Evan Schuman's StorefrontBacktalk

A 403 Labs QSA, PCI Columnist Walt Conway has worked in payments and technology for more than 30 years, 10 of them with Visa.

Under what circumstances does a retailer become a PCI service provider? What about a shopping center operator that provides telecom services that its tenants use to authorize card payments? Consider, too, a college or university that outsources its bookstores or food court to a third party that continues to use the school’s network.

In the world of PCI, service providers are different from retailers. Retailers accept payment cards for goods and services, whereas service providers help enable those transactions by storing, processing or transmitting cardholder data for the merchant. Another difference is that merchants validate their compliance to their acquirer, while service providers submit their Reports on Compliance (ROCs) to the card brands. In the real world, these roles may get muddled, with merchants unwittingly crossing the line and becoming service providers.

PCI DSS dictates that if you provide services that either control or could impact the security of cardholder data, you are a service provider. This definition includes services that are part of the authorization or settlement process (e.g., everything from managed firewalls and Intrusion Detection Services to hosting an order page on the Web) as well as services that occur after the transaction is completed (e.g., loyalty tracking or order processing).

When a retailer or any merchant crosses the line and becomes a service provider, it may not necessarily encounter any new PCI requirements but will expand its PCI scope, possibly quite considerably. That company also increases its risk and the cost, complexity and effort it takes to validate PCI compliance. Lastly, one of these retailers might cause its acquirer to ask questions, because its merchant agreement with that acquirer likely does not cover these non-merchant activities.

The most obvious case of merchant-as-service-provider is a franchisor that has both company- and franchisee-owned stores. It frequently provides advice and maybe network or point-of-sale (POS) facilities to its franchisees. But retailers, too, often host unrelated businesses (I’ve seen everything from a Starbucks to a medical clinic) on their premises.

Where is the line? At what point does a merchant morph into a service provider?

I don’t have all the answers. But I do know that in some cases a merchant can clearly cross over the line and act as a service provider. The point at which we draw that line will depend on the merchant’s particular, even unique, circumstances.

Let’s start with the case of a franchisor that has both company- and franchisee-owned stores. Because the franchisor owns some of the stores, it is a merchant. It will validate its PCI compliance based on its merchant level (see more, below), counting only the volume of the company-owned stores.

Franchisors are concerned about their brands. Newspapers don’t care if a breach occurs at a franchisee- or a company-owned store. The franchisor’s name makes a better headline and, unfortunately, it has deeper pockets. Therefore, franchisors want to make sure their franchisees are secure and PCI compliant. But how far can the franchisor go? What additional help, advice and services will have the unintended consequence of causing a franchisor to become a service provider?