The New SAQ C Complicates PCI For Some Retailers, Franchises

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A 403 Labs QSA, PCI Columnist Walt Conway has worked in payments and technology for more than 30 years, 10 of them with Visa.

PCI version 2.0 brought several changes, most of which are evolutionary and not particularly dramatic. There was, however, one subtle but important change that will significantly complicate how some Level 2 (and smaller) retailers and franchises validate their PCI compliance. Interestingly, this change seems to have sailed under most retailers' (and most QSAs') radar so far.

The change is in the new version of self-assessment questionnaire (SAQ) C. It now stipulates that retailers can use this SAQ only if their payment application serves a single store location. In other words, any retailer that connects a branch or an additional location to their POS system, or any franchisee (or franchisor) that processes payments for more than a single location, can no longer use a simplified SAQ.

In practical terms, this change means that instead of using the old SAQ C, which had about 50 items, these retailers and franchise operators will need to complete SAQ D, which includes all 280-ish requirements of the PCI DSS. For these retailers, validating PCI compliance will take more time and likely cost a lot more money, too.

The PCI Council developed SAQ C to simplify compliance validation for merchants who have POS systems that connect to the Internet to authorize card transactions and that do not store any electronic cardholder data. The general idea is that this type of merchant has a payment application on a "personal computer," and that payment application connects to the processor via the Web.

SAQ C previously had five requirements: the payment system and an Internet connection had to be on the same device; that device was not connected to any other system in the merchant's environment; the merchant kept only paper reports or receipts; the merchant stored no electronic cardholder data; and remote vendor support was managed securely.

The payoff for meeting these requirements was that a retailer could qualify to use the simplified SAQ and avoid the much longer, more involved and significantly more costly process of using SAQ D. I personally know of many merchants who changed their business operations, reconfigured their POS systems and even signed tokenization contracts to qualify for SAQ C.

Unfortunately some of these retailers and franchises will no longer qualify to use SAQ C. The reason is that SAQ C now includes an additional sixth requirement: "Your company store is not connected to other store locations, and any LAN is for a single store only."

This change means a retailer that supports a branch or a second (or more) location using its single POS system would need to use SAQ D. The same goes for franchisees and franchisors that may share the POS system across several stores (or even brands). I find myself thinking a franchisee with more than one franchise operating out of a single physical location might not even qualify to use the new SAQ C. The impact is not restricted to retailers. The change to SAQ C will affect many universities that have retail or food-service operations and support multiple campus locations with a single POS system.

My guess is that the PCI Council does not view the change as significant. From its perspective, the Council likely sees SAQ C as appropriate to small Web entrepreneurs running a business from their laptops.My guess is that the PCI Council does not view the change as significant. From its perspective, the Council likely sees SAQ C as appropriate to small Web entrepreneurs running a business from their laptops. Indeed, this is why the Council requires (which, in my experience, too many merchants manage to overlook) the POS system to be isolated from all other systems in the merchant environment.

For such a single-location merchant, the change in 2.0 is of little significance. Supporting this view of the Council's intention is the fact that the change to SAQ C did not merit a mention in the "Summary of Changes from PCI 1.2.1 to 2.0" document issued last October. My search of that document for any reference to SAQs yielded no hits.

Another important point to make is that merchants are expected to be compliant with all PCI requirements at all times. Because a merchant uses a simplified SAQ does not mean it gets a free pass on the PCI requirements not explicitly mentioned in that particular SAQ. It is just that if a merchant fits a particular profile, instead of writing N/A lots of times, it can use the appropriate simplified SAQ. Therefore, one could claim that even if some retailers are now excluded from SAQ C, it should not make much difference anyhow.

The business reality, though, is that many retailers and franchises segmented their networks and reconfigured their POS applications to qualify for SAQ C and simplify their PCI compliance validation. They did not want to pay for, say, the penetration testing or extensive logging systems called for in SAQ D. Significantly, these merchants' actions also reduced their risk of a data compromise.

The bottom line is that some merchants who used SAQ C in the past will need to make a choice. Either they implement a separate instance of their POS system in each location (with the additional software licensing and hardware costs), or they bite the PCI bullet and move to SAQ D (with those additional costs) when they validate or revalidate their compliance.

Any retailers affected could, of course, choose to validate before the end of this year using the previous version—1.2—of the SAQ. That version is valid until December 2011. Making such a choice may forestall the inevitable for a year, but it won't make much difference in the long run.

What I fear more is an unintended outcome for many smaller Level 3 and 4 merchants who will delay even further their PCI compliance. Compliance among small and midsize merchants is low. Looking at SAQ C can be daunting enough for a small business without an IT department. Telling them they need to complete SAQ D when most of them can't tell a FIM or SIEM from a can of paint is unlikely to either make a lot of converts or reduce data breaches.

I have long maintained that the SAQs need updating and revising to reflect the current threat environment. This change (or clarification, if you prefer) to SAQ C was not necessarily what I had in mind. I am thinking in particular about the impact on franchisees and small retailers with more than one store. The new rules for SAQ C will mean more costs for many of them. I'm also thinking about those corporate franchisors already facing Visa's registration requirement that they act as third-party agents. For some of them, this change will be one more PCI complication they need to address.

What do you think? I'd like to hear your thoughts. Either leave a comment or E-mail me at wconway@403labs.com.