The cloud is at the heart of everything in IT, and it’s easy to see why. Businesses and individuals all over the world now have access to nearly unlimited server space that they never have to physically see or contact thanks to the decentralization of critical IT infrastructure. Everything is taken care of for them, and the amount of computing power available is astonishing. But why are cloud-based payments so popular among banks and enterprises, and what are the advantages for your company?
With the COVID-19 pandemic causing a significant increase in the use of digital payments, there has never been a more ideal meeting of demand and technology. As financial institutions were confronted with a higher volume of payments than they had anticipated, the cloud was already ready to bear the strain. Investing in cloud-based payment services is not an option for banks and other financial institutions trying to scale effectively.
The cloud is essentially the name given to a cluster of servers hosting data from across the globe. So, if your data is being stored in the cloud, what it actually means is that it’s being stored remotely on a server that could be thousands of miles away. This gives you the power and flexibility to access that data from wherever you might be in the world as long as you have a stable internet connection.
This is what cloud-based payment has to offer – infinite flexibility. A cloud-based payment system lets you take payments on any digital device, free of the restrictions of a traditional POS system. These payments can be contactless credit card purchases, online orders, and everything in between. It’s a complete omnichannel solution that also offers digital receipts for customers, access to intricate sales reports and so much more.
What is pay-as-you-go (PAYG) cloud computing?
Pay-as-you-go cloud computing (PAYG cloud computing) is a cloud computing payment system that costs based on consumption. The practice is comparable to that of utility bills in that only necessary resources are used.
One significant advantage of the pay-as-you-go model, which is a type of consumption-based pricing, is that no resources are wasted. Users just pay for what they use as opposed to a set number of resources that may or may not be utilized. Users architect data storage to manage the highest workload in traditional corporate design. However, in the case of the public cloud, the pay-as-you-go model costs the organization just for what it stores, provisions, or uses.
Pay-as-you-go platforms, such as Amazon Elastic Compute Cloud, provide services by letting users design compute resources and charge by what is used. Users select the CPU, memory, storage, operating system, security, networking capacity, and access controls as well as any additional software needed to run their environment.
Read Also: What is Brics Payment System?
There are three main categories of cloud computing services. Each uses a different form of the pay-as-you-go model:
- Software as a service. SaaS pricing can be based on features, storage capacity, or a per-user basis. Examples include Salesforce, NetSuite and Microsoft Dynamics.
- Platform as a service. PaaS resources can be priced per application, user, or gigabyte of memory consumed per hour. Microsoft offers a per-minute pricing model for its PaaS that stops the meter when an organization discontinues its use of a virtual machine (VM) but preserves the VM state and configuration. PaaS examples include Google, Oracle Cloud and Windows Azure.
- Infrastructure as a service. With IaaS, customers pay on a per-use basis, typically by the hour, week or month. Some cloud providers also charge based on the amount of VM space used. This model doesn’t require users to deploy in-house hardware and software. IaaS vendors include IBM, Hewlett-Packard, Microsoft and Amazon Web Services (AWS).
Traditional data centers and colocation computing rely heavily on static resources. Engineers must plan and implement the computing, storage and other resources anticipated to support peak workload demand. This often led to costly overallocation with far more resources procured and deployed than were actually needed. PAYG cloud computing offers a variety of benefits that favor dynamic cloud environments:
- Ease of use. A cloud architect or engineer can adjust resources with a few clicks or even configure some resources to adjust automatically as workload demands change in real time. This ease has played a major role in cloud adoption as both a supplement to local, or traditional, computing and cloud-first infrastructures.
- High scalability. Cloud providers can deliver enormous quantities of resources to drive almost any size workload or computing demand, such as big data analytics and other projects. Those resources can then be released when work is complete or demands change.
- Right-sizing resources. The challenge of traditional computing infrastructure led to enormous waste due to over-provisioning. PAYG cloud computing makes it easy to adjust resources to meet user demands, minimizing overprovisioning.
- Cost-efficient. The combination of ease, scalability and support for dynamic situations can potentially make PAYG cloud computing more cost-efficient than traditional data center computing, though savings aren’t guaranteed.
In spite of its advantages, PAYG cloud computing also poses a variety of disadvantages that cloud architects and engineers should consider closely when planning a workload deployment in the public cloud:
- Planning challenges. A traditional data center computing model forces businesses to watch capacity closely and plan for increased capacity well in advance. With PAYG cloud computing, architects and engineers tend to be more reactive by adjusting cloud resources manually or configuring automatic changes in real time. This puts the burden on businesses to implement and assess cloud utilization to ensure cloud usage maps with business plans and goals.
- Unpredictable costs. The dynamic and often automatic nature of cloud scalability means that businesses may not even be aware of the resource scaling taking place until the monthly bill arrives. The result is uneven and unpredictable costs. Unpredictable costs can complicate cloud workload budgeting at best. At worst, it can cause price crunches that might affect a business’s ability to operate a cloud workload affordably. It’s important to consider and implement scalability guardrails and alerts when planning a cloud deployment.
- Rules can change. Cloud providers can change prices, set utilization limits and make other changes to their resources and services over time. Any changes can affect an organization’s ability to operate in a PAYG environment.
Types of PAYG cloud computing services
In general terms, all cloud computing is PAYG. Users may need to parse several possible payment models depending on the provider and the services. Understanding the potential variations in the payment model may be important for reviewing and analyzing cloud computing costs over time.
- Subscription-based payment model. A subscription is typically the most familiar and traditional PAYG payment model. Access to a product or service is procured through a fixed, recurring cost such as per user per month. PaaS and SaaS offerings frequently use a subscription model such as cloud storage or Microsoft Office 365. Subscriptions are easy to understand, but they’re often underutilized. For example, an Office 365 subscription may enable continuous access to the Office suite for a fixed cost, but no human will use that SaaS 24/7 year-round. If a typical employee uses their Office subscription an average of four hours per day, the rest of that subscription time is wasted.
- Pay-as-you-go payment model. This is the most common form of PAYG model where users pay only for the resources that are actually provisioned and operational. For example, if a cloud user provisions a VM instance, users will pay for that VM each month for the duration of that allocation. The user stops paying for that resource once it’s relinquished. However, this model doesn’t consider utilization — it doesn’t matter whether the business is actually running anything on those allocated resources.
- Pay-as-you-use payment model. This is a recent expression of PAYG where cloud users pay only for the resources that are actually utilized or performing actual work. Function as a service is a popular example of this model. Users pay for the function resources, such as servers and storage, only while the function is actually executing — often to the closest second or fraction of a second. A popular variation of this model is pay-per-call, where users are charged a fee each time a service is invoked, such as API costs per call.
What Factors Determine Cloud Costs?
Cloud computing costs are based on three main factors:
This refers to the processing power, memory, and temporary storage you need to run workloads smoothly. Your cloud provider offers a range of compute instance types. Each offers a specific configuration of CPU, memory, and network capacity.
The vendor will include compute-optimized, memory-optimized, and general-purpose instance types. It may also include specialized hardware, like graphics acceleration or fast networking. You pay for computing capacity based on the number and types of instances you use within a specific duration, say per hour.
2. Network connectivity
This refers to the network capacity you use for your applications. Your cloud provider will often bill you based on the volume of data you transfer out of a cloud service (egress), into a cloud service (ingress), or both, in gigabytes (GB), terabytes (TB), or petabytes (PB).
You may have to pay more for low-latency, high-bandwidth network connectivity. Static IP addresses, gateways, and load balancers may be subject to special charges as well.
3. Storage capacity
You’ll want different types of storage for your applications, from file and block storage to object storage. Your cloud provider offers these storage options as a service. You pay on a per GB per month basis for the elastic storage service. If you choose a managed storage service, including managed disks paired with compute instances, you pay for the whole storage volume, regardless of how much capacity you use in it.
Now, here’s the thing. There will be costs that do not fit into any of these three categories. You may expect some of the other costs and even plan for them, but others might feel like hidden costs.
Consider the following:
Data transfer fees
Different cloud service providers have different data transfer charges. Also, the rates vary by region. So, you pay more when you connect your servers to services in Regions/Availability Zones with higher rates. Most vendors charge you for transferring data to outside services (egress). Data transfers into your cloud (ingress) are often free.
This refers to the cost of accessing data from a storage disk to modify it. The more often you need to retrieve your data for processing, the greater the retrieval fees accrue, which adds up for companies with a lot of data.
Region and availability zones
Cloud service providers have multiple data centers in specific regions across the globe. Your cloud provider will charge you based on the location of the data center from which you launch your resources. In the US, for example, North Virginia (US West) and Oregon (US West).
Each region offers several availability zones. Each AZ offers independent power, cooling, and networking infrastructure, providing backup in case one or two zones experience issues. And each AZ charges a different rate for each service.
It is common for cloud providers to charge separate fees for different levels of support. Outside help will also cost extra if you need it. This will often take the form of advanced tools that do a better job than vendor-provided ones, from cloud cost management tools to one-on-one consultations.
Those are a few examples of additional costs you’ll want to keep in mind.
You may still have other cost centers driving your cloud costs, including people (teams/departments), products (or services), and processes (such as cloud migrations). At other times, there might be penalties, such as when you cancel a long-term contract.