Evan Schuman's StorefrontBacktalk

Most of the uproar over Carrier IQ and its monitoring software installed on many smartphones has focused on conventional privacy worries—whether an outsider is capturing and storing sensitive private information. But a bigger concern for retailers might be the fact that Carrier IQ can reportedly broadcast payment-card numbers unencrypted over Wi-Fi as the numbers are being entered by online customers or in-store associates.

Never mind whether Carrier IQ or the mobile operator is keeping this information. If it’s merely being transmitted unencrypted, a thief monitoring a store’s wireless networks might be able to scoop it up in transit.

Carrier IQ, mobile carriers and handset makers are currently the targets of at least a dozen class-action privacy lawsuits stemming from the software (take your pick whether to call it “spyware” or “performance monitor”). Carrier IQ denies that it is storing sensitive information—it’s just collecting performance data that the carriers have asked for, the company says.

But privacy aside, it’s clear from a widely circulated video demonstration by security researcher Trevor Eckhart that Carrier IQ’s software has access to almost everything that happens on a phone it’s monitoring. The software maker insists most of those events—right down to key presses—are filtered out before data is sent on to the carriers.

That may be what Carrier IQ intends. Here’s the problem: For diagnostic purposes, Carrier IQ’s software apparently queries information over Wi-Fi connections when there’s no cell-tower connection available. Raw keypress information is sent in real time over the air. Those raw key codes aren’t hard to decipher (they just identify ASCII characters) and they could contain payment-card numbers and confirmation information such as CVV or ZIP codes.

That’s a PCI problem whether or not Carrier IQ throws the information away at the other end. If it’s being transmitted, it could be captured by thieves. And there’s no way for a retailer to know what’s being sent, whether it’s encrypted or if the process meets PCI requirements.

OK, we can probably answer that last one: If a third party with no PCI validation is handling payment-card data, the process almost certainly doesn’t satisfy PCI requirements.

This isn’t what any chain that’s trying to figure out how to do in-store mobile POS wants to hear. Using consumer-grade, mass-market handsets was supposed to make things simpler. Apple and Google were supposed to lock down the iPhone and Android platforms, so all retailers had to do was write the top-level application for associates to use.

Instead, it turns out that there has been software running in the background all along. Worse still, some of the software is being run by a third party (Carrier IQ), authorized by another third party (the mobile carrier) and completely outside the retailer’s control or even knowledge. Yeah, that makes you feel good about in-store mobile POS, doesn’t it?

For all the complaints we’ve had, the PCI Council’s go-slow approach on mobile POS may have been right.