The payment industry is experiencing a period of rapid transformation nowadays. This is partially due to the emergence of a multitude of players in the payments-as-a-service (PaaS) sphere. These providers enable FIs and other entities to outsource payment products and services and offer them to their clients without facing high upfront costs.
The convenience and value offered by this outsourcing practice create high demand for it. As a result, the PaaS market size is forecast to increase from
$56.2 billion in 2020 to $164.3 billion by 20261. In this overview, we explain how PaaS providers work, talk about the benefits they provide to businesses, and reveal what can be expected from them in the foreseeable future.
The Payments-as-a-Service Model Explained
The PaaS model enables banks and other organizations to offer a wide array of payment solutions through cloud-based third-party platforms.
The services that can be outsourced through PaaS are typically divided into two categories:
- Implementation services - issuing switches, acquiring switches, advancements/regulatory circular implementations.
- Payment operations and product support features - transaction monitoring, dispute management, reconciliation and settlement, statistics and analytics, merchant acquiring support, complaint handling, user management, security.
As you can see, PaaS covers not only value-added features but also core functions, thus promoting flexibility and optimizing the organizations’ payment stacks. However, there are even more advantages to using this model.
6 Key Benefits of PaaS
PaaS offers plenty of benefits to FIs, banks, and other organizations, including:
- Lower costs. The PaaS model decreases the payment infrastructure costs by 60-70%2. This is due to the fact that when implementing it, companies don’t need to employ specialized in-house teams and can rely on the providers that will manage all the networking, servers, storage, middleware, and operating systems.
- Integration speed. Product development or launching a new service can be a lengthy process when conducted with a business’s in-house resources. Luckily, PaaS providers offer solutions that are ready to go, which makes the deployment process a lot faster and easier.
- Easier management. PaaS providers ensure that activating and switching off the functionalities is straightforward for businesses. Keeping up with the trends and introducing upgrades is also easier when outsourcing payment solutions.
- Simpler regulations compliance. Staying compliant with multiple standards requires a lot of research, effort, and investment. However, when a company chooses to collaborate with a PaaS player, the legal responsibility for compliance with such regulations as ISO 27001 and PCI DSS is on the third-party service provider.
- Improved scalability. The PaaS model allows for better scalability as cloud-based platforms are designed to work with heavy traffic.
- Flexible pricing. PaaS providers typically offer different pricing models. Companies can usually cover a one-off implementation fee, cooperate on a pay-per-use basis, or agree to make monthly or annual maintenance payments. However, typically, the pricing consists of a combination of these models tailored to match the customers’ needs and preferences best.
These advantages make more and more companies outsource payment solutions from third parties, making the future of PaaS appear very promising.
A Glimpse into the Bright Future of PaaS
PaaS is helping to tackle a multitude of major challenges in various spheres of the payment ecosystem in an efficient and cost-effective way, which leaves no doubt that this business model is here to stay.
Notably, the industry verticals that tend to cooperate with PaaS providers most of all nowadays are:
- Retail and eCommerce
- Banking, financial services, and insurance (BFSI)
- Travel and hospitality
While retail and online commerce currently take up the largest part of the PaaS global market share, healthcare is forecast to see the highest CAGR from 2020 to 20273.
Overall, with factors such as digitization, emerging regulations, and companies striving to provide the best payment experience for customers, PaaS providers are sure to see an increasing demand for their services and continue to play a critical role in business development as a one-stop-shop cloud solution empowering better online payments for all.
1 - Markets and Markets - PaaS Market Report
2 - Skaleet - Payments-as-a-Service (PaaS) – the shift to outsourcing payment products and functions
3 - Grand View Research - Payment As A Service Market Size, Share & Trends Analysis Report