Platform as a Service (PaaS) is a utility-based platform that allows users to develop, run and manage applications in the cloud. Leveraging the power of the cloud, business users in particular are able to avoid the cost and complexity associated with building and maintaining traditional software and servers in house.
The agility of PaaS means that its users will always have access to the most up-to-date technology, which allows business users to innovate faster and cut down on having to update and iterate applications. And as users are billed on a subscription basis, PaaS provides a rock-solid solution that scales up and down in line with business needs.
So what does PaaS have to do with banks and payment processing?
For starters, the financial services industry is no longer immune to customer demand for change. As far back as 2012, Gartner Research was advising banks that their customers would demand access to application program interfaces (APIs) and web services in the near future. Gartner also advised that “by 2016, 75% of the top 50 banks in the world will open their API and 25% of these banks will have app stores for customers.”
It would appear that these predictions may have been a little optimistic with their timeframes, but the FinTech sector has stepped in to assist. FinTechs like Currencycloud provide a PaaS solution à la backend payment processing, accessed via secure APIs.
This new pick-and-choose model allows businesses to choose a portfolio of services and then build applications around them. Data remains centralized, ready for access by any authorized application, while additional “heavy lifting” is performed by third party services. PaaS provides the technical backbone on which API-enabled FinTech frameworks rest, enabling the actual transfer of funds, while individual apps use those APIs to hook into the underlying logic. The app can then be configured however you choose.
In the future, should your business need an additional service, or want to switch provider, there is no need for costly redevelopment of the entire system – you just update the connection to the new service’s APIs and business can continue as normal.
But it all sounds too good to be true
Although the majority of the web is highly configurable, financial institutions are relatively resistant to change. However, customer demands for increased flexibility, along with pressure from bodies like the Open Banking Working Group (OBWG) have begun to force this situation to change. In the UK, there is even talk of the government using legislation to force banks to create APIs that allow businesses better access to customer data and financial services.
UK financial industry regulation is forcing innovation, but the US FinTech sector is not under any similar obligations and many are lagging behind as a result. In the US where banks are not yet under the same pressure to innovate, there is a genuine opportunity to steal a lead on the competition for those that do innovate. Foreign FinTech providers could even succeed in cornering a significant piece of the US market if the local providers do not quickly deploy their own offerings.
Being able to pick-and-choose services will also help to cut down on the overheads of doing business. Instead of spending time and money recruiting the right talent to develop in house infrastructure, or building relationships and negotiating contracts with payment providers, businesses can simply link into the service of their choice to handle payments. And because every transaction is charged individually, there is no ongoing contractual obligations when the business decides it’s time to change.
The rise of banking as a service (BaaS)
Realizing the potential offered by PaaS and the unlimited capacity of the cloud, several FinTech businesses have built entirely virtual payment operations. By linking customer accounts to services “provided” by banks, FinTechs can offer a full range of banking services without actually owning any of the infrastructure behind it or any of the bank’s customer relationships.
Under the BaaS scenario, banks will be relegated to the position of providing payment and accounting services, with interbank operations being provided by third parties – the core of BaaS. FinTech start-ups, banks and any other payment processor can then build their own white-label apps that hook into the BaaS APIs, giving their users a mechanism to transfer money between banks, alongside their own value-added services. And because they are built in the cloud, BaaS applications are also fully scalable to support rapid global growth with minimal new capital investment.
As a logical conclusion, any business can use the same approach to build a payment and banking infrastructure that matches their operational needs. Indeed, there are already platforms in place that do all the hard work for these businesses, with the option to white-label the service as their own. Services like Currencycloud are built exactly on this concept.
Configurability for future success
The added flexibility and lower cost of payment processing offer every business an opportunity to reduce their operating costs and increase their global reach. Highly configurable services will make it as simple to trade with an organization on the other side of the world, as it is to sell to the business in the office next door.
This greater control also increases financial transparency and allows businesses to change strategic direction more quickly. This is the reason why top US banks including JP Morgan Chase are currently working with PaaS providers. And, as smaller traditional banks find themselves struggling against new online regional banks, FinTech mania is spreading from Wall Street to main street. As market conditions and customer demands change, BaaS supports lightning fast changes to operations and processes, so that every business can respond more quickly – giving them opportunities to delight their clients and add to their market share.