In a recent email, John Cragg, CEO of MYHSM, said we're in the fintech startup decade, and major financial institutions are striving to maintain dominance while transactions become increasingly frictionless and new fintechs lead in innovation. He mentioned that one EU PSD2 objective is to increase competition in payments and encourage involvement by non-banks, creating fintech opportunities.
Cragg noted that payments startups face similar challenges to startups elsewhere. "They must establish financing and convince investors their idea will convert into real money," he wrote. "They may have to experience several rounds of this. Backers will closely watch the companies they entrust with their investments to ensure that the money is spent only on essentials. Thus, startups must enter the market quickly to beat their competitors and ensure fast returns on investment.
"Fintech startups in the payments ecosystem face additional challenges, such as security standards enforced by bodies like the PCI Security Standards Council. These standards play a critical role in protecting consumers, merchants and financial institutions, but they put added stress on startups. "Payment-specific challenges require expertise to select, acquire and operate approved POS terminals and payment HSMs. These can be expensive; owning them will not bode well for the startup's balance sheet. Looking at HSMs, one is never enough; you'll need at least one more for testing and development, and one for standby. HSMs also need to be purchased early in the product development cycle for testing. Established competitors will already have this technology in place, making time of the essence for startups.
"The biggest issue facing startups is pricing. HSMs and POS terminals are too expensive for a single purchase early in a company's life. To assist, companies can make HSMs and POS terminals affordable; however, technology providers also need to make a profit. "The solution: eliminate the need for HSM capital purchases by offering them as a fee-based service that can be implemented quickly. For POS terminals, provide a less expensive product. This can be done by using off-the-shelf software that can turn a merchant's smartphones and tablets into POS terminals. That way purchasing additional devices becomes unnecessary.
In addition, HSMs must be accommodated in secure, PCI-compliant, resilient data centers. "Skilled security specialists are needed to determine how to set up the HSMs, and thereafter design, document, and audit the procedures used to manage and operate the HSMs," Cragg noted. "Finally, specific application-related approvals, such as PCI PIN, need to be renewed every couple of years. "Fintech startups face all of this when what they really want is to create an exciting product and get it to market quickly. Fortunately, technology providers can help. By acquiring payment HSM capability as a pay-as-you-go service, fintech startups avoid HSM investment demands, compliance headaches and other headaches.
"Developing a product and getting it to market quickly is any fintech startup's driving motivation. By collaborating with technology providers, startups join an ecosystem where they are visible to customers and potential partners, helping to amplify their voices above the competition's clamor."
What are the major challenges in payments now? Please send your perspectives to greensheet@greensheet.com. 
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