Take On Payments, a blog sponsored by the Retail Payments Risk Forum of the Federal Reserve Bank of Atlanta, is intended to foster dialogue on emerging risks in retail payment systems and enhance collaborative efforts to improve risk detection and mitigation. We encourage your active participation in Take on Payments and look forward to collaborating with you.

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October 12, 2010

New study examines the effectiveness of U.S. payments security

As everyday citizens, we are all responsible for understanding the threat of identity theft and its potential to facilitate payments fraud. The proliferation of identity theft is not solely a by-product of the high-tech world in which we live; it has been around from time immemorial. In the pre-Internet era, identity theft and payments fraud were more commonly committed by a "familiar"—a family member or someone with access to the victim's home, office, or mailbox. This type of white-collar crime still exists today, of course, and its success rate, measured in terms of the number of fraud attempts that result in a monetary loss, remains high. But today's identity theft schemes are more complex and involve larger-scale data breaches, so they pose a more significant threat to the retail payments industry and demand stronger security management techniques.

This evolution has created the need for more sophisticated compliance initiatives to keep identity and payment information secure. Retailers are on the first line of defense, in many respects, since they are the receivers and keepers of payment card data used to facilitate purchases at the point of sale.

So, along those lines, how is the retail industry faring? A new study from Verizon—released Oct. 4—reports on how well the U.S. retail sector keeps payment card data secure.

PCI security compliance: A first line of defense
There is an industry-organized defense procedure, or set of procedures, created to guard against large-scale thefts of payment card data. This procedure is called the Payment Card Industry Data Security Standard, or PCI-DSS for short. The Verizon report notes a high correlation between an organization's PCI compliance and its resistance to data breaches.

Most large retail enterprises in the United States claim compliance with PCI-DSS, and they have their operational systems periodically audited to ensure continued compliance. Although many of the largest retailers are compliant—with some, like Heartland, even working now to go above and beyond the minimum requirements—the Verizon study reveals just how far U.S. retailers are from full PCI-DSS compliance.

The following table summarizes the findings of the Verizon report for PCI compliance rates.

Percent of organizations meeting PCI compliance requirements
Enlarge Enlarge

Meeting the challenge—and going above and beyond
The study concludes that complying with PCI is a complex challenge for many retailers, but the outlook is good—the retail sector is heading in the right direction. On average, it reports, organizations meet 81 percent of the procedures required by PCI, and 75 percent of organizations meet at least 70 percent of the testing procedures required.

Some industry experts even contend that PCI-DSS compliance in and of itself is not enough, which is why Heartland Payment Systems—one of the largest U.S. card processors, and which in 2009 suffered a serious data breach—is raising the bar and requiring its merchants to use additional security measures for data encryption. All data messages must be encrypted when in transit and when at rest in temporary storage along the way. For now, organizations responsible for storing and transmitting this data will continue to be challenged with the responsibility for safeguarding its data from breaches that facilitate identity theft and payment fraud.

By guest blogger Dan Littman, Economist, Federal Reserve Bank of Cleveland

October 12, 2010 in data security , fraud , payments , payments risk | Permalink


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