http://www.eweek.com/article2/0,1895,2171641,00.asp
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—and the percentage of retailers
certified as compliant is still quite low—Visa 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—and
roll-outs across enormous retail chains—don'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
differential."
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—it appears crossing your heart
and hoping to die is optional—that 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
numbers.
"Visa predicted that by December 2006, two-thirds of Level 1’s 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—beyond just
compliance—takes 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
Received on Fri Aug 17 03:03:36 2007