PaaS and its Increased Penetration into Smaller Institutions

PaaS, Payment as a Service, SaaS, Software as a Service, Financial Institutions, FIs, Banking Operations
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What is PaaS?

We all know about Software as a Service or SaaS. SaaS is essentially offering applications over the internet as a subscription-based service. There is no need to download, install, and update the software. Payment as a Service or PaaS works the same way. But instead of applications, it is the financial institution’s entire cash cycle into the cloud. Subscribers must pay a flat monthly or annual subscription, instead of charging customers based on their financial transactions. A PaaS system is built on top of a SaaS system. Basically, it combines features offered by SaaS with traditional payment cycles.

First and foremost, the service is much more accessible, as the user needs just a working internet connection and access to an internet browser. The user is free to work from anywhere.

Secondly, companies can implement solutions much quickly as there is no time wasted on downloading, installing, and updating. Also, PaaS offers a similar setup like its namesake SaaS concerning compliance with local and international norms. They can create auditable records and store them securely using methods like blockchain.

Adopting a PaaS solution also allows the FIs to handle more workload including more payment types at less cost to the organization, as there is less spending on the FIs native banking software, related hardware, and its maintenance.

Why is PaaS penetration into smaller institutes rising?

A big driver behind smaller firms opting for PaaS is most obvious: budgeting. Like SaaS, PaaS models also offer various pricing models. Companies are free to choose the model best suited for their requirements and budget. Thus, bigger companies can opt for a more substantiative package, while smaller firms and startups can opt for the pay-per-use model to avoid overspending of limited resources. Also, since all processes are cloud-based, companies can save on costs of upgrading legacy software, technical teams and reduce manual maintenance of infrastructure.

Also, compliance remains a bugbear for many FIs. Many FIs are global entities and naturally must deal with a whole gamut of norms and noncompliance is obviously not an option. Thus, building a solution and/or upgrading legacy solutions to meet the ever-changing norms is a resource-intensive task. On the other hand, PaaS software are offered on a plug-and-play basis. This ensures the service remains cost-effective for the FIs.

Integrability is another critical factor. FIs usually team with different vendors/providers for multiple sales and marketing channels like point of sale, reporting, and customer experience. A PaaS solution integrates all channels into one platform. This simplifies banking operations and enables FIs to tweak the solution as per their demands. In addition, using just one vendor ensures reduced operational expenditure and a simplified billing process, as FIs have to deal with just one vendor.
The last and perhaps the most critical part is security. No system can be completely secure, and there has been a string of data breaches targeting both FIs and the platforms themselves. However, there are multiple areas where PaaS, a cloud-based service, scores over legacy systems.

Firstly, cloud systems are easier to update than legacy systems, and vendors keep the cloud systems updated with the latest security features. Thus, they can be less vulnerable to online threats. However, as stated above, the crooks and the cops are always racing each other in cyberspace, hence FIs need to look for the solution having the best security record.
Secondly, cloud systems possess the advantage of being developed to deal with more sophisticated cybercrime, compared to their legacy counterparts. Most cloud systems have more sophisticated, multi-layer security, which means more secure data. Also, data stored in a cloud is based off the FIs premises, thus making it less accessible to unauthorized persons. Also, cloud vendors have to mandatorily undertake annual security audits. This may not be the case for smaller FIs. However, adapting PaaS ensures their systems are free from security lapses.

These are the main reasons behind smaller institutes switching to PaaS over legacy systems. As the trend of virtualization grows, this process is expected to accelerate.

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