Many banks rely on legacy systems, often built 15 or 20 years ago—sometimes on IBM mainframes. The original developers have likely retired, and there’s minimal documentation on the system’s architecture. These systems are black boxes—any change risks unintended disruptions, making banks hesitant to make any modifications.
As a result, banks are increasingly looking for modern solutions that allow them to innovate without the risks associated with overhauling legacy infrastructure. That’s why Payments-as-a-Service (PaaS) has emerged as a viable option for banks of all sizes.
During a PaymentsJournal webinar, Deepak Gupta, Executive Vice President for Demand Fulfillment at Volante Technologies, Belhassen Belkhechine, Payments Product Manager at Azqore SA, and James Wester, Co-Head of Payments at Javelin Strategy & Research, discussed the benefits of implementing PaaS.
Meeting the Customers’ Needs
No one chooses their bank based on the quality of its payment service. However, if payments are not executed swiftly and efficiently, clients will notice and likely take their business elsewhere. These concerns have given rise to PaaS, though it still faces skepticism from many financial institutions.
“When I joined Volante almost six years ago and started the business plan for Payments-as-a-Service, the belief was that a bank is never going to put their payment solutions online on a cloud,” said Gupta. “They were concerned about security, and about keeping their data outside the data center. Lo and behold, five years after, most of our deals are on Payments-as-a-Service.”
If banks don’t adapt to their customers’ expectations, staying ahead of the game will be difficult. Speed is critical in payments, as is the quality of service. Customers will have little tolerance for downtime.
Overall, banks don’t need to invest time and money in learning different applications, navigating multiple UIs, or creating data lakes to gain a unified view of the customer. Additionally, there are business benefits, such as flexible pricing models.
“We are in Switzerland, with a lot of banks in Europe and in Asia,” said Belkhechine. “We need to manage their local payment as well as the different payments in the SEPA area. The pay-as-you-go model has allowed us to choose the rails that we need, and the features that we need. We can also take advantage of the economy of scale because we share together the evolution of your system.”
The Necessity of the Cloud
A bank can’t effectively execute a PaaS without a cloud-native solution. Mid-sized and small banks should secure their payment systems on a public cloud like Azure or Amazon.
“If you are a Tier 1 global bank, you have the means, the resources, and the knowhow to run it in your private cloud,” said Gupta. “But midsize and small banks have to ask themselves if that is the best usage of their people, even if they have the IT resources. Are you going to spend those scarce, expensive resources on maintenance? You might be better off using them to improve security and scalability.”
With a cloud-native PaaS solution, Volante has seen straight-through processing rates rise from the low single digits to 80%-90%, with more than 90% reducing payment processing costs. It eliminates the need to maintain a large mainframe or a team of 1,000 developers to lower processing expenses.
“Revenue is the endpoint now,” said Wester. “That is very different than the way we used to look at payments, where we’d often ask, ‘What’s even possible?’ Many times, the answer was that we simply didn’t offer those options, so we’re not going to be able to deliver that product. We’ve since realized that customers will leave for products that meet their needs and expectations.”
Scaling Up the Service
When someone describes a solution as scalable, it’s often viewed in the context of a single product line. For instance, an institution might evaluate its system’s ability to handle retail payments on Black Friday and determine if it can manage that load.
However, scalability extends beyond just a single product line. It also refers to the system’s ability to scale across different lines of business. Can it be adapted to handle other payment rails, diverse settlement mechanisms, or various payment types? How far can these additional platforms be expanded?
“We have a Tier 1 bank that launched two rails, expecting to create more business for the bank,” said Gupta. “Lo and behold, when they launched these offerings, they found out that one is doing well, and the other one isn’t doing that well. Now the plans have changed and they want to add the third rail. You need to be able to evolve at the speed of business. You need to work with a provider who doesn’t lock you in a box when the game changes.”
Any bank looking to leverage PaaS should remember that it’s driving the process. Too often, vendors come in dictating what the institution should do and how to do it. Instead, the bank should focus on addressing its biggest pain point. If, for example, the wire system is struggling to meet growing demand, that should be the vendor’s primary focus.
The Technology Evolves
If a vendor can’t keep up with technological advancements, they risk falling behind in an ever-evolving industry. Banks must avoid relying on systems that will become outdated and legacy-bound in just five years.
For example, it’s clear that artificial intelligence will revolutionize the payments industry. Companies should partner with a provider that’s actively investing in emerging technologies—whether that’s AI, new payment types, or fraud prevention. They should inquire about how the provider plans to leverage AI to enhance STP rates, boost staff productivity, and reduce error rates.
“We have a customer who’s live on real-time payments,” said Gupta. “When they went live, they didn’t think that they’re going to need the Request for Payment feature. Nobody was asking for it, so they planned to worry about it in phase two. They could make that decision because they knew if they needed it, they wouldn’t have to build something new. They wouldn’t have to go through a six-month cycle of testing it. They can just turn on the feature.”
Seeking a Single Hub
Payments don’t operate in isolation; they are part of a complex ecosystem with a range of interconnected solutions. Many banks use multiple fraud detection systems, sanction screening tools, and ledgers. Additionally, banks often have separate applications for different payment types—one for ACH, another for wire transfers, and yet another for SWIFT transactions.
PaaS frees banks from having to worry about these complexities, streamlining their operations.
“When we think about B2B payments today, we think about ACH, SWIFT, FedNow, and RTP,” said Gupta. “Why do we have to think like that? Does FedEx ask you which plane you want the package to go on? Or whether you want it to go through Ohio or Chicago? They ask you two questions: When do you want it and what are you willing to pay for it?”
“Why can’t we do the same thing in payments? Why can’t we have a single payment hub which can provide all the payments type to any bank in the world?” he said.
