The Payment Card Industry: Innovation, Security Challenges, and Explosive Growth

In a recent episode of Agent of Influence, I talked with John Markh of the PCI Council. John has over 15 years of experience in information security, encompassing compliance, threat and risk management, security assessments, digital forensics, application security, and emerging technologies such as AI, machine learning, IoT, and blockchain. John currently works for the PCI Council and his role includes developing and evolving standards for the emerging mobile payments technologies, along with technical contributions and effort surrounding penetration testing, secure application, secure application lifecycle, and emerging technologies such as mobile payment technologies, cloud, and IoT.

I wanted to share some of his insights in a blog post, but you can also listen to our interview here, on Spotify, Apple Music, or wherever you listen to podcasts.

About the PCI (Payment Card Industry) Council

The PCI Council was established in 2009 by several payment brands to create a single framework that would be acceptable to all those payment brands to secure payment or account data of the merchants and service providers in that ecosystem. Since then, the PCI Council has created many additional standards that not only cover the operational environment, but also device security standards such as the PCI PTS standard and security standards that cover hardware security modules and point to point encryption solutions. The Council is in the process of developing security standards for various emerging payment technologies. The mission of the council is to allow secure payment processing by all stakeholders.

Over the years, a number of the security requirements created by the Council have been enhanced to ensure the standard does not become obsolete but keeps up with the current threats to the payment card industry as a whole. For example, PCI DSS, which was the very first standard created and published by the Council, has evolved and had numerous iterations since its publication to account for evolving threats.

The standards built by the PCI Council are built in a way to address threats that directly impact the payment ecosystem. They are not all-encompassing standards. For example, organizations that operate national infrastructure or electricity grids will find some security requirements that will be applicable to them, but the standards will not address all the risks that are applicable to them. The PCI Council standard is focused on the payment ecosystem.

The Evolution of the Payment Card Industry

John shared how people want convenience – not just in payment, but in every aspect of their life. They want convenience and security. So, payments will evolve to accommodate that.

Even today, there are stores where you put items you want to purchase in your shopping bag and you walk out. Automation, artificial intelligence, machine vision, and biometric systems that are installed in that store will identify the products you have put in your bag and deduct the money from your pre-registered account completely seamlessly.

There are also pilot stores in Asia where you still have to check out at the grocery store, but to pay, you just look at a scanner, which identifies you through iris scan to verify your identity, and then payment is process from a pre-registered account.

Many appliances are also becoming connected to the internet, so it is possible that in the future, a refrigerator will identify that you run out of milk, purchase the milk to be delivered to you, and perform the payment on your behalf. You could soon wake up with a fresh gallon of milk on your doorstep that was ordered by your refrigerator.

And of course, mobile is everywhere. More and more people have smartphones – and smartwatches – and with that comes the convenience of paying using your device. Paying by smart device is way simpler and in these times of COVID-19, it’s also contactless. I think we will see more and more technologies that allow this type of payment. It will still be backed by a credit card behind the scenes, but the form factor of your rectangular plastic will shift to other form factors that are more convenient and seamless.

There are also “smart rings” that can perform biometric authentication of the wearer of the ring. You can load payment cards and transit system cards into the ring, for example. So, when you want to pay or take the train, you just tap your ring to the NFC-enabled reading device, and you’re done.

Convenience will drive innovation. Innovation will have to adapt to meet security standards and it will also drive new security standards to ensure that the emerging technologies are secure.

Innovation and Privacy

In order to have seamless payments, the system still needs some way to validate who you are. If you use a chip and pin enabled card, you authenticate yourself by entering a pin, which is a manual process. But John noted, it’s far more seamless to use iris scans, but to do that, you need to surrender something of yours to the system so the system can identify that you are you.

Right now, the standards are focusing on protecting account data, but maybe in the future, there will be a merge between standards that focus on protecting account data and standards that protect biometric data.

People have several characteristics that identify us for the duration of our lifetime since they don’t change much, including fingerprints and iris scans. It’s difficult to say whether a choice of fingerprint or iris scan is the right choice for consumer authentication or not. At the end of the day, the payment system needs to authenticate you. If the system is using characteristics that cannot be changed, then it also needs to have additional inputs into making sure that it’s not a fraudulent transaction.

For example, payment authentication could be a combination of your fingerprint and the mobile device you’re using. If it is a known mobile device that belongs to you, the system could accept the transaction that was authenticated by your fingerprint plus additional information collected from your device, such as the fact that it belongs to you and there is no known malware on the device. If you were using your fingerprint on a new device, the system could identify that the fingerprints match, but recognize it’s a new device or the device might have some suspicious software on it, in which case the system will ask you to enter your PIN or to provide additional authentication. It will be a more elaborate system that takes numerous characteristics of the transaction and its environment into account before the transaction is processed.

Challenges of Making the Phone a Point of Sale (POS)

One area of focus for the PCI Council are mobile payment platforms. As John said, business owners want to be able to install an app on mobile devices and be able to take payments through that – creating an instant point of sale. However, the fact that the phone is not controlled by an enterprise, and people can install a variety of applications on their phones (some of which might be malware) puts tremendous risk on the entire payment processing system.

While this enables business owners to sell to more people, especially those who don’t have cash and only have credit cards or smart devices, it also creates an additional system for potential fraud.

John said the PCI Council is focused on a way to make mobile payment platforms more secure. As such, the Council has already published two standards.

  • The Software-based PIN Entry on COTS (SPoC) standard enables solution providers to develop an app along with a small hardware dongle. The purpose of the hardware dongle is to read card information while the phone becomes a point of sale and device for consumers to enter their pin to authenticate consumers.
  • The second standard the PCI Council has released is Contactless Payments on COTS (CPoC™). In this case, it’s just an application that the merchant can download to their phone that would make sure the phone is reasonably secure by performing various attestations of the phone and application, and allow merchants to instantly transform their phone into a point of sale. In some emerging markets, there is no payment infrastructure that exists where you can walk into a bank and get a merchant account, or it may take a very long time. With the mobile payment technologies, you can basically become a merchant immediately.

As I have personally seen, having the ability to make financial transactions in parts of the world that don’t have a lot of infrastructure through mobile devices has dramatically changed people’s livelihood. And we need to make sure that it’s being done securely.

To listen to the full podcast, click here, or you can find Agent of Influence on Spotify, Apple Music, or wherever you listen to podcasts.

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