Is Carrier IQ A PCI Problem? (Hint: The Answer's Yes.)

Most of the uproar over Carrier IQ and its monitoring software installed on many smartphones has focused on conventional privacy worries—whether an outsider is capturing and storing sensitive private information. But a bigger concern for retailers might be the fact that Carrier IQ can reportedly broadcast payment-card numbers unencrypted over Wi-Fi as the numbers are being entered by online customers or in-store associates.

Never mind whether Carrier IQ or the mobile operator is keeping this information. If it's merely being transmitted unencrypted, a thief monitoring a store's wireless networks might be able to scoop it up in transit.

Carrier IQ, mobile carriers and handset makers are currently the targets of at least a dozen class-action privacy lawsuits stemming from the software (take your pick whether to call it "spyware" or "performance monitor"). Carrier IQ denies that it is storing sensitive information—it's just collecting performance data that the carriers have asked for, the company says.

But privacy aside, it's clear from a widely circulated video demonstration by security researcher Trevor Eckhart that Carrier IQ's software has access to almost everything that happens on a phone it's monitoring. The software maker insists most of those events—right down to key presses—are filtered out before data is sent on to the carriers.

That may be what Carrier IQ intends. Here's the problem: For diagnostic purposes, Carrier IQ's software apparently queries information over Wi-Fi connections when there's no cell-tower connection available. Raw keypress information is sent in real time over the air. Those raw key codes aren't hard to decipher (they just identify ASCII characters) and they could contain payment-card numbers and confirmation information such as CVV or ZIP codes.

That's a PCI problem whether or not Carrier IQ throws the information away at the other end. If it's being transmitted, it could be captured by thieves. And there's no way for a retailer to know what's being sent, whether it's encrypted or if the process meets PCI requirements.

OK, we can probably answer that last one: If a third party with no PCI validation is handling payment-card data, the process almost certainly doesn't satisfy PCI requirements.

This isn't what any chain that's trying to figure out how to do in-store mobile POS wants to hear. Using consumer-grade, mass-market handsets was supposed to make things simpler. Apple and Google were supposed to lock down the iPhone and Android platforms, so all retailers had to do was write the top-level application for associates to use.

Instead, it turns out that there has been software running in the background all along. Worse still, some of the software is being run by a third party (Carrier IQ), authorized by another third party (the mobile carrier) and completely outside the retailer's control or even knowledge. Yeah, that makes you feel good about in-store mobile POS, doesn't it?

For all the complaints we've had, the PCI Council's go-slow approach on mobile POS may have been right.For all the complaints we've had about the PCI Council dragging its feet on mobile devices, this may be the best evidence yet that the Council's go-slow approach was right. There are simply too many players in the mobile process, especially when phones are involved. Even with the best of intentions, the fact is that carriers or their outsourced minions can peer into the workings of any of their phones. That's just not compatible with the needs of payment security.

This Carrier IQ fiasco resets the baseline for what retailers have to consider when it comes to payments. In practice, phones are out, at least until handset makers can verify that the devices being used for POS are safe from outside poking, prodding or peering.

Phone functions turned off and locked down? That's not enough, because that "performance monitoring" software can still communicate over Wi-Fi connections even when phones are in airplane mode. That monitoring software simply has to be gone to make phones PCI-safe. (Apple says it will be blocking Carrier IQ with a future rev of iOS. Google says the problem is with the mobile carriers, who can change their software at will. The carriers haven't promised anything yet.)

What about non-phone handsets such as the iPod Touch, which lots of big chains have settled on? They presumably don't have Carrier IQ installed, but there's still no guarantee that they're free from outside sniffing. That means the devices need to be locked down to the store's Wi-Fi connections that are used exclusively for them—connections that are isolated from the Internet. That prevents associates from adding any unauthorized apps and handset vendors from adding any unexpected updates, in addition to blocking any genuine malware.

Payment cards can only be taken with a sled that encrypts card data as soon as it's read—that's already necessary for meeting current PCI requirements. Other functions that chains were expecting to work by way of near-field communication (NFC) chips may also have been called into question. (Are you certain that none of the payment-card information stored by Google Wallet, Isis or any other NFC system is ever exposed to carrier monitoring software? If you're not, what will you tell your QSA?)

The one bright spot in the Carrier IQ exposures may be that, as handy and useful as off-the-shelf handsets are when it comes to in-store mobile POS, it's now clear that retailers have just been too trusting. Trusting Apple? OK, maybe. Trusting Apple and AT&T? That may be a stretch. Trusting Apple, AT&T and every unknown third party who anyone in the mobile-communications process has hired and potentially given complete access to what is supposed to be a POS device? That's a little too much.