Implications of Heartland’s Beyond PCI Strategy for Retailers

Written by David Taylor
May 13th, 2009

GuestView Columnist David Taylor is the Founder of the PCI Knowledge Base, Research Director of the PCI Alliance and a former E-Commerce and Security analyst with Gartner.

Boxer Jack Dempsey once said: The best defense is a good offense. Heartland CEO Bob Carr deserves a lot of credit for his efforts to turn the image of his company from “that payment processor that got breached” to “the only payment company that’s offering end-to-end encryption to protect credit card data.” And he did this all without bothering to stop and be contrite and apologetic for the breach.

Heartland’s strategy—detailed here in a series of StorefrontBacktalk podcasts with Carr—is the most aggressive since TJX announced they were going to hold a special “we’ve been breached” sale for all of the public. But what are the implications of this bold strategy for retailers and the rest of the market? Here’s a few of the things I am hearing as I talk to merchants, processors and other PCI market players:

  • “Beyond PCI” as a Competitive Advantage for Processors
    Card processors have been competing on a transaction pricing model for years. The recent breaches at Heartland and RBS WorldPay will serve as a “make or break” inflection point for many of them. An example is Electronic Payment Exchange (EPX), a processor which has been offering its Buyer Wall tokenization system for two years. It’s using the fact two of its competitors were breached to make bold moves of its own, focusing on removing card data from the retailer, beginning at the POS all the way through to the processor.

    We’ve talked with two very large processors who also see the breaches of their competitors as a time for aggressive changes to their product offerings and strategies. We expect to see at least two major announcements from processors that leverage “beyond PCI” issues and competitive differentiators, as part of efforts to take business from other processors that still compete primarily on price. The point here is that retailers need to be talking strategy, not price, with their card processors. Any retailer that doesn’t consider the security of transactions from the POS (or the website or call center) to the processor is making a major error.

  • When Competitive Advantage Becomes Lock-in
    Since the early days of EDI and electronic commerce, the use of proprietary technology to link enterprises has served to not only reduce costs for the linked businesses, but also as a tool to lock in the relationship, by raising the cost of switching providers. After all, if you’re going to use security technology to take your competitor’s business, why not use that same technology to keep it?

    (Related Column: Is Heartland’s End-to-End Move The First Shot In A Processor Lock-In War?)

    Retailers need to carefully examine any new “beyond PCI” technical approaches being offered by their processors, as well as other service providers. They need to think about what will be required of them to take advantage of such “end-to-end” security and whether the investment in technology and labor will be transferrable, should they decide to switch to a competitor.

    The best examples of this are encryption key management and tokenization. There are virtually no standards for how either type of system should work, and interoperability is almost non-existent in either case.

  • advertisement

    3 Comments | Read Implications of Heartland’s Beyond PCI Strategy for Retailers

    1. David Navetta Says:

      The biggest result will be the increase in the standard of care. The more companies that do PCI-plus the higher the standard of care is from a legal perspective (that is when it becomes “industry standard” and even if not, plaintiffs will argue it is).

    2. Gregory Says:

      Since big processors and other enterprises with lots of sensitive data can’t afford to wait around for standards and/or interoperability, one ought to be in search of what the analysts characterize as automated, enterprise-wide encryption management solutions. They’re already out there folks.

    3. zack Jackson Says:

      No one’s arguing the merits of encryption, but as the scale of cert and key objects increases, we’ve got to have a better way to manage all this–some way other than a spreadsheet and really smart engineer.



    StorefrontBacktalk delivers the latest retail technology news & analysis. Join more than 60,000 retail IT leaders who subscribe to our free weekly email. Sign up today!

    Most Recent Comments

    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...

    Our apologies. Due to legal and security copyright issues, we can't facilitate the printing of Premium Content. If you absolutely need a hard copy, please contact customer service.