Evan Schuman's StorefrontBacktalk

The PCI Council is clearly signaling that retailers willing to use encryption-friendly sleds (or Square-like devices) with mobile phones will have a way out of today’s mobile-payment Catch-22 by “August or September.” PCI Council Chief Technology Officer Troy Leach’s comments related to the council’s efforts on point-to-point encryption guidance and how that relates to its mobile thinking.

The point-to-point advice “will talk about the ability to encrypt at one point and decrypt at another point and the transmission between those two points being completely out of compliance scope,” Leach said. That is the first time the council has been that publicly explicit about point-to-point applications being out-of-scope.

Even more intriguing was when Leach tied it back to mobile devices: If a retailer associate “is swiping the card or dipping the card into a peripheral device that plugs into a mobile phone, now we’re talking about devices and not applications. If they can do that and the mobile phone is simply a conduit for transmitting cardholder data that is encrypted,” then PCI compliance could be had through standard means without waiting for the council’s formal mobile guidance next year, Leach said.

Ultimately, of course, retailers will want to go the full application route—to take advantage of CRM, inventory, preferred pricing, coupons, etc.—but this is a nice interim step to get mobile payment live and compliant much more quickly. “Instead of getting a Hypercom terminal, you can in essence turn your phone into an NFC terminal,” said PCI Columnist—and QSA—Walt Conway.

“This is good news. Troy’s comments are very encouraging for retailers that want to implement a secure mobile POS capability. (Related story: Mobile Payment Vendor Claims PCI Compliance, Then Admits That It Was Fiction.) He points out that by this summer when point-to-point encryption guidelines are released, retailers should be able to implement a secure hardware card-swipe peripheral device,” Conway said. “Because it encrypts the data at the swipe, the device effectively removes the phone from the retailer’s PCI scope. With such a secure peripheral device coupled with point-to-point encryption, it appears retailers do not have to wait for the council to develop guidelines for smartphone payment applications or for software vendors to write them. Because retailers in this scenario rely on the hardware, they don’t need a payment application. Retailers will be able to use their current smartphone coupled with a PTS-listed card-swipe and approved encryption for Mobile Commerce.”

Leach’s comments came in the middle of a briefing on a mobile payment update that the council will make Friday (June 24). That update will reflect an initial step for mobile-payment guidance. But it will only impact mobile devices that are solely used for—and solely capable of—accepting payments. The mobile-payment issue that the vast majority of retailers care about—where consumers can use their personal phones to make purchases—is still in limbo until next year, with some guidance promised by the end of 2011.

The change, incremental as it is, will be that such single-purpose dedicated devices “will now be considered for inclusion as PA-DSS validated payment applications,” according to a draft statement from the PCI Council.