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November 14, 2011
Evidence for PCI’s effectiveness in the fight against fraud
Despite the PCI Council's best efforts and laudable goals, the effectiveness of its data security standard, PCI DSS, is frequently questioned. This standard is sometimes disparaged as expensive and ineffective. One critic has even decried the standard as a "false god." Such criticisms have stuck in part because it is difficult to know how many breaches would have occurred if it weren't for the PCI standard, and supporters have essentially been left to argue a counterfactual. The PCI Council has long maintained that no organization that has been breached has been found to have been compliant at the time of the breach, but the claim has never been fully validated.
Contrary to the claims of PCI DSS critics, however, Verizon has collected some data that support the value of PCI. The Verizon 2011 Payment Card Industry Compliance Report provides evidence that PCI compliance is effective at preventing breaches, and that the most compliant organizations are the least likely to be breached. The Verizon report provides a detailed analysis of compliance and breach threats across their client portfolio. The report reviews the cases of annual audit clients to assess compliance across the 12 PCI DSS requirements. The report also lays out the authors' retroactive assessment of the compliance of organizations that used the firm's forensic services after they suffered a breach.
The report ends up offering two very different perspectives: that of organizations proactively pursuing PCI compliance and that of organizations reacting to a breach that may not have previously emphasized compliance. The study sample consists of more than 100 reports from primarily American and European companies, and is the second year that this study was published (see the 2010 report here.)
At first glance, the report's findings seem discouraging because only 21 percent of organizations are found to be fully compliant at the beginning of the audit. However, the researchers assessed each organization's compliance across each requirement, and found that a further 37 percent were compliant across 90 to 99 percent of requirements.
Verizon conducted these assessments to help clients identify gaps and prepare them for their annual audit process. Once Verizon issued their Initial Reports of Compliance, the organizations then worked to fill all gaps and achieve full compliance. Of course, achieving full compliance is not a simple task. Full PCI compliance is extremely complex and requires ongoing testing and updates, and many organizations succumb to complacency and fatigue between audits. They may not respond to changing circumstances, and in fact the researchers found that compliance levels sometimes deteriorated over the course of the year.
The complexity of achieving full compliance is one reason the PCI Council released the Prioritized Approach to compliance in 2009. These guidelines are intended to help firms with limited resources tackle the most effective security requirements first. Unfortunately, the researchers found no evidence that organizations had implemented this prioritization, which raises the concern that companies are not taking a strategic approach to the compliance process.
In the second half of the Verizon report, the researchers tried to tease out how breached companies are attacked and what characteristics made them most vulnerable. They found that breached companies were less likely to meet individual PCI requirements, and scored overall worse than nonbreached clients by a 50 percent margin on average. Additionally, every threat action identified by the forensic team could have been prevented with full PCI compliance.
Jen Mack, the director of Verizon's PCI Services, believes that the Verizon report shows that PCI is effective. She says, "It's clear the standards provide protection for card data if organizations implement them correctly and maintain them throughout the year." Verizon's report does provide strong evidence that PCI DSS is an effective tool for preventing breaches and combating fraud. Since data breaches are repeatedly recognized as a major threat to the payments industry, it is critical to leverage tools like PCI DSS. How can the PCI Council encourage increased compliance among merchants and other organizations? Will increased recognition of the standard's effectiveness lead to greater adoption?
By Jennifer C. Windh, a payments risk analyst in the Retail Payments Risk Forum at the Atlanta Fed
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- account takeovers
- ATM fraud
- bank supervision
- banks and banking
- card networks
- check fraud
- consumer fraud
- consumer protection
- cross-border wires
- data security
- debit cards
- emerging payments
- financial services
- identity theft
- law enforcement
- mobile banking
- mobile money transfer
- mobile network operator (MNO)
- mobile payments
- money laundering
- money services business (MSB)
- online banking fraud
- payments risk
- payments study
- payments systems
- phone fraud
- remotely created checks
- risk management
- Section 1073
- social networks
- third-party service provider
- trusted service manager
- Unfair and Deceptive Acts and Practices (UDAP)
- wire transfer fraud
- workplace fraud