Retailers Lag on Security Standard

On June 30 last year, the major credit card providers issued a warning to their merchants: Comply with our security standards or lose your right to process credit card payments. One year later, however, as much as 90 percent of major retailers still haven't brought their environments into line with the rigorous specifications.

The Payment Card Industry's Data Security Standard (PCI-DSS, or PCI for short) is the initiative created last year by American Express, MasterCard, Visa, and others to enforce security rules for the handling and processing of credit card data.

PCI replaced unilateral security rules developed by each of the card companies with a single set of guidelines, complete with penalties and fines for retailers that don't comply.

Yet after a year, only about one in five of the top 200 retailers has achieved compliance with the PCI specifications, according to comments made by Visa USA CEO John Coghlan at a conference last month. But one auditor says his figures indicate retailers aren't even doing that well: He shows only 25 of the leading 280 merchants in compliance.

"We have never had a company pass an audit on the first try," says Nigel Tranter, a partner at Payment Software Co., a leading PCI auditing firm.

Most retailers are hoping they can sneak by a little longer without having to comply, because the specifications are very stringent -- there are 175 requirements in the current document -- and often require significant changes to currently operating credit card processing systems and practices, experts say.

But the cost of non-compliance can be high. Credit card vendors have the power to levy fines of up to $500,000 on merchants that are found to be coming up short, or they can revoke the merchant's ability to accept credit cards at all.

CardSystems, a credit card processor that inadvertently exposed 40 million credit card numbers last year, lost its card-handling privileges and had to sell out to a competitor, Pay By Touch Payment Solutions, in December.

"For non-compliant merchants, it's not just a slippery slope, it's a cliff," says Tranter. "If you're compromised, there's a chance that 80 or 90 percent of your business won't exist afterwards."

The credit card companies generally don't disclose vulnerabilities they discover or the resulting fines, but Tranter says he has seen other instances of crippling losses outside of the highly publicized CardSystems case.

So if PCI is so important, why aren't more retailers complying with it? Complexity, cost, and tough auditing practices all play a role, observers say.

Unlike regulatory compliance guidelines such as Sarbanes-Oxley, PCI includes detailed technical specifications that tell IT and other parts of the business exactly what they must do to comply.

"It's not trivial," says Barak Engle, chief security officer at Loyalty Lab, a PCI-compliant service provider that helps merchants set up customer loyalty programs using common credit cards. "It means that the merchant sometimes has to change security practices, encryption practices, and a lot more."

Indeed, the PCI requirements not only cover the logical handling of data within computer systems, but also the security of the network infrastructure, the physical security of the building, the documentation of security policies, and the training programs that employees must be given. "There are a lot of administrative aspects that can be hard on a small retailer," Engle says.

But the encryption requirements are the most difficult to meet, according to observers. PCI sets stringent rules for the encryption of credit card data wherever it resides and outlines practices for managing the encryption keys. "It's key management that trips up a lot of companies," Tranter says. "You have to have a solid process for where the keys will be stored and who will have access to them."

Some vendors are stepping forward to help with the PCI encryption and key management processes. One such company is nCipher, which offers a turnkey suite of encryption and identity management tools that meet the PCI requirements.

"We have seen an increase in customer queries since states like California are requiring companies to notify customers and partners of a security breach," says Richard Moulds, vice president of marketing at nCipher. "Merchants don't want MasterCard to find out in the newspapers that they have been breached because they weren't PCI compliant."

Encryption accounts for only 10 of the 175 requirements under PCI, "but it's more like 30 percent of the work involved in the PCI compliance project," Engle says.

Cost is also a factor that causes merchants to drag their feet on PCI. "It can be very costly to retrofit existing systems to meet the PCI requirements," Tranter says. "We have seen companies spend several million dollars to bring their environments up to speed." While the chief technology costs usually center around encryption, there are many administrative costs -- such as monitoring and training -- that can also affect companies, he observed.

Finally, Tranter says, there's the matter of nitpicky auditors -- like him. "The specification mandates 100 percent compliance with all of the requirements, or you don't pass," he notes. "I've failed companies that passed 99 percent of the requirements but didn't do their training or documentation correctly. I think the requirements ought to be split so that the security of the credit card data is protected, but you could slide a bit on some of the administrative requirements. As it is now, if you don't have 100 percent compliance on everything, you don't pass."

— Tim Wilson, Site Editor, Dark Reading

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