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Visa Classifies Corporate Franchisors As Third-Party Agents
I agree with Visa’s conclusion from a security perspective. The program reflects the reality of how data compromises spread and reinforces the importance of effective segmentation. The PCI Council has a Special Interest Group (SIG) examining this whole issue of what is in and what is out of PCI scope. The Scoping SIG is finalizing its recommendations. (Full disclosure: I am a member of that SIG.) It is interesting that Visa’s action to expand the Agent Registration program seems to get a jump on the Scoping SIG and make a distinction between the cardholder data environment (where cards are stored, processed or transmitted) and PCI scope (which can be wider).
Like I said, from a security perspective, I agree with Visa’s position. From a business perspective, however, it means corporate franchisors in a variety of industries face significantly increased PCI scope and costs. CFS who are, say, Level 2 merchants based on the payment activity at their company-owned locations can say goodbye to Self-Assessment Questionnaires. They now are subject to the same validation requirements as a Level 1 merchant or service provider. Specifically, they have 90 days to contract with a Qualified Security Assessor (QSA) and 30 days to schedule their assessment. The QSA’s Report on Compliance (ROC) is due to the sponsoring acquirer within the next 150 days.
Visa notes a possible exclusion for corporate franchisors in their bulletin. Done properly, the corporate franchisor “may” (Visa’s emphasis) be excluded from the CFS Agent Registration program. This possibility is important, and it is not a loophole. It is an option that may be open to some corporate franchisors, while still requiring them to be PCI compliant. There is no guidance on what “may” means, but I’m sure we QSAs who work with franchisors will be working on this issue—taking into account current PCI Council guidance and the Scoping SIG, when the PCI Council issues its much-anticipated report.
Corporate Franchisors shouldn’t necessarily assume they are subject to Visa’s Agent Registration. Although I think that most corporate franchisors will be included, they should note one sentence in Visa’s bulletin: “Corporate Franchise Servicers must validate PCI DSS compliance within 12 months of initial notification from Visa or their acquirer [emphasis provided] that they are required to be registered.”
If you think you might get this “initial notification” or wonder if you will, I suggest you contact your acquirer right away. You may get the dreaded news that you are in the new program, but you may also find you are not. Either way, it is a prudent idea to find out early and not wait to be surprised.
Will the increased PCI compliance effort and cost cause some corporate franchisors to rethink their network and services strategy with their franchisees? Maybe. Facing the extra costs of validating compliance and the implicit liability for any cardholder data breach, could some corporate franchisors stop supporting their franchisees? Maybe. And the unfortunate outcome would be increased risk to the entire payment system, because franchisees with little PCI or security expertise would be left to select and install their own payment applications and network infrastructure.
I hope this won’t happen. I hope instead corporate franchisors who are facing this choice will segment their centrally hosted systems in a PCI-compliant manner and make them compliant, continuing to support franchisees with the best services and advice available.
I haven’t got all the answers, but I’d like to hear what you think of the CFS program. Are you a franchisee or franchisor? What do you think? I’d like to hear your thoughts. Either leave a comment or E-mail me at wconway@403labs.com.
-Marc
November 13th, 2010 at 10:16 am
This is, I think, a huge wake-up call for all companies that somehow interact with merchants’ retail sites. While the name of the category is “Corporate Franchisor Servicer”, I don’t see the logical distinction (if one is even meant to be implied) between a strict “franchisor” and any other third party that provides a technology service of some type to retail sites (for example, an independent POS provider that offers remote support). When you look at the terminology that says this new program encompasses anyone who “…owns or operates….connected physical and logical assets…” you have the potential to encompass a very large number of previously uncovered third parties. As such, I believe that by asking third parties that may not have a direct contractual relationship with a merchant’s acquirer (or Visa, for that matter) to register with their customers’ acquirers, “irrespective of whether Visa cardholder data is being stored, transmitted or processed”, we are entering a new phase of payment security compliance, liability, and recordkeeping.
I doubt that this program would in practice be able to reach all of the (seemingly) covered entities anytime soon – but it feels like this is where things are headed, and those of us who are (potentially) impacted should begin to take note.
November 13th, 2010 at 10:17 am
Interestingly, if you read the announcement carefully, a CFS appears to not be able to self-assess/validate their own compliance and therefore must engage a QSA – even if the merchant they are working with is of a transaction level that allows them to do so. To quote: “Members must verify that the Corporate Franchise Servicer is actively working towards (or has validated) PCI DSS compliance as a Level 1 service provider”.