Cloud-based payments are increasingly popular with banks as they look to keep up with customer and regulatory demands as well as the rising competition from fintechs.
During a recent webinar, Jagdeep Singh Sahota, Chief Payments Officer and EVP at Banc of California, Tanvi Patel, Director of Payments at PwC, Deepak Gupta, SVP Global Head of Payments as a Service at Volante, and Albert Bodine, Director of Commercial and Enterprise Payments at Javelin Strategy & Research, explored the rising popularity of cloud-based payment solutions, their use cases, and how banks can migrate to the cloud without disrupting their daily operations.
The Shift to Cloud-Based Payment Solutions
Though many banks operate using legacy solutions, the days when this framework will sustain the need for faster payments may be ending.
“The old days of sending a file through a batch to be processed in a data center is becoming antiquated,” Sahota said. “For banks to provide contextual payment services, they need to be in the cloud, and they need to adopt that same scale of service and same infrastructure environment for connectivity reasons.”
Patel noted that with the upcoming launch of FedNow, a lot of new additional rails will be coming in along with products and services. “Banks are seeing that we need to turn this around,” she said. “In talking to banks, they say, ‘I want to go to market quicker with this product. I need to get this service to my client or this segment that I’m trying to target faster.’”
Benefits of Cloud and Payments-as-a-Service Solutions
The current banking landscape looks a lot different from what it did decades ago. Banks are having to do more with less—and within a shorter timeframe. There’s also competition from fintechs—initially on the business-to-consumer (B2C) side, but that has now moved into the business-to-business (B2B) area. And on top of that, new payment types are making their way into the market, and current legacy systems are unable to support those new forms.
Cloud and payments-as-a-service (PaaS) solutions can address these pain points. “They (cloud and PaaS) make payments simple for banks. They allow the banks to transform their payment infrastructure without having to worry about the IT burden which comes with it,” Gupta said.
“PaaS provides benefits on the cloud side, on the infrastructure side, on the scalability side, and on the resiliency side. It allows banks to focus on their business, which is serving their customers.”
These solutions also provide banks with another critical factor: a 360-degree view of customer payments. Traditionally, banks have had multiple systems to support multiple payment types— including an ACH system and Fedwire—and that has often led to inefficiencies. But a full 360-degree customer view breaks down those silos, optimizes the payments structure, and increases operational efficiency.
Use Cases of Banking as a Service and Software as a Service
As previously mentioned, there are many benefits to using cloud and PaaS solutions. But it’s also important to note that software-as-a-service (SaaS) and banking-as-a-service (BaaS) solutions can also help banks enhance their payments capabilities.
“You’re using these APIs and your cloud enablement as a bank to bring those differentiated solutions faster to market,” Patel said. “You’re not going to rip and replace your entire payment ecosystem because that is the heart of your bank.
“We also have to make sure that we are adhering to all our regulatory commitment and putting proper governance structure around it.”
Patel mentioned that some use cases for these solutions can be found in real-time payments, should a bank want to niche this capability. Another use case can be for payments as a service. Others may opt for an integrated marketplace or an APR solution.
Patel summarized her thoughts by indicating that most banks are still testing the waters with these solutions, looking to adopt the functionalities that make the most sense for them.
How Banks Can Approach Cloud Migration
When new technology is adopted, having a strategic approach in place is crucial. And before fully diving in, banks must ask key questions to figure out which tactic they should implement.
“Start by asking yourself, ‘What am I solving? What journey am I trying to achieve for my end user?’ Prioritize how you are going to do it,” Patel said. “We will never do a big-bank approach. … Don’t get me wrong, there are big banks who’ve done it, and if you have the tech stack, you have the skill in-house, and you have the buy-in from your leadership, go ahead.
“But if you do it piecemeal, and you do it with targeted use cases, risk rate them to determine which is more risky and which is going to have the most severe impact on my client’s current experience.”
Patel said banks must determine if the organization as a whole is ready for the new implementation. This includes checking to see if there has been sufficient internal and external education about the migration. Having sufficient training and education within and without the organization can ensure that the transition will be as smooth as possible and without any friction inflicted on customers.
Conclusion
Banks realize that the demand to cut costs and provide timely products and services based on customer demands is the key to thriving in an ultra-competitive market. Cloud-based payment solutions can keep banks nimble and cost-efficient, boost profitability, and enhance customer satisfaction.
Sahota emphasized the importance of knowing the customers’ pain points and not focusing on building the solution in-house. It’s important to identify the value that will be offered with the solution, and likewise what will derive value for the organization.
