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Only The Commerce Department Could Make Retail Self-Regulation Look Good

November 18th, 2010

PCI-DSS is a starting point for security standards. It offers a baseline for payment-card security. But there’s at least as much sensitive data piled up in retailers’ CRM databases. Some of that purchase information could be embarrassing. Some could let a data thief assemble enough information to steal customer identities wholesale. Almost none of it is encrypted, and there are virtually no widely used standards for protecting it.

Of course, that CRM data is less attractive to thieves right now because payment-card data is so much more valuable, and often easier to steal. At least that’s what we assume. But unlike a stolen payment-card number, non-negotiable CRM data is almost impossible to trace. If someone steals it, who would know?

When it comes to breach disclosure, how about this simple rule: Disclose the breach in as much detail as possible within 24 hours of its discovery.

No exceptions. Not for a few weeks to figure out exactly how the thieves got in and what they got away with. Not to wait until the holiday season is over so as not to spook the customers. Not at the behest of law enforcement (who will always agree that it’s better not to go public about a crime).

Just disclose the breach. We know now that customers won’t stop shopping at a retailer that has been breached, even if there’s massive publicity. But without disclosure, those same customers won’t know to cancel their credit cards or check their bank statements. Card issuers won’t know to flag those cards for possible fraud activity. Waiting helps no one but the thieves.

And the FTC’s feeble ability to punish even the most egregious security and privacy lapses certainly won’t prod big retailers to do the right thing. In practice, the FTC can only deliver wrist-slaps to big offenders, who would barely notice a million-dollar fine (not that the FTC can go that high today). The bigger a retailer is, the less that fine hurts.

Heftier fines would get the attention of big companies. But an even more effective punishment would be suspending a retailer’s ability to do business on the Internet for a period of time. Now that would get a big retailer’s attention—and the bigger the retailer, the more that penalty would hurt.

Meanwhile, for retailers who demonstrate that they’ve taken the prescribed steps to lock down their payment and CRM data and promptly reported any breaches, the FTC should also be able to offer that safe harbor: protection from penalties and lawsuits for negligence in a breach.

That’s a big carrot to go with the big stick of effective FTC penalties. But taken together, they might actually move retailers in the right direction.


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Why Did Gonzales Hackers Like European Cards So Much Better?

I am still unclear about the core point here-- why higher value of European cards. Supply and demand, yes, makes sense. But the fact that the cards were chip and pin (EMV) should make them less valuable because that demonstrably reduces the ability to use them fraudulently. Did the author mean that the chip and pin cards could be used in a country where EMV is not implemented--the US--and this mis-match make it easier to us them since the issuing banks may not have as robust anti-fraud controls as non-EMV banks because they assumed EMV would do the fraud prevention for them Read more...
Two possible reasons that I can think of and have seen in the past - 1) Cards issued by European banks when used online cross border don't usually support AVS checks. So, when a European card is used with a billing address that's in the US, an ecom merchant wouldn't necessarily know that the shipping zip code doesn't match the billing code. 2) Also, in offline chip countries the card determines whether or not a transaction is approved, not the issuer. In my experience, European issuers haven't developed the same checks on authorization requests as US issuers. So, these cards might be more valuable because they are more likely to get approved. Read more...
A smart card slot in terminals doesn't mean there is a reader or that the reader is activated. Then, activated reader or not, the U.S. processors don't have apps certified or ready to load into those terminals to accept and process smart card transactions just yet. Don't get your card(t) before the terminal (horse). Read more...
The marketplace does speak. More fraud capacity translates to higher value for the stolen data. Because nearly 100% of all US transactions are authorized online in real time, we have less fraud regardless of whether the card is Magstripe only or chip and PIn. Hence, $10 prices for US cards vs $25 for the European counterparts. Read more...
@David True. The European cards have both an EMV chip AND a mag stripe. Europeans may generally use the chip for their transactions, but the insecure stripe remains vulnerable to skimming, whether it be from a false front on an ATM or a dishonest waiter with a handheld skimmer. If their stripe is skimmed, the track data can still be cloned and used fraudulently in the United States. If European banks only detect fraud from 9-5 GMT, that might explain why American criminals prefer them over American bank issued cards, who have fraud detection in place 24x7. Read more...

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