If the pandemic has taught banks anything, it’s that corporates need to offer a range of payment methods to their customers — whether those customers are consumers (for B2C transactions) or enterprises (B2B).
And in an On The Agenda discussion with Karen Webster, Deepak Gupta, global head of Payments-as-a-Service (PaaS) at cloud payment processor Volante, and Sairam Rangachari, head of platform payments at Onyx by J.P. Morgan, said financial institutions (FIs) need to offer those firms payments functionality on demand. That means offering PaaS, they said.
As with so many buzzwords within the financial services ecosystem, PaaS is a hot topic. But understanding just what the concept is in practice requires a bit of exploration and explanation.
And for the banks embracing PaaS amid a pandemic, it’s no longer just about keeping the costs low when offering a slew of payments to corporate clients. The value lies in offering payments anywhere, anytime, across a range of B2C and increasingly B2B use cases.
At a high level, PaaS is both strategy and technology, a way for banks to retire legacy systems and digitize payments using the cloud to help manage it all. As Gupta noted, “basically what banks are buying when they talk about Payments-as-a-Service is a business advantage. It’s not about technology. It’s not about cloud. It’s not about how to do payments better. It’s about how you can be more competitive and provide compelling services to your customers.”
Rangachari noted that the world is changing rapidly, with real-time payment systems being launched across the globe and corporates wanting to plug into online marketplaces to sell goods and services.
He said we’re seeing the “API economy” take shape, where banks want to plug new functionality into existing systems on both the front end and back end. (Onyx, it should be noted, is a new J.P. Morgan unit dedicated to blockchain, digital currency and wholesale corporate payments.)
The Order Of Importance
Gupta maintained that there are several aspects of PaaS that are important to banks, offering new value propositions as they seek competitive advantages. But he said those aspects have a hierarchy.
Time To Value Is Key
The most important aspect, he said, is time to value.
Traditionally, payment projects and products have taken at least a year — and sometimes several — to get off the ground. But now the eCommerce market is changing so rapidly across both the B2C and B2B spheres that the gestation time from concept to reality must be measured in weeks rather than years.
Building In Resiliency
Resiliency is also critical. Gupta said the pandemic has taught us that systems go down under high demand, but they’ve got to rebound and get back online with haste.
“When you are talking about resiliency, you are talking about making sure that even if your entire data center goes out, you still have your applications still running,” he said.
Banks that move their infrastructure and its management to the cloud don’t have to worry about resiliency in the way they would if operations were run on-premises. Although there might be isolated outages such as what Amazon Web Services recently saw, they’re far less risky than keeping infrastructure sitting in the proverbial closet.
Scale Is Important
And as in the case of almost all business endeavors, scale also matters. The cloud — and specifically PaaS — allow banks to scale their payments functionality to clients on demand.
The volume of payments is going up because we’re all working from home and ordering things from there as well. Yet margins remain pressured, bringing costs into laser focus.
Gupta said the cloud lets banks process more payments, but without the need to add more staff.
Rangachari added that banks are still grappling with multiple new systems that have a range of embedded services. But he said that PaaS enables banks to add new rails, join real-time payments systems or enter new markets with relative ease. He said PaaS “has come a long way, but it’s still got a long way to go both in terms of consumption and distribution of banking services.”
An 80/20 Rule?
That evolution is set to quicken, as the stage is set for a widespread adoption of PaaS across the financial services ecosystem.
According to Gupta, only 10 percent of banks talked about PaaS as recently as two years ago. But he said that for Volante — which offers bundled services that tie infrastructure to applications that enable FIs to integrate everything from Fedwire to ACH to RTP — nowadays “80 percent of the conversations are about Payment-as-a-Service. And the remaining 20 percent of the conversations are about moving to the cloud.”
“What we are doing at Volante is taking the complexity out [of] end-to-end payment processing and providing almost 80 percent of the solution already available to the customer on Day One,” he said. “And then [clients] only spend about 20 percent of the time on integration.”
Spending less time on integration means that banks can move to satisfy their corporate clients’ needs more quickly. Clients can then look to digitize payments — and, for example, make B2B a bit more B2C-comparable and thus able to be done across mobile devices or one-click transactions.
As Gupta told Webster, banks need to stay ahead of their customers’ demands or corporates are going to find other financial services providers to work with. Linking clients to payments more quickly means banks can generate revenue faster.
There’s also the opportunity to cement relationships already in place. Rangachari and Gupta said that with PaaS, banks can combine agility that’s typically been a hallmark of FinTechs with the trust on data security and other factors that traditional FIs have built up over decades.
Against that backdrop and a pandemic that’s still moving us away from cash and paper checks, no one needs to be convinced they need to digitize.
As Gupta noted, banks must answer a fundamental question amid the great digital shift: What might be the costs — and they are considerable — of not moving to the cloud, offering PaaS and embracing digitization?
The Use Cases
Drilling down into the digitization, Gupta noted that there are some initial use cases that are taking shape for PaaS.
For example, he said that a typical Volante customer might process thousands of wire transfers each day where “every wire is a mission-critical wire.”
“They may need a confirmation of payment within five seconds, but with Fed wires, you may have to wait till the next day,” he said.
Fortunately, that near-instant assurance (and resilience) can be done through the cloud, Gupta said.
Separately, PaaS allows for corporate payroll to be done in real time rather than in batch files days ahead of time, with positive ripple effects for liquidity and cash flow management.
PaaS For B2B
Rangachari said that for B2B, cross-border payments represent a “huge area” for PaaS, and for Onyx in particular.
The emergence of RTP and open banking schemes poses an operational challenge — namely, linking banks to the infrastructure in a bid to get money flowing across geographies with transparency and lower costs.
Gupta added that more banks are starting to examine PaaS in foreign markets far away from the United States.
Getting Started
To those banks making their way into the cloud and PaaS, Rangachari and Gupta noted that incremental approaches work best.
“We recommend that you start small — start with one rail, start with one payment type, start with RTP, start with Fedwire,” Gupta told Webster.
He said Volante’s microservices architecture can configure new banking services as soon as the FI wants to expand.
But as Rangachari told Webster, PaaS “is not just an infrastructure project. You’re trying to create an experience and a differentiation in the market.”
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