Visa Relaxes Retail Credit Card Security Threats

Visa Relaxes Retail Credit Card Security Threats
Visa Relaxes Retail Credit Card Security Threats

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By Evan Schuman
Ziff Davis Internet
August 16, 2007

For more than a year, Visa has ominously warned large retailers that it 
would enforce a strict Sept. 30 deadline for many of the nation's 
largest retailers to either be certified that they comply with industry 
credit card security requirements or face fines and expulsion from 
discounted credit card fee programs.

But as the deadline has gotten closer=E2=80=94and the percentage of retailers 
certified as compliant is still quite low=E2=80=94Visa has been forced to back 
off, albeit slightly.

In an attempt to boost the number of Level 1 retailers certified 
compliant with the PCI DSS (Payment Card Industry Data Security 
Standard, often referred to simply as PCI), Visa in December unveiled a 
series of incentives to convince retailers into cooperating, given the 
lack of success that the threat of fines was having.

A big part of those incentives was offering compliant retailers sharply 
discounted credit card transaction fees in a program called the Visa PCI 
CAP (Compliance Acceleration Program).

This month, Visa has been quietly floating memos that will soften the 
pain for non-compliant retailers, as it's become clear that 
non-compliants will have strength in numbers come early October.

One such memo came from major card processor Fifth Third Bank, in 
Cincinnati. "Visa's initial program announcement stated that, effective 
October 1, 2007, non-compliant merchants will no longer be eligible for 
Visa" reduced transaction fee programs, the memo said. "Now, according 
to Visa's clarification on their policies regarding tiered interchange 
qualification and fines, merchants that have not validated full 
compliance by September 30, 2007, will no longer qualify for the best 
available tiered interchange rates. This means that Visa (transactions) 
submitted from non-compliant merchants, that are normally eligible for 
tiered interchange, will be downgraded one interchange tier."

Neither representatives from Fifth Third nor Visa agreed to elaborate on 
the memo or the changes. Given that discounts and incentives vary from 
retailer to retailer, it's difficult to say how much of a dollar or 
percentage impact this change will cause. But it clearly is a softening 
of Visa's position.

Visa has been struggling to get retailers to comply with PCI due to 
quite a few PCI hurdles that many retailers resist.

The softening of the discounted transaction (interchange) fee is not the 
only indication of Visa blinking. The fines for non-compliance, which 
were initially represented as absolute, are also being toned down, with 
banks being vague about how many of the nation's non-compliant retailers 
will actually get fined come Oct. 1.

"I think the change is reasonable. Allowing retailers to demonstrate 
'best efforts' is a realistic acknowledgement that software changes=E2=80=94and 
roll-outs across enormous retail chains=E2=80=94don't happen overnight," said 
Paula Rosenblum, retail analyst with Retail Systems Research. "It's not 
like Y2K, where the date is going to come and nothing can change it. 
There can and should be some flexibility here. And given the somewhat 
tepid response to the TJX breach, Visa is better off being nice, rather 
than baring its teeth."

Another change in the Visa policy mentioned in the Fifth Third memo is 
less explicit but is still potentially meaningful. For the retailers who 
are not compliant by Oct. 1, Visa is offering them "a payment in an 
amount up to the most recent three months of their tiered interchange 

What must retailers do to win this lucrative payment? "To qualify, an 
executive-level officer must attest that the merchant has made best 
efforts toward compliance, including reviewing opportunities to 
accelerate the planned compliance date, and confirm their target 
compliance date, by September 30, 2007."

That wording is vague and non-explicit, but it appears to be a life raft 
for retailers who are not compliant but still want the incentive 
dollars. If they merely promise to comply=E2=80=94it appears crossing your heart 
and hoping to die is optional=E2=80=94that seems sufficient for a payment to be 
considered. It's unclear if the payment would be paid right away or if 
it would be held until actual compliance was proven. A strict reading of 
the memo would suggest a sooner payment, because if the banks were going 
to wait until compliance was proven, there would be no reason to request 
this declaration from one of the retailer's executives. This presumes 
that the memo writer was precise in their phrasing, which is not always 
the case with memo writers.

Steve Rowen, a security analyst also with Retail Systems Research, said 
this is clearly a response to the lower-than-hoped-for compliance 

"Visa predicted that by December 2006, two-thirds of Level 1=E2=80=99s would be 
compliant. Up until very recently, Visa has been telling us that this 
was and is the case. We then found that number to be 28 percent and even 
that was soft," Rowen said. "So this change is really not that 
significant. Very few were going to be compliant at the end of 
September, interchange hike or no. Ask anyone who has attempted their 
12-step program, and they'll tell you exactly how horrifying the reality 
is of where data exists. To do this effectively=E2=80=94beyond just 
compliance=E2=80=94takes an awful lot of money, cultural change and, quite 
simply, time. That's why we've been pounding the drum so loudly on this 
and getting the incredibly small few that have done their diligence to 
help share how exactly they did it

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