QSA's Recommend End to End Encryption for Cardholder Data Protection

The Ponemon Institute recently published a study on PCI Compliance titled “PCI DSS Trends 2010: QSA Insights Report.” Published in March 2010, the study surveyed 155 QSAs worldwide to their opinions on PCI Compliance, PCI Compliance Costs, and encryption technology. Some of the more interesting findings include:

• Encryption is the favored technology for achieving end-to-end cardholder data protection. 60 percent of QSAs believe encryption is the best means to protect card dataend-to-end, compared to 35 percent for tokenization.

• Cost of annual audits averages $225,000 for the largest merchants. Excluding technology, operating, and staff costs, the world’s largest acceptors of credit cards (also known as Tier 1 merchants) are spending an average of $225,000 on auditor expenses. 10 percent of these businesses are spending $500,000 or more annually on PCI auditors. The average spend by Tier 1 retailers was:
15% <$100k 39% $101k - $200k 27% $201k - $300k 5% $301k - $400k 4% $401k - $500k 10% >$500k

• Almost half of the QSAs surveyed do not think their clients believe that PCI DSS improves data security. The results shown below are for the question, "Dlients don't believe PCI DSS improves data security?"
21% Strongly Agree
23% Agree
15% Unsure
19% Disagree
18% Strongly Agree


• When asked what are the most effective technologies for achieving PCI DSS compliance, 3 of the 4 top answers are encryption. The top 4 answers were:

1. Firewalls

2. Encryption for data at rest

3. Encryption for data in motion

4. Endpoint encryption solutions

• The QSAs surveyed think merchant networks are the most at risk systems for data breaches, followed by merchant databases and POS systems, all places where end to end encryption will protect cardholder data. The QSAs ranked the following systems as most at risk for a cardholder data breach. End to end encryption can protect data in each of these merchant systems.

51% Merchant Networks

43% Merchant Databases

33% Point of Sale Systems

30% Payment Applications

• When asked how to best protect cardholder data, encryption was the choice 51% of QSAs as for protecting cardholder data.

• A full copy of the study can be found by registering here.

End-to-End Encryption: What’s Next?

While end to end encryption solutions like VeriShield Protect are valuable tools for retailers looking to protect their customers’ cardholder data, even more benefits are on the horizon.

The PCI Security Standards Council has engaged PricewaterhouseCoopers to conduct a study of new payment security technologies on securing cardholder data and achieving PCI DSS compliance.

The study, currently underway, is expected to recommend that if a true, secure end to end encryption scheme is implemented, many of the PCI DSS requirements would be met.

George Peabody of the Mercator Group estimates that retailers will save 80% of their on-going compliance costs and 75% of their PCI DSS audit costs by implementing a true end to end encryption solution like VeriShield Protect. In his analysis, that would translate to between $262,500 and $1,750,000 in annual savings to a retailer.

Mercator End to End Encryption Report

Mercator Advisory Group recently published “End to End Encryption: The Acquiring Side Responds to Data Loss and PCI Compliance.” The report was written by George Peabody, Principal Analyst for Mercator and was published in June 2009.

Among the finding in the report:

• “PCI, as it is defined today, while necessary, is not sufficient. More robust approaches are required. And that is where card number encryption enters the scene, as another method of removing high value card numbers from merchant, processor and acquirer systems.”
• “Encryption is about making secret data economically and computationally impractical to steal. Having done that, cyber criminals have no ability to profit from what data they do manage to steal after they‘ve broken into the enterprise.”
• Mercator projects that the scope of PCI DSS audits should be reduced by 75% and annual compliance maintenance costs should be reduced by 80% by implementing a proper end to end encryption solution. In their analysis, that translates to between $262,500 and $1,750,000 in annual savings to a retailer.
• George Peabody believes that retailers should be given an interchange break for implementing an end to end encryption solution. “There is precedent for incentive interchange rates based on merchant deployment of fraud and risk controls. E2EE deployment by a merchant qualifies as a fraud and risk control. After all the PCI DSS expenditures made by merchants, under threat of a stick, a handful of basis points for good citizenship would let the Acquiring Team know that its efforts are appreciated. Since they have to play by the Issuing Team‘s rules, it is deserved.”
• “The only way E2EE becomes systemic is if it becomes mandated for all merchants or an interchange incentive is given or E2EE saves enough money and pain to compel merchants.... and upstream through to issuers.”

MasterCard Revises Level II SDP Merchant Compliance

MasterCard has changed its requirements for Level II Merchant SDP Program Compliance. SDP, or Site Data Protection is the MasterCard program for cardholder security and is similar to the VISA CISP Program. Currently Level 2 MasterCard merchants can complete a PCI DSS Self-Assessment Questionnaire and submit that to MasterCard as part of their SDP certification process. Level 2 Merchants are defined by MasterCard as merchants doing between 1M and 6M annual MasterCard transactions annually or merchants whose transaction volume makes them a Level 2 merchant for another card brand. By December 31, 2010, all Level 2 MasterCard merchants must complete an onsite assessment conducted by a PCI SSC certified Qualified Security Assessor, and thereafter submit an annual onsite assessment conducted by a PCI SSC certified Qualified Security Assessor. These requirements are included on the MasterCard web site here: http://www.mastercard.com/us/sdp/merchants/merchant_levels.html

TJX Agrees to Security Pilot Programs and to push End to End Encryption

There were some interesting terms agreed to by TJX in the TJX/State Settlement. First, TJX agrees to participate in pilot programs for new payment security technology, such as chip and pin, if asked to do so by MasterCard or Visa within 2 years of the date of the agreement. After two years, I guess they can say no.

Second, they agreed to take steps within the next 180 days to encourage the development of end to end encryption including seeking the cooperation of their acquiring bank.

The text of these section appears below. A copy of the entire agreement can be found at: http://storefrontbacktalk.com/story/TJX%20Agreement.pdf

The Attorneys General and TJX believe that the security of Cardholder Information collected in connection with retail transactions is an important priority. Protecting Cardholder Information is a dynamic challenge, because as security technologies available to retailers evolve, criminals attempt to develop more sophisticated ways of trying to circumvent such technologies. The Attorneys General and TJX therefore agree that possible improvements within the payment card system could aid the protection of consumers. To further that goal, TJX agrees as follows:

A. Pilot Programs. TJX will notify Visa and MasterCard in the United States and its acquiring bank(s) in the United States, simultaneous with the execution of this Assurance, that TJX desires to participate in pilot programs for testing new security-related payment card technology, such as the chip-and-PIN technology that is used in many other countries. TJX will participate in such program(s), if invited to do so, within two (2) years following the Effective Date of this Assurance, provided that any new security-related payment card technology and the terms and conditions of such participation are considered in good faith by TJX to be feasible and reasonable.

B. New Encryption Technologies. TJX will take steps over the one hundred eighty (180) days following the Effective Date of this Assurance, to encourage the development of new technologies within the Payment Card Industry to encrypt Cardholder Information during some or all of the bank authorization process with a goal of achieving "end-to-end" encryption of Cardholder Information (i.e, from PIN pad to acquiring ban). Such methods may include but are not limited to encouraging the development of new technologies and seeking the cooperation of TJX's acquiring bank(s) in the United States and other appropriate third parties. TJX will provide the Attorneys General, within one hundred eighty (180) days following the Effective Date, with a report specifying its progress in this effort.

Nevada Data Encryption Law Has Wide Coverage

Nevada recently enacted a new Data Protection law which replaced the previous law that was in effect for less than a year. The new law has some broad-reaching implications. The law applies to any business that has any transactions or employees located in the state, no matter where their headquarters are located and requires those businesses that accept credit cards to “comply with the current version” of the PCI DSS.

The text of the law is as follows:

"If a data collector doing business in this State accepts a
payment card in connection with a sale of goods or services, the
data collector shall comply with the current version of the
Payment Card Industry (PCI) Data Security Standard, as adopted
by the PCI Security Standards Council or its successor
organization, with respect to those transactions, not later than the
date for compliance set forth in the Payment Card Industry (PCI)
Data Security Standard or by the PCI Security Standards Council
or its successor organization."

While the law requires data encryption for personal information transmitted outside of the enterprise, it does not apply for data transmission over a secure, private communication channel for approval or processing of negotiable instruments, electronic fund transfers or similar payment methods.

Data sent over public communication links needs to be encrypted, in a secure approved manner as spelled out in the law.

The previous version of the law defined personal information as unencrypted information consisting of an individual's last name and first name (or first initial), combined with his or her Social Security number, driver's license or identification card number, or financial account number plus password or access code.

The law also states that is a business (data collector in the law's terminology) is compliant with the law, then the business shall not be liable for damages unless there is gross misconduct involved.

The Nevada law is scheduled to go into effect January 1, 2010.
The full text of the law can be found here: https://www.leg.state.nv.us/75th2009/Bills/SB/SB227_EN.pdf

MasterCard Revises Level II SDP Merchant Compliance

MasterCard has changed its requirements for Level II Merchant SDP Program Compliance. SDP, or Site Data Protection is the MasterCard program for cardholder security and is similar to the VISA CISP Program. Currently Level 2 MasterCard merchants can complete a PCI DSS Self-Assessment Questionnaire and submit that to MasterCard as part of their SDP certification process. Level 2 Merchants are defined by MasterCard as merchants doing between 1M and 6M annual MasterCard transactions annually or merchants whose transaction volume makes them a Level 2 merchant for another card brand. By December 31, 2010, all Level 2 MasterCard merchants must complete an onsite assessment conducted by a PCI SSC certified Qualified Security Assessor, and thereafter submit an annual onsite assessment conducted by a PCI SSC certified Qualified Security Assessor.
These requirements are included on the MasterCard web site here: http://www.mastercard.com/us/sdp/merchants/merchant_levels.html