Have Someone Else's Store Within Your Store? Well, You <i>Used</i> To Be PCI Compliant

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

When I walk into a retail store, especially a larger retailer or supermarket, I often see one or more independent businesses operating in that store. My first thoughts are how convenient it is to have a pharmacy, DVD rental or even an ATM right there, and how the retailer is using its space to generate (presumably) additional revenue. My second thought, however, is to ask myself whether I just walked into a retailer or a data processing co-location ("colo") facility.

The reason for my question is that, depending on how those unrelated businesses process their card transactions, they will expand the retailer's own PCI scope and risk. If the retailer doesn't manage it properly, that retailer may discover the marginal revenue from these independent businesses may be more than eaten up with additional networking and PCI compliance costs. If a retailer stores, processes or transmits card transactions for an unrelated third party—and that includes merely allowing that business to use its LAN and to send payment data through it—that retailer becomes a PCI service provider and it needs to validate its compliance as such.

Although PCI DSS is essentially the same for merchants and service providers (there are a few additional requirements for service providers), the validation requirements are not. This is because the merchant and service provider "levels" are different.

For example, a merchant with 300,000 Visa or MasterCard transactions a year would be a Level 3 or Level 4 merchant. Normally, that merchant would self-assess its compliance. That same number of transactions for a service provider, however, promotes it to a Level 1 entity and requires an outside compliance assessment by a QSA.

In most cases, the retailer housing these outside businesses will not necessarily have full visibility into the transactions. That is, the retailer is unlikely to be hosting the payment application for the independent enterprises within its walls. However, even if the retailer only provides networking and security services (e.g., put them behind the retailer's firewall), the retailer would still be a service provider.

The PCI Council defines a service provider as follows: "Business entity that is not a payment brand, directly involved in the processing, storage or transmission of cardholder data. This also includes companies that provide services that control or could impact the security of cardholder data. Examples include managed service providers that provide managed firewalls, IDS and other services as well as hosting providers and other entities."

To this QSA, if an unrelated third party uses a retailer's network infrastructure, that retailer can "impact the security of cardholder data." That means the retailer has, in effect, just become a "colo" and needs to validate compliance as such. This is the case even if the retailer provides only network or firewall support to an unrelated third party. The list of PCI-compliant service providers maintained independently by Visa and MasterCard is full of companies that don't "store, process or transmit" cardholder data, but they can affect the security of those transactions or that data.

We should note that PCI has a single exemption.We should note that PCI has a single exemption: "Entities such as telecommunications companies that only provide communication links without access to the application layer of the communication link are excluded." That loophole may enable a retailer to rent space to unrelated third-party operations and keep them out of its PCI scope. To do that, though, the retailer needs to make sure it provides only a communications connection. That's it. The third party has to bring its own POS application and devices, firewall and everything else it needs. Then, with luck and the blessing of its QSA, the retailer just might be able to keep these independent businesses out of its PCI scope.

The situation can get further complicated when we add ATMs to the mix. ATMs currently fall into a PCI netherworld. But they can also increase a retailer's PCI scope, depending in part on whether the retailer or a third party manages the devices.

ATMs add their own little bit of complexity. I sometimes wonder if there exists a bar, grocery, movie theater, parking lot, baseball park or shoeshine stand anywhere on this planet that doesn't have an ATM somewhere inside. The attraction of ATMs is simple: They generate fees for the host retailer. Once again, depending on how the retailer (or parking lot or whatever) implements that ATM, it can expand the retailer's PCI scope.

In my experience, the retailer can have options in how the ATM is managed. One way is to outsource it completely, providing only a phone or IP connection. Done properly (see above), this implementation may enable the retailer to keep the ATM out of its PCI scope. I have seen a different option where the host retailer could actually own or lease the ATM and the service provider would keep it stocked with cash and maintain the unit. I have also seen cases where the retailer manages the ATM completely. With each step the potential profit increases, but so does the risk and potential for increased PCI scope and cost of PCI compliance.

We should note that both PCI DSS and the Payment Application Data Security Standard (PA-DSS) apply to any entity or application, respectively, that stores, processes or transmits cardholder data. Therefore, these standards apply to the retailer or the service provider that operates the ATM (PCI FAQ 9486). Although overall ATM requirements are not addressed in the PIN Transaction Security (PCI PTS) standard, that standard contains PIN pad requirements that do apply to ATMs—just as they do to any unattended payment terminal. The lesson here is that regardless of how you implement an ATM, make sure the PIN pad at least is listed by the PCI Council as a compliant device.

As retailers look for new sources of revenue, they might want to ask themselves a strategic question: What business are we in? I am convinced most retailers would not say: "We're in the payments business." It follows, then, that retailers need to implement any additional revenue opportunities such that the retailer keeps out of the payment business and focuses on what it does best: selling stuff and building customer relationships.

What do you think? How do you handle outside businesses on your properties? I'd like to hear your thoughts. Either leave a comment or E-mail me at [email protected].