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How AI-Powered Payments-as-a-Service Can Help Overcome Challenges Faced by the Payments Industry

November 2, 2023


Digital Payments-as-a-Service
PaaS makes adopting cutting-edge AI-powered tools easier, faster, and cheaper, giving FIs a competitive edge in the ever-evolving financial landscape.

In an increasingly competitive world, outsourcing offers a cost-effective way to stay a step ahead of the curve. The payments industry is no different. With increased technology-driven disruption and fierce competition from budding niche players, outsourcing technology and non-core functions has gained importance as the means to enhance efficiency and reduce costs.

Payments-as-a-Service (PaaS) Strengthening Its Roots

The PaaS market is forecasted to reach $33.60 billion, expanding at a CAGR of 32.26% between 2023 and 2028. Financial institutions (FIs) initially started by outsourcing transaction handling, risk assessment and mitigation, payment processing, data management, security, and analytics. With the evolution of technology and the ubiquity of digital payments, PaaS has become an integral part of the payments value chain. The cloud-based offering now also includes payment gateways and specialized engines, payment reconciliation services, end-to-end cross-border transaction management, and security management.

Source: PwC

These services are not only leveraged by banks and payment facilitators, but are also adopted by FIs, NBFCs, merchants, and other players in the financial sector. This eliminates the need for organizations to build their own infrastructure, bear the expense of in-house technology and other experts, or manage operations, technology, process transition, and much more.

PaaS service providers offer open API-based solutions for quick and smooth integration across the heterogeneous networks of fintechs, payment facilitators, insurers, credit unions, and banks.

Challenges of the Current Payments Ecosystem

The payment services industry has evolved from being a support system for the broader financial sector to a financial intermediation facilitator for credit, deposits, and transactions. Today, payments services are increasingly becoming providers of customer data to help enterprises target potential customers. These enterprises use data-driven analytics to offer tailored products and services. This data is also being used to transform business processes.

Despite multiple advantages and rapid evolution, the payments industry is dealing with its own set of challenges, such as:

  • Ensuring business continuity, 24×7.
  • Empowering businesses to make data-driven decisions in real-time.
  • Maintaining security across heterogeneous networks and platforms.
  • Accommodating modern payment techniques and upgrading processes without dismantling legacy technology architecture.
  • Reducing maintenance downtime and boosting the stability of digital payment systems.
  • Navigating the increasingly complex and ever-evolving regulatory landscape.
  • Penetrating the unbanked user markets.
  • Building customer trust to acquire a larger share of the payment market.
  • Elevating user experience through seamless and frictionless payment processing, reduced cross-border costs, etc.
  • Standardizing processes across the industry to offer unified user experiences.

PaaS Revolutionizing the Payments Industry

PaaS offers diverse benefits to credit unions, banks, and fintechs through a 2-dimensional model of facilitating technology transformation and offering payment operations and product support.

PaaS Offerings

Technology EnhancementOperations
Issuing SwitchPayment Processing
Acquiring SwitchDispute Management
Regulatory AutomationTransaction Monitoring
 Merchant Acquisition
 Complaint Redressal
 Data-Driven Insights
 Security and Authentication

As a platform, PaaS offers multiple benefits to banks, financial institutions, and other organizations across the entire payment value chain. Here’s a look at the primary advantages of PaaS.

Low Cost of Ownership

Cost optimization is one of the strongest driving forces propelling the adoption of the PaaS model. Since financial businesses do not have to own hardware, software, or technology teams, their cost of payment services ownership declines significantly. With modern API-based integrations, the upfront investment in technology for backward compatibility and ensuring technology advancement is not required. They do not have to build complete payment stacks, test, ensure compliance, and manage technology and regulatory updates regularly. PaaS facilitates economies of scale without having to worry about acquiring new resources to expand operations or enter new markets.

Reduced Time-to-Market

Experienced PaaS providers enable FIs to roll out new products or services at an accelerated pace. They have proven processes to develop new products and extensive testing capabilities to ensure compliance, high-volume handling, and much more. With an eye on emerging trends and predictive analysis for business growth, they are prepared with plug-and-play solutions and functionalities that can be enabled or disabled at will. This makes managing operations straightforward and intuitive.

Better Reliability and Scalability

Cloud-based platforms inherently enable dynamic upscaling and downscaling according to market demand. The transparent response to change translates into higher availability and optimal resource utilization with the facility to pay only for what you use.

Offer Flexible Pricing

With reduced costs and optimized resource utilization, providers can offer flexible pricing to their customers. PaaS enables building dynamic pricing plans according to transaction volume, size of business, and product or service used. Large volumes can have subsidized pricing while low volumes can be managed with pay-per-use models. Ensuring pricing transparency instills trust among customers.

Enhanced Security

Adopting stringent KYC measures for user onboarding and secure logins with multi-factor authentication make onboarding and service use interfaces safe. Further, PaaS employs AI-based user behavior analysis that flags inconsistencies early to prevent payment fraud. Leveraging third-party platforms to reinforce security measures through PaaS-enabled services further strengthens the security firewall.

Superior Compliance Management

Ensuring compliance via AI-powered automation transfers massive manual and technology requirements from the FIs to the PaaS providers. This ensures better regulatory adherence across all jurisdictions by investing less time and effort which translates to reduced costs.

Modularized Services

The ability to integrate third-party services, such as blockchain and DeFi, using global APIs, combines the benefits of PaaS and emerging financial infrastructure. This helps keep the payment framework updated with the latest technology advancements and enables businesses to offer innovative payment products and services ahead of the competition, giving them a first-mover advantage. This also facilitates offering value-added services and embedding innovative products within primary offerings. The facility streamlines payment and data reconciliation for data analysis.

Trust AI Experts to Elevate Your Payment Offerings

The technology powering the future of all industries is key to transforming payments as well. With 27+ years of experience in the payments industry, Opus Technologies simplifies payment technology transformation and operations modernization. Contact the experts to gauge the full breadth of offered services and how you can benefit from their expertise in the industry.

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