Evan Schuman's StorefrontBacktalk

If you provide franchisees their POS equipment, host them on your network and link them to their acquirer, or otherwise facilitate their POS functions, you may protect your brand. However, you will likely also become a service provider. On the other hand, if you provide, say, PCI training and maybe a master contract for vulnerability scanning, in my opinion, you should be in the clear. Just about everything else is a gray area.

The difference is not academic. Even a large franchisor could easily be a Level 2 merchant (under 6 million Visa or MasterCard transactions per year) and, therefore, be able to self-assess even under the new MasterCard rules.

The game changes, though, when this same franchisor becomes a service provider. Now it likely is a Level 1 service provider (300,000 transactions per year, or maybe just a single transaction if it falls under MasterCard’s Third Party Processor definition), which means an outside assessment culminating in a ROC prepared by a QSA. The brands’ listing fees for Level 1 service providers add further costs.

Retailers that host unrelated third parties on their premises face a similar situation. If they provide that health clinic or florist or video rental shop located in their stores access to a phone line and nothing else, they should be fine. If, however, the retailer has any visibility into that third-party’s transactions (including providing basic IT support for POS systems or the like) or provides systems or services to enable authorization or settlement, it would fall under the definition of a service provider.

As a retailer, you want any third party in your environment to be secure. But you need to be careful. If you help too much, you will get drawn into this service provider trap. The same concern applies to other parties, including shopping center operators, colleges and universities, and even government agencies that execute master contracts for a variety of agencies and departments. Is a state government a service provider?

The wild card in this situation is Visa. As reported earlier by my fellow StorefrontBacktalk columnist Todd Michaud, “Visa announced it is creating a new category of service providers to cover franchisors that offer PCI-related services to their franchisees.” I have no insight into what Visa is contemplating. However, I hope Visa considers all the other possible merchant/service provider combinations as it drafts plans. Any change or modification to the service provider definition may clarify the situation for franchisors. But it could also unintentionally impact many other merchants.

Do your stores host unrelated businesses? What facilities do you provide? If you are a franchisor, how do you manage this delicate balance with your franchisees? I’d like to hear your thoughts. Either leave a comment or E-mail me at wconway@403labs.com.