Retailers Faced Critical IT Security Deadline

Written by Evan Schuman
June 16th, 2005

Hoping to at least slow down the wave of electronic fraud threatening retailers, a group of major credit card firms?led by Visa?has set June 30 as the deadline for all merchants to submit recognized security audits.

The deadline is also for full compliance with 12 key elements of the PCI Data Security Standard, but those have already been required, although compliance has been spotty. The verification audits are the new element for June 30, along with a series of potential fines?as much as $500,000?for those that don’t comply.

Even Visa officials are not saying that full compliance with the June 30 deadline will have a material impact on reducing computer fraud, but that it’s a start.

“It’s going to be an ongoing process. We’re raising the security bar. I’m sure PCI will evolve over the next months, certainly years,” said John Shaughnessy, senior vice president of fraud management for Visa USA. “I don’t think there’s a single silver bullet anywhere on Earth. I don’t think we’ve ever represented this as the be all and end all” for absolute security.

The PCI Data Security Standard is little more than a common-sense list of good security procedures and includes a firewall requirement and instructs retailers to “not use vendor-supplied defaults for system passwords” and “assign a unique ID to each person with computer access.”

One major area of concern is retailers who store too much information, often to make transactions easier for themselves and for customers. Storing the non-raised three-digit cardholder verification number, for example, defeats the whole purpose of having such a number.

The security improvement effort?backed by Visa, MasterCard, Citigroup’s Diner’s Club, American Express and Morgan Stanley’s Discover?has been pursued for four years with little success.

Visa is threatening retailers who miss this latest deadline with fines and “permanently” throwing the retailer off the credit card company’s network, according to a Web site Visa created for retailers.

If a Visa retailer, for example, doesn’t alert Visa to a loss of cardholder or any other security problem, the retailer faces a penalty of $100,000 per incident. Fines can also be issued “if a member knows or suspects a security breach with a merchant or service provider” and doesn’t “take immediate action to investigate the incident and limit the exposure of cardholder data,” according to the Web site.

Much of the impetus for this crackdown is effective professional fraud teams operating beyond the reach of U.S. law enforcement, often in the former Soviet Union.

“This is turning on light bulbs for a lot of people who have been dragging their heels,” said Greg Buzek, president of the IHL Consulting Group. “Millions of customer IDs have been stolen. It’s a very real and a very dangerous situation when it comes to the potential of identity theft.”

This may indeed turn on a lot of light bulbs for retail IT executives, but many retail vendors are hoping the new pressure will ring a lot of cash registers for them.

Not surprisingly, retailers have been inundated with offers from various retail software companies saying they will take the pain and effort out of the new rules and the new validation requirements.

Triversity, for example, has announced that it has incorporated PCI rules into its Transactionware POS software suite, along with audit trails.

LaGarde’s StoreFront e-commerce software is another product trying to get in on the magstripe madness. The company announced an alliance with CardinalCommerce to integrate a series of payer authentication services.

LaGarde CEO and founder Bob LaGarde looked on the bright side, arguing in a written statement that these moves are aimed at increasing overall consumer e-commerce activity. “We see this as a tremendously exciting opportunity to better arm e-businesses to combat credit card fraud and simultaneously help inspire greater consumer confidence in online purchasing, as consumers begin to recognize the greater credit card security.”

Recent publicity surrounding well-known credit card security problems has only intensified the pressure for retailers to meet the June 30 deadline. Two widely known incidents involve Polo Ralph Lauren finding credit card information “misappropriated” late last year and HSBC Holdings warning 180,000 credit card customers that their data may have been stolen.


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