By Jerry Soverinsky
I suspect the only thing more maddening than watching kindergartners play soccer is being a kindergartner playing soccer.
I attended my nephewâ€™s soccer game last month, and his team had fallen mercilessly behind (though the teams didnâ€™t officially keep score). During a kicked-shin timeout, my nephew skipped over to his mother, pleading with her to end the humiliation.
"Can we please go home!" he begged.
"Honey, thereâ€™s still a lot of time left," she replied, feigning optimism. "Youâ€™re doing great."
"Whatâ€™s the point!" he shot back. "Weâ€™re still gonna lose!"
"Youâ€™re doing great," replied my sister-in-law unconvincingly, gently leading my nephew back to the game. "Youâ€™re doing great."
I thought of my nephewâ€™s soccer game as I considered the recent Heartland data breach.
Credit card processor Heartland Payment Systems announced in mid-January that hackers had breached its computer systems in 2008, accessing an untold number of credit card accounts. The company handles an average 100 million transactions each month for 175,000 small- and medium-sized businesses, and investigators are speculating that the size and scope of the compromise could be one of the largest and most severe ever reported (for more on the data breach, visit www.2008breach.com).
To date, separate class action suits have been filed on behalf of consumers and financial institutions.
All of this spells a protracted legal and financial mess for Heartland, as well as untold headaches and expenses for thousands (and perhaps millions) of consumers and businesses. You might question whether Heartland had taken the appropriate data security protecÂtive measures â€" but hereâ€™s the kicker: At the time of the data breach, HeartÂland was PCI compliant.
As a credit card processor, Heartland was subject to some of the most stringent data security standards, and during its most recent audit in April 2008 â€" and as reported by Visa â€" it had "successfully completed an assessment based on the PCI Data Security Standard (PCI DSS)" by Trustwave, a Qualified Security AsÂsessor (QSA) that has helped 30,000 orÂganizations manage their compliance and security protocols.
On paper, Heartland seems to have done everything by the book. And yet a data breach â€" a massive, unprecedentÂed breach â€" compromised its system.
As a retailer, youâ€™ve been hearing for several years now the importance of beÂcoming PCI compliant and the potenÂtial consequences if you donâ€™t. But in light of Heartlandâ€™s data breach, the obÂvious question is why should you beÂcome PCI compliant if the approved standards, as attained by Heartland, still subject systems to security vulnerÂabilities and legal trouble?
"It would be really easy to get disÂcouraged," conceded Gray Taylor, forÂmer NACS vice president of technology and research and now a NACS consulÂtant. "Heartland is one of the most secure processors, and theyâ€™ve taken [security] seriously from day one."
Itâ€™s not an isolated accolade, but one shared generally by industry insiders.
Like my nephew heading back into the soccer game with the outcome all-but-certain, is the endeavor of beÂcoming PCI compliant an exercise in futility, too, one doomed to defeat? Is there anything you can do, PCI or not, to protect your customers and business?
The answer to these questions, NACS maintains, is that the fight for data security is relevant; youâ€™re still very much in the game and there are steps you can take to control the outÂcome.
Unless youâ€™ve been living in a retailing spider hole for the past few years, youâ€™re no doubt aware of PCI standards: the 12-steps of compliance, retailer classifiÂcation levels and the penalties if you are either in non-compliance or subject to a data breach.
In a nutshell, the Payment Card InÂdustry (PCI) Security Standards CounÂcil, comprised of the five major credit card companies, established (and conÂtinues to revise) Data Security StanÂdards (DSS), which are designed to protect personal data from your conÂsumersâ€™ credit cards. The measures that merchants must take to secure that data are a reflection of your retailÂer classification level, as determined by your sales volume.
Performance of regular audits helps ensure that youâ€™re compliant with the DSS, and if youâ€™re not, depending on your retailer classification level, youâ€™re subject to heavy fines ($25,000 per month for Level 1 and Level 2 merÂchants) and the revocation of your right to accept credit cards, among other card brand-imposed penalties â€" and this is regardless of whether a data breach actually occurs.
If you incur a data breach and you are found to be non-compliant, the results can be disastrous for your business â€" not to mention the harm your customers could suffer. Not only do you risk card brand-imposed penalties (Level 1 and Level 2 merchants can be fined $500,000), youâ€™ll likely face high costs associated with the following: notifying all suspected cardholders that their information might be compromised, defending yourself against inevitable lawsuits and controlling the PR damage from publicly announcing the data breach â€" all of which could threaten your companyâ€™s survival.
This all comes back to the Heartland case and the pursuit of data security: If becoming compliant doesnâ€™t guarantee security and eliminate data breach-related threats to your operations, why the emphasis on PCI standards and compliance?
Hereâ€™s the blunt answer, and you probably wonâ€™t like it: The credit card companies require it.
"Forget about â€˜standards,â€™" said MiÂchael Davis, NACS vice president of member services. "These are mandates, another form of interchange, driven by the five major card payment brands to relieve themselves of any risk, passing it down to the retailer under the auspices of protecting consumer data and the reÂtailer is in the middle here."
Davis said that the PCI Security Standards Council, which is fully staffed solely by the card brands, pushes through the PCI compliance standards without having to answer to anyone, including those who are reÂsponsible for enforcing and impleÂmenting the standards.
"There is not one retailer, not one processor, not one issuing bank, not one auditor, not one technology company sitting on the council," said Davis.
While the PCI Security Standards Council has developed a Board of AdÂvisors that "provides input to the orgaÂnization and feedback on the evolution of the PCI DSS," according to the Council, in reality, the board has very little influence.
"The plain truth is that the Board of Advisors review â€˜standardsâ€™ a month before issuing and can â€˜commentâ€™ but have no input on the standards themÂselves," explained Davis. "In essence, the card brands run the Council, the card brands man the committees that develop the standards, and the card brands are the ones that interpret and enforce the standards."
So while the process might be unfair, as long as you accept credit cards, there is not much you can do about the stanÂdards and compliance penalties. HowÂever, lest you feel completely helpless, understand that NACS has been and continues to be an outspoken critic of the process, and is committed to helpÂing bring about change.
"NACS has joined the PCI Security Standards Council as a Participating Organization," said Davis, "and is lobÂbying for a Board of Advisors seat. Over 40 NACS members are already Participating Organizations and we are looking to use our size to apply greater pressure through the Council. We have engaged PCATS [Petroleum and Convenience Alliance for TechÂnology Standards] to assist in any fuÂture standards of development."
One standard that NACS would like to see implemented is the requirement of PIN-based technology for card transÂactions â€" not just ones that are debit-based.
"Putting a four-digit PIN on every card transaction might have made the Heartland breach meaningless," said Taylor, who said that the Councilâ€™s reÂsistance to PIN-based transactions is a financial one.
"It boils down to transaction pricÂing," said Taylor, referring to the cost differential between credit and debit transactions. However, that may change, as the costs of PIN-based transÂactions rise. "As soon as [PIN-based transactions] become as expensive as credit card transactions, youâ€™ll see the adoption of PIN-based cards," predictÂed Taylor. "The trend is clearly there."
However, this added level of security would not come without cost to retailers. "Requiring a PIN for all debit and credit transactions would undoubtedly improve the security of card transactions significantly," said Jim Huguelet from The Huguelet Group LLC, a strategic IT consulting firm. "However, the amount of money and effort involved to make a fundamental change in the way consumers use credit cards across both brick-and-mortar as well as online merchants would be staggering."
In the meantime, NACS continues to advocate on behalf of retailers, continuÂally pushing for change, at the very least in terms of the decision-making process.
"We have a shared interest and reÂsponsibility in customer [data security], but we donâ€™t have a shared involvement in how we do it," said Taylor. "We repreÂsent the industry to say that there might be a better way to do it, and weâ€™re trying to build those security walls to make [breaches] more difficult."
While the overall focus for NACS is on data security, that doesnâ€™t rest solely with PCI compliance.
"Weâ€™re missing a broader point," said Lisa Stewart, president of Impact 21 Group LLC, and a NACStech workshop moderator. "We have found over and over again that retailers do not have an appropriate level of IT infrastructure to protect their own data and systems. My biggest concern is that they have to start down the [data protection] path...that weâ€™re at significant risk even withÂout PCI [compliance]."
Toward that end, NACS, in partnerÂship with PCATS, W. Capra, and Coalfire Systems, has developed an eight-step plan designed to help retailÂers achieve data security. While some of the steps might be financially impractiÂcal for small retailers, they represent a best practices approach for ensuring maximum protection.
As youâ€™ve already recognized, PCI comÂpliance is replete with acronyms. In adÂdition to DSS (see discussion above), thereâ€™s PCI PED â€" that addresses secuÂrity measures for maintaining pin entry devices; and thereâ€™s PCI PA-DSS â€" that concerns payment application systems (POS systems and payment terminals, among other items). Not surprisingly, each comes commensurate with specifÂic PCI standards (mandates) that govÂern retailer operations.
July 1, 2010, is a crucial deadline for all pin entry devices, after which they must utilize triple DES encryption (a sophisticated scrambling providing the highest levels of data security). NACS recommends that you engage your dispenser manufacturer to conÂfirm that you will be in compliance and to ascertain the steps you might need to take â€" either upgrade or replace your dispensers â€" to get on track now.
While self-assessment familiarizes you with your systems, rely on your processor to help you wade through the details.
Ask for an explanation of your merÂchant level and how PCI affects your business, as well as the steps you need to take to achieve compliance. Repeat the process if you have multiple procesÂsors, asking them to verify their PCI compliance. At every step, document your conversations.
This step can be more complicated than it seems, and it may also require leÂgal assistance to determine your reÂsponsibilities. Weâ€™re an industry with an inherently complex system, one inÂvolving jobbers, dealers and owners. As such, the lines of liability are often difÂficult to ascertain.
"If youâ€™re branded, look at your jobÂber contract," said Davis. "If youâ€™re unbranded, look at your processor contract. Thereâ€™s a big difference â€" you need to check your contracts and get things in writing."
Not knowing that you were responÂsible is never a solid defense to liability.
Working with the details you uncovered during step two, conduct a thorough inventory of your payment systems, including PIN pads (inside and outside), POS and networks.
"Perform a visual inspection of evÂery pin entry device, including their serial numbers," instructed Davis. "Skimmers are the biggest security risk we face." In fact, this part of the process cannot be overemphasized.
"Magnetic-stripe skimmers repreÂsent a significant threat to petroleum retailers," said Huguelet. "There have been numerous cases where a group of sophisticated criminals have engiÂneered an overlay card reader that is tailored to the design of a particular dispenser or outside payment terminal model. They have then attached these skimmers to capture the card informaÂtion of consumers using their payment cards for a legitimate transaction. This information is stored within the skimÂmer and then retrieved at a later date by the criminals."
For some, itâ€™s a game of cat-and-mouse that requires constant evaluaÂtion and proactive efforts.
"The crooks are definitely getting smarter and will go after processors, dispensers and points inside stores," said Pat Raycroft, founding partner at W. Capra, a retail technology consultÂing firm. "That means we need to keep operating smarter and stay in front of potential threats."
With innovation in mind, Huguelet cited companies such as Gilbarco as having developed a secure card reader, Secure FlexPay, that thwarts skimÂming attacks. But for now, theyâ€™re opÂtional.
"These secure card readers are not currently required by any PCI rule or card brand mandate," said Huguelet. "However, with the forthcoming anÂnouncement of the new PCI UnatÂtended Payment Terminal (UPT) specifications, there will then be reÂquirements that outline necessary protections for the card reader itself. [Because of that, before] retailers inÂvest in any data security-related reÂmediation for their dispensers, they should engage in a detailed dialog with their dispenser and OPT manuÂfacturers so they can fully underÂstand how their products will (or wonâ€™t) meet the upcoming PCI UPT requirements."
A PCI UPT standard has been disÂcussed for two years but has not yet been released by the card brands.
Obtain written verification from your vendors that your entire system is PCI compliant (depending on the compoÂnent, PCI DSS, PCI PED or PCI PA-DSS will apply).
For those items that are not compliÂant, obtain written instructions as to what steps you must take to attain comÂpliance.
The PCI Security Standards Council Web site â€" www.pcisecuritystandards.org â€" provides a self-assessment form that you can use to analyze your system. In addition, NACS has partnered with TurboPCI to offer its TurboPCI Easy Workbook (see page 16 for more inforÂmation).
After completing the self-assessment in Step 5, consult an experienced PCI exÂpert to help you plug any security gaps in your system.
Hire a QSA to perform an audit and seÂcurity scan of your system. They will ensure that the most up-to-date proceÂdures (and those required by the card brands) are in place.
Fix any remaining vulnerabilities and plan for continual adherence to the seÂcurity standards â€" data security reÂquires your ongoing attention.
"PCI is a circle, you canâ€™t do it one time," suggested Stewart. "Building a secure infrastructure is ongoing, the assessments are ongoing and are reÂquired to secure your data." She exÂplained that the standards (mandates) are constantly evolving to reflect new technologies and practices.
"We have to be careful because itâ€™s changing so fast and the liability is on us at every level," said Stewart. "The self-assessment has already changed multiple times. Somebody at your comÂpany has to be responsible for keeping up, or you should outsource the job. [AlÂways] protect your data."
In the meantime, details of the HeartÂland breach will continue to unfold, and news of legal settlements and verdicts will cast public scrutiny on practices that involve your operations.
While things might look daunting â€" as they undoubtedly do in the soccer world for my nephew and his teamÂmates â€" you can gain experience and develop skills that will enable you to exÂpect â€" and not just hope for â€" victory.
Everyoneâ€™s rooting for you.Â
Jerry Soverinsky is a Chicago-based freelance writer and a NACS Magazine contributing writer.