Is PCI (Payment Card Industry) Compliance a Big Scam?

Q: Can you please help me understand what I need to do for PCI compliance? I know it’s important to secure data, but I can’t help but think that PCI is a scam, just a way for vendors to grab money out of my pocket without any measurable return.

A: Sure, and I understand. PCI (Payment Card Industry) compliance has been a cause of both great concern and great confusion to retailers. There has been much fear, uncertainty and doubt on the part of retailers about the best way to secure their customer credit card information from hackers, coupled with frustration and resistance given what seems like an insurmountable task that will cost retailers money. They ask, will there be an ROI? What am I getting for the time, effort and money I am putting into PCI compliance?

Let me start off by saying that PCI compliance is very real, here to stay, and serves a very important purpose, to protect your customers’ credit card data. And protecting data, especially customer data, is a best practice that should be taken seriously regardless of any mandates by PCI. But with so many companies vying for your PCI compliance dollars, merchants can feel that the entire PCI compliance machine is just a big money grab.

It’s easy for a merchant to become jaded and lose sight of the seminal point of PCI. It’s about protecting your business from a data-breach that can compromise your clients’ credit card data. The reality is that it can potentially devastate your business, as well as cost you a fortune in fines and fees.

So let me give it to you straight, PCI data standards are not optional. Merchants discovered to be out of compliance can be hit with serious fines: anywhere from $5,000 to $100,000 per month, at the sole discretion of the card brands. Depending on the size and overall health of your small business, being handed one of these fines could mean a major problem or total bankruptcy. Beyond the fines, your business reputation is at stake when you are responsible for securing client data.

Now that you hopefully see that PCI is real and important, you need to have a plan of action for PCI compliance. Allow me to review some facts about PCI, and walk you through some steps to take:

The full name of the organization that created the security standards is “The PCI Security Standards Council,” or PCI-SSC, which is an organization founded by American Express, Discover, JCB International, MasterCard, and Visa.

The PCI-SSC mandated the PCI-DSS (Data Security Standard) which is comprised of 12 steps required for retailers to properly secure their credit card data (view those 12 steps here). PCI-DSS mandates that any merchant who takes payments must be PCI-DSS compliant and it is the merchant’s responsibility to ensure that compliance. These 12 steps are best practices for any organization to secure their data.

In the PCI-DSS world, retailers are divided into four levels to determine compliance requirements. So the first step is to determine what level your business falls into:

Level 1: More than 6 million Visa/MasterCard transactions per year.
Level 2: 1 million to 6 million Visa/MasterCard transactions per year.
Level 3: Merchants processing 20,000 to 1 million Visa e-commerce transactions annually.
Level 4: Merchants processing less than 20,000 Visa e-commerce transactions annually and all other merchants processing up to 1 million Visa transactions annually.

Most of the independent specialty retailers we serve fall into the Level 4 grouping. Once you’ve determined your level under PCI, what is your next move? If you’re Level 1 or 2, then you need to hire an auditor, called a QSA or “Qualified Security Assessor” to verify your compliance with the PCI-DSS standard. The PCI Security Council has developed a set of self-assessment questionnaires (SAQs) that can be used by Level 3 and Level 4 merchants to help them figure out if they’re compliant with the PCI-DSS standards.

There are 4 different SAQ forms to use depending on the following criteria:

SAQ A: Card-not-present (e-commerce or MOTO) merchants, all cardholder data functions are outsourced. This would never apply to face-to-face merchants.
SAQ B: Stand-alone or dial-up terminal merchants with no electronic cardholder data storage.
SAQ C: Merchants with payment application systems (POS or credit card processing software) connected to the internet with no electronic cardholder data storage.
SAQ D: All other merchants not covered above, and service providers.

You can download the SAQ forms directly at

What is validation?

In addition to PCI compliance, there are also PCI validation requirements (depending on what level retailer you are, as discussed above) which means you need to prove you are compliant by submitting validation certificates, SAQs and network scans to the PCI Security Council or your payment processor.

Your validation requirements, deadlines and penalties for non-compliance will vary depending on your PCI level, and what your payment processor may require of you. Validating PCI compliance is required for levels 1, 2 and 3 retailers but not set in stone for Level 4 retailers. The reason for the Level 4 ambiguity is there is much debate on who will own the process to make sure level 4 retailers are PCI Compliant.

Many payment processors are now taking on that role and forcing their merchants to validate and document compliance or face monthly penalties, and there are others that choose to educate the merchants and direct them on the best course of action. At this time, it is totally up to the credit card processor for level 4 merchants whether they need to validate their compliance.

The bottom line

So you will either be self-policing your PCI compliance and filing away an SAQ each year, or you may be asked by your processor to validate your compliance by completing an SAQ and performing quarterly network scans. These scans must be performed by an approved scanning vendor (ASV), as specified by the PCI Security Standards Council.

All retailers who take credit cards need to complete the SAQ annually, and if they have difficulty can work with their POS or IT support to help them, as well as the many approved organizations that specialize in helping retailers complete the SAQ and run scans.

You need to take the PCI-DSS seriously and be proactive and develop best practices to secure your data and networks. Get deeply acquainted with the SAQ, and get it completed. If you want to be more proactive and get guidance, I recommend working with an ASV and have them help you complete your SAQ and perform quarterly scans to achieve validation.

PCI-DSS is a collaborative effort between parties. Your processor, your POS software company, your IT department and management need to work together to make sure you are complying with the 12 Steps of PCI-DSS.

If you would like more information on PCI, on the 12 Steps of PCI-DSS, or any other questions you may have, please email me


Preventing Credit Card Fraud

Q: I got hit with a few large chargebacks last year from fraudulent sales at both my store and on my website. Could you give me an update on all the ways I can prevent credit card fraud at my store and website so I can avoid those losses in the future?

A: Sure, fraud stings and we never want to make the same mistake twice. First, let’s make a distinction between Card Present and Card Not Presenttransactions in terms of fraud exposure. When a brick and mortar retailer accepts a credit card, it is swiped (Card Present), the charge is authorized, and the merchant will get paid, even if a stolen/fraudulent card is used.

Even if the card does not swipe at the point of sale (bad magnetic swipe), as long as you take a physical imprint of the card to prove the card holder was indeed “present,” you will be protected in a fraud situation.

However, liability for fraud shifts from the card issuer to the merchant for Card Not Present sales (mail order, telephone/fax order, and internet sales). The merchant is generally liable for credit card charge backs, even when the bank has authorized the transaction.

Credit card fraud is something that can never be completely eliminated, but rather something that must be managed through best practices at the merchant level. You must develop a delicate balance between using safeguards to prevent fraud and not creating too many hoops for customers to jump through.

Let’s focus on a few preventative methods and procedures that can you can perform to limit credit card fraud.

Just because you get an “Authorization” does not mean you are safe.
Authorization approval does not mean that the merchant is guaranteed payment. Approval only indicates that at the time the approval was issued, the card hasn’t been reported stolen or lost, and that the card credit limit has not been exceeded. If someone else is using the credit card number illegally, the card holder has a right to dispute the approved charges, i.e. chargebacks.

Always get an Address Verification (AVS).
Address Verification is a simple and easy to implement process to decrease your chances of accepting a stolen credit card. When you process a credit card transaction; make sure you capture the card holder’s billing address and zip code. Manual non-swipe (Internet and MOTO) transactions will require you to capture card holder information. However, card present (swipe) transactions will not. Once you capture the card holder’s billing address and zip code you’re ready to process the sale.

Always use Card Verification Methods (CVM).
Car Verification Value (CVV) is the three-digit code on the back of a credit card (four digits for American Express). Like AVS, CVV is entered at the point of sale. The card holder’s CVV code is verified by the card issuing bank when the credit card sale is being processed. If you do not receive a CVV match you should consider declining the transaction. Online merchants should make CVV a required field.

Since most fraudulent transactions result from stolen card numbers rather than the actual theft of the card, a customer that supplies this number is much more likely to be in possession of the credit card.

Be wary of different “Bill” and “Ship To” addresses.
Require anyone who uses a different “ship to” address to send a fax/email with their signature and credit card number authorizing the transaction. Use Google to search for the numeric street address, street name, and zip integrates telephone numbers, maps, and e-mail addresses. Check for bogus billing addresses like 123 Main Street. Use resources to see if the address can be verified. If the billing and shipping addresses are different, request telephone numbers for both addresses.

To ship or not to ship…Create your own e-commerce criteria or merchant rules.
Some e-commerce merchants feel this is the best method to catch fraud. The merchant sets up rules to stop or flag specific orders for review. For example, the merchant could set up rules to review all orders from a specific IP address, specific country or if a certain dollar amount is exceeded, or shipping to a specific address. This method may flag valid customers for review, but it will reduce repeat or pattern-specific types of fraud. If the IP address is dynamically assigned by an ISP, a legitimate order could be delayed or rejected.

Ask for copy of credit card and driver’s license.
When a credit card order is received by fax, phone or Web, require the customer to also fax/email copies of both sides of the credit card. This at least provides proof that the customer has possession of the credit card at the time of the order. You could also require a copy of their state-issued ID, or drivers license. It also provides additional proof the person authorized the purchase, preventing a chargeback.

Be extra careful with International Orders. 
You must weigh the financial benefits of accepting international orders against the possibility of fraud. Merchants who always refuse any foreign orders could be missing potential good sales. The merchant also needs to perform their checks before orders are shipped.

It is very difficult to apprehend fraudsters or retrieve goods after they have left the country. Always require closer inspection for orders that being shipped to an international address. Pay more attention if the card or the shipping address is in an area prone to credit card fraud.

Check if mailing address is a mailbox or “ship-forward” service.
Fraudsters prefer to stay untraceable but still need to collect physical merchandise. One way is to use a public P.O. box, a private mailbox, or a drop shipment forwarding address as a temporary point of receiving. Never send merchandise to a public rented mailbox, a P.O. Box (except for those you identify as legitimate major companies by phoning their listed number), or shipping forwarder, because the actual location and identity of the receiver is undetectable.

The easiest and best technique: pick up the phone and call the customer.
If you’re suspicious, pick up the phone and call the customer to confirm the order. It will save you a lot of time, and money, in the long run. Calling customers is not only an excellent way to detect fraud, but it can also be a valuable part of your customer service. The telephone call also gives the merchant the opportunity to welcome the customer, answer their questions, and build a solid relationship.