By Vijay Oddiraju
Over the last few years, technological innovation and global upheavals have effectively changed human behaviour. This is reflected in the financial market as well where the acceleration towards digital payments, open banking, the use of digital wallets and the rapid decline in cash payments continues to have a huge impact on the entire global payment ecosystem, leading to questions about the relevancy of traditional financial institutions.
In India, over 35 billion digital transactions worth over INR 60 trillion were recorded in 2021 alone. This value is expected to amount to more than INR 385 trillion by 2026. Due to this massive digital acceleration, the need for faster payment solutions and money transfer methods has increased. However, complexities such as keeping up with regulatory compliance, risk management, and instances of fraud continue to pose a challenge to banks, payment providers and customers.
One way to deal with this demand and reduce customer friction is by approaching payments like many other software solution: as a service. The Payment as a Service (PaaS) model combines elements of software as a service (SaaS) and infrastructure as a service (IaaS), allowing banks and financial institutions to offer their customers advanced payment products and services without incurring huge development investment costs. This creates a greater degree of flexibility and choice for customers while reducing the element of risk and simplifying the process of restructuring a company’s payments stack.
The various advantages of PaaS are:
For a customer, PaaS leverages the SaaS model to offer a simplified fee structure with no transactional or hidden costs. Banks are also leveraging the capabilities of the as-a-service model to provide solutions that are scalable, secure, and can process high transaction volumes at low costs. It also allows banks to expand and modernize their portfolio without sustaining a huge upfront investment or overhead costs. PaaS providers can operate innovative cloud-based platforms that offer specialized services like payment clearing, cross-border payments, and quick disbursements.
Speed and efficiency
Usually, a cheque is processed within 48 hours from the moment it’s sanctioned and a wire transfer can take anywhere between 3 hours to 3 days, depending on the location and the bank, which slows down payments. PaaS bypasses these concerns by eliminating human error and bottlenecks, increasing efficiency. It integrates core systems for continuous data flows and faster processing rates, which consequently, increases the number of payment methods that customers can access.
Optimization of costs and resources
As PaaS providers offer the hardware and software, financial institutions and banks of all sizes do not need to employ specialist in-house resources for their maintenance and do not need to deploy in-house specialists to develop a product or functionality. This reduces costs considerably – especially for smaller banks – while also enabling a faster go-to-market strategy. In addition, the various pricing models, such as the pay-per-use model or the subscription-based fixed fee model provides a greater degree of flexibility, realize cost savings, efficiencies and gain access to innovation to compete with their larger counterparts.
Achieving payments compliance can be daunting and keeping up with them, especially, digital commerce regulations can be costly and time-consuming. However, it is the most critical facet of a business. PaaS providers offer assurance and bear the responsibility to comply with standards such as ISO 27001, Payment Card Industry Data Security Standard (PCI-DSS), and Reserve Bank of India
What the future holds
The recent launch of 5G in India and the increased usage of technology such as Blockchain, have caused payments to be virtually instantaneous. This will only improve in the next few years, resulting in a larger number of cross-border transactions, increased volume of transactions, and offering greater scope for the payment network to be automated.
The rise in alternative payment modes such as cryptocurrency and the stratospheric growth of the Indian Fintech space is also expected to expand the horizons of flexible payment options for both companies and consumers alike. Such advances in technology also bring in opportunities for fraud. However, advanced security measures such as improved biometrics and advanced authentication modules are expected to be introduced to counter this.
In a rapidly changing environment, banks and traditional financial institutions have become less relevant due to digitization. With PaaS, these stakeholders will be able to strengthen their presence in the market and develop products without being restricted by legacy systems.
(The author is CEO and Cofounder at Volante Technologies. Views expressed above are personal)