatory change, reducing time to compliance.
Improved performance and scalability. A cloud-based payment processing service can manage the peaks and valleys of daily processing more effectively, responding smoothly to spikes in traffic while staying ahead of the overall steady increase in annual payment volumes.
Future proofing. By ensuring access to the service provider’s newest versions and functionality, including flexibility for the adoption of immediate payments and blockchain at pace, PPaaS provides future-proofed access to innovation without the onerous effort and delays of internal upgrades.
Given the advantages of Payments-Platform-as-a-Service, it is hardly surprising that banks around the world are taking a close look at what PPaaS can offer. A number of banks have already made the move and are reaping major benefits. As the ranks of converts grow, the industry is closing on a transformational tipping-point at which PPaaS will effectively become a prerequisite for participating in the payment business.