Data breach victims pushing back against fines is nothing new, but a processor calling out one of the two largest card brands and doing it during a very public investor conference call, well, that's a bit different.
The MasterCard fine represented the bulk of $12.6 million in expenses and accruals attributed to the processing system intrusion, Carr told investors.
"The smaller part of these intrusion-related expenses represent legal and other expenses related to the intrusion and less than $1 million is related to fines assessed by Visa against our sponsor banks, which fines our sponsor banks are contesting," Carr said. "More than 50 percent of this expense, however, relates to a fine that MasterCard assessed against our sponsor banks ostensibly because of an alleged failure by Heartland to take appropriate action upon having learned that its computer system may have been breached and upon thereafter having discovered the intrusion. Heartland believes that it responded appropriately to all information that it learned regarding the possibility of a system breach and that, upon discovering the intrusion, it took immediate and extraordinary action to address the intrusion."
Carr insisted his company "fully cooperated with MasterCard's investigation" of the intrusion this year and in 2008. Because of that, Carr said, Heartland considers considers the Mastercard fine "to be in direct violation of both the MasterCard rules and applicable law" and he said the company is urging its sponsor banks to also "vigorously contest through all means possible," including the courts, MasterCard's action.
MasterCard denied that it did anything wrong, but said little beyond that. In a statement E-mailed to reporters, MasterCard spokesperson Chris Monteiro wrote that MasterCard "believes the fines it imposed were warranted and consistent with its rules." (Interpretation: "MasterCard to Heartland: Finers Keepers, Data-Losers Weepers")
Carr said he and his colleagues at Heartland are pleased the company was recently re-certified as PCI compliant. The CEO also pledged that the end-to-end encryption approach that he's talked about for months will be delivered—to at least some Heartland customers—by the end of the third quarter (late September). In a series of podcasts with StorefrontBacktalk, Carr detailed exactly how Heartland's encryption approach would work and it's rather unorthodox key-management strategy.
In the earnings call, Carr said the payment processing industry is in the middle of a "cybercrimes arms race" and must work to stay ahead of criminals "who never rest and do not call committee meetings to update their malicious tools." He said Heartland and other members of the payments industry are sharing information about attacks made on their systems. This is being done through the new Payments Processors Information Sharing Council, Carr said.
At a recent meeting, 30 representatives from 20 payments companies were given USB devices that included documentation and software tools for fighting system attacks. "These devices contain the malware used to attack our systems and malware from numerous other cybercrime attacks that have occurred in 2008 and 2009," Carr said. "Software tools were also distributed so that these malware files could be located on scanned computers. This new PPISC organization had a great start and we believe it will make a significant improvement in information sharing about cybercrime attacks among payments processors and merchant acquirers."