Financial transactions usually carry a high level of risk. Inadequate corporate processes or ignorance when dealing with banking information, credit cards, or any other personal customer information creates opportunities for fraud, theft, and unauthorized data exposure.

As a result, Payment Processing is a highly regulated business in order to assure optimum data protection and risk avoidance. Current standard regulations cover all aspects of data integrity and security. Simultaneously, they may be prohibitively expensive for enterprises to breach, both in terms of the direct repercussions of noncompliance and the fines that will be enforced by law.

In this article, we’ll look at the relevant standard rules, the issues your payment processing business is likely to face while adopting compliance with them, and the best practices that can help you overcome these obstacles.

Payment Card Data Security Standards (PCI DSS)

Payment Card Data Securities Standards date back to 2004. They came into being as an initiative by  5 major credit card issuers – Mastercard, Visa, JCB, Discover, and American Express. 

These standards are binding upon any business entities that collect, store, transmit, or process cardholder data, which stands for a broad range of business entities, including financial institutions, various merchants, brick-and-mortar retailers, online stores, payment processors, and payment facilitators. 

The data that is to be protected in accordance with the PCI DSS compliance requirements is associated with credit, debit, and cash cards and includes credit card numbers, security codes, and card expiration dates.

In addition to precluding cardholder data from being used for fraudulent purposes, PCI DSS compliance is intended to protect payment processing companies against getting exposed to high-risk, money laundering-related transactions. It helps prevent data breaches, identity theft, and fraud during the processing and transmitting of card data. 

The PCI DSS compliance standards are pillared upon 6 main principles:

1. Build and maintain a secure network and systems – any credit card transactions are to be handled in a secure network that uses robust but user-friendly firewalls. Any vendor-provided authentication data, like passwords and personal identification numbers are not to be used ongoingly.
2. Protect cardholder data – any cardholder data, including SSN, birthdays, email addresses, and mothers’ maiden names must be secured during both storage and transmission.
3. Maintain a vulnerability management program – one must implement a Vulnerability Management program that protects the systems that hold cardholder data against hacking attempts (like, for example, those associated with the use of malware and spyware), as well as eradicate any vulnerabilities that malicious actors can potentially exploit to alter or steal cardholder data. The systems that hold cardholder data must also be free of bugs. These systems are to be updated and patched on a regular basis. 
4. Implement strong access control measures – access to the computer systems that hold cardholder data is to be restricted, while all the users of such systems are to be assigned a unique ID name or number that must be kept confidential at all times. It is prohibited to use vendor-supplied security parameters, and, in particular, vendor-supplied passwords. In addition to the safeguards that protect cardholder data electronically, a compliant business is also to protect this kind of data physically, including at Points-of-Sale, and treat such data with precaution. The latter can involve data shredding, imposing restrictions on duplicating cardholder data, and other measures. 
5. Regularly monitor and test networks – businesses that work with cardholder data are to monitor and test their networks to make sure that the means that ensure the security of the cardholder data they hold function optimally. For example, all the antimalware and antispyware programs that a business has installed must always be updated to their latest versions. 
6. Maintain an information security policy – it is necessary to introduce a detailed information security policy that explains the responsibilities of all the process actors involved.

Based on the annual volume of transactions, the PCI DSS standards have 4 validation levels. 

In the event a business fails to ensure compliance with PCI DSS, a card issuer or acquiring bank is entitled to impose penalties on it. For severe non-compliance with the PCI compliance regulations, such penalties can reach millions of dollars. Besides, they can include recurrent monthly fines to be paid by the business entity in breach of the PCI DSS compliance requirements until this business entity becomes fully PCI DSS-compliant.   

Quite often, compliance with PCI DSS becomes part of companies’ contractual obligations. In one of our recent articles, we shared a PCI DSS compliance checklist so you are welcome to make sure your company meets the necessary requirements accurately. 

Know Your Customer (KYC) and Anti-Money Laundering (AML) Regulations

Often used in conjunction with one another, the terms KYC and AML do not mean exactly the same. In fact, KYC is an important and integral part of AML, and any AML activities start with the KYC procedure.

KYC

Implementing KYC standards in Finance is one of the key and most demanding processes banks and Fintechs must complete to achieve the required regulatory compliance. The Know Your Customer regulations outline and mandate the steps and procedures that are to be taken by banks and companies to establish the identity of a customer, gain insights into the nature of the customer’s business activities, make sure their funds come from a legit origin, and assess the money-laundering risk the customer brings based on these insights. 

Read Also: The Benefits of Recurring Payment Solutions for Subscriptions-based Businesses

The KYC regulations consist of several components:  

Implementing a Customer Identification Program (CIP)

As part of KYC, the Customer Identification Program is pivotal in assessing the risks posed by a customer. It focuses on reliably verifying the customer’s identity by cross-checking customer information against various trustworthy sources. In the U.S,  the C.I.P is part of the Patriot Act that is intended to counter not only Money laundering, but also Corruption and Terrorism Funding.

The minimum requirement the C.I.P puts forward is to check the following details of the customer:

• Name 
• Date of Birth
• Address
• ID Number

The types of checks performed can include both document checks and checks against public and other databases. The C.I.P or procedure for businesses uses a list of parameters other than that used for individuals. 

Performing Customer Due Diligence

In accordance with the Money-Laundering or Fraud risks a customer can potentially pose, there are 3 levels or types of Due Diligence performed as part of the C.I.P: 

• Simplified Due Diligence (SDD) 
• Customer Due Diligence (CDD)
• Enhanced Due Diligence (EDD) 

Any of these 3 types consists of the following 4 procedures, performed with varying levels of intensity:

• Customer identification and verification.
• Beneficial owner identification and verification.
• Understanding the purpose and nature of the relationship.
• Ongoing monitoring. 

Let’s now look at the types of Due Diligence that make up the C.I.P in more detail:

• Simplified Due Diligence (SDD) – the most simple type of Due Diligence that is applicable in those cases, when the risks a customer poses are considered to be low. Correspondingly, while having all the basic features of the standard Customer Due Diligence, SDD has a lower verification threshold. Because of  this, while performing SDD, business organizations are entitled to adjust such parameters as the quantity of the information used for verification purposes, the types of such information, the frequency of transaction monitoring, and others.
• Customer Due Diligence (CDD) – the baseline or standard Due Diligence procedure that financial institutions and other relevant business organizations are obliged to complete. The business organization must collect some basic data about the customer and check it against criminal and other databases.
• Extended Due Diligence (EDD) – the type of Due Diligence that is applied in the case of high-risk customers. To achieve a more thorough and comprehensive customer verification for risky customers, EDD can include various additional checks, like, for example, checks against sanction lists and watchlists, real-time asset tracking, and adverse media screening.  

For the BHN project, we implemented compliance checks that are a crucial part of due diligence to prevent money laundering and fraud. The onboarding process for the Merchant Portal involves performing OFAC (Office of Foreign Assets Control) checks and verifying SSN/EIN (Social Security Number/Employer Identification Number) to ensure that businesses are legitimate and not involved in prohibited activities.

Based on the annual volume of transactions, the PCI DSS standards have 4 validation levels. 

In the event a business fails to ensure compliance with PCI DSS, a card issuer or acquiring bank is entitled to impose penalties on it. For severe non-compliance with the PCI compliance regulations, such penalties can reach millions of dollars. Besides, they can include recurrent monthly fines to be paid by the business entity in breach of the PCI DSS compliance requirements until this business entity becomes fully PCI DSS-compliant.   

Quite often, compliance with PCI DSS becomes part of companies’ contractual obligations. In one of our recent articles, we shared a PCI DSS compliance checklist so you are welcome to make sure your company meets the necessary requirements accurately. 

Know Your Customer (KYC) and Anti-Money Laundering (AML) Regulations

Often used in conjunction with one another, the terms KYC and AML do not mean exactly the same. In fact, KYC is an important and integral part of AML, and any AML activities start with the KYC procedure.

KYC

Implementing KYC standards in Finance is one of the key and most demanding processes banks and Fintechs must complete to achieve the required regulatory compliance. The Know Your Customer regulations outline and mandate the steps and procedures that are to be taken by banks and companies to establish the identity of a customer, gain insights into the nature of the customer’s business activities, make sure their funds come from a legit origin, and assess the money-laundering risk the customer brings based on these insights. 

The KYC regulations consist of several components:  

Implementing a Customer Identification Program (CIP)

As part of KYC, the Customer Identification Program is pivotal in assessing the risks posed by a customer. It focuses on reliably verifying the customer’s identity by cross-checking customer information against various trustworthy sources. In the U.S,  the C.I.P is part of the Patriot Act that is intended to counter not only Money laundering, but also Corruption and Terrorism Funding.

The minimum requirement the C.I.P puts forward is to check the following details of the customer:

• Name 
• Date of Birth
• Address
• ID Number

The types of checks performed can include both document checks and checks against public and other databases. The C.I.P or procedure for businesses uses a list of parameters other than that used for individuals. 

Performing Customer Due Diligence

In accordance with the Money-Laundering or Fraud risks a customer can potentially pose, there are 3 levels or types of Due Diligence performed as part of the C.I.P: 

• Simplified Due Diligence (SDD) 
• Customer Due Diligence (CDD)
• Enhanced Due Diligence (EDD) 

Any of these 3 types consists of the following 4 procedures, performed with varying levels of intensity:

• Customer identification and verification.
• Beneficial owner identification and verification.
• Understanding the purpose and nature of the relationship.
• Ongoing monitoring. 

Let’s now look at the types of Due Diligence that make up the C.I.P in more detail:

• Simplified Due Diligence (SDD) – the most simple type of Due Diligence that is applicable in those cases, when the risks a customer poses are considered to be low. Correspondingly, while having all the basic features of the standard Customer Due Diligence, SDD has a lower verification threshold. Because of  this, while performing SDD, business organizations are entitled to adjust such parameters as the quantity of the information used for verification purposes, the types of such information, the frequency of transaction monitoring, and others.
• Customer Due Diligence (CDD) – the baseline or standard Due Diligence procedure that financial institutions and other relevant business organizations are obliged to complete. The business organization must collect some basic data about the customer and check it against criminal and other databases.
• Extended Due Diligence (EDD) – the type of Due Diligence that is applied in the case of high-risk customers. To achieve a more thorough and comprehensive customer verification for risky customers, EDD can include various additional checks, like, for example, checks against sanction lists and watchlists, real-time asset tracking, and adverse media screening.  

For the BHN project, we implemented compliance checks that are a crucial part of due diligence to prevent money laundering and fraud. The onboarding process for the Merchant Portal involves performing OFAC (Office of Foreign Assets Control) checks and verifying SSN/EIN (Social Security Number/Employer Identification Number) to ensure that businesses are legitimate and not involved in prohibited activities.

PSD2

The Revised Payment Services Directive (PSD2) is a regulatory framework that is aimed to ensure the security of payments within the E.U. For this purpose, the framework focuses on such aspects as consumer rights, access of 3d-parties to consumers’ accounts, and the security of eCommerce.

For example, with regards to consumer rights, PSD2 makes it mandatory to accept and resolve consumer complaints in any of the several ways the framework specifies. 

Security-wise, in accordance with PSD2, consumers are obliged to perform Multi-Factor Authentication (at least, F2A) when logging in to make any payment. Payment processors can access customer account data only via bank APIs that authenticate them with the help of PSD2-compliant certificates (such certificates contain several PSD2-specific fields).

In some cases, and, more specifically, when it deals with Travel, Delivery, Ticketing, and Food websites, merchants are banned from applying surcharges.

SOC2

The System and Organization Controls (SOC2) framework was introduced by the American Institute of Certified Public Accountants (AICPA) with a view to regulating the way Technology and Cloud providers handle customer data. 

To minimize risks and reduce the odds of data exposure, the framework provides a set of criteria, as well as some auditing practices that help ensure that both the internal controls of a company and the way they utilize their various compliant systems are up to par.

SOC2 focuses on the following 5 criteria:

• Security
• Availability 
• Processing Integrity    
• Confidentiality 
• Privacy

In evaluating the internal controls of a company, the SOC 2 framework uses two types of reports:

• SOC 2 Type 1 – a snapshot of the target controls and the extent to which they correspond with the outlined criteria at a given point in time. The report considers the design of the controls the company has in place. 
• SOC2 Type 2 – a snapshot of the target controls over a specified span of time.

The minimum time period the SOC2 Type 2 report can cover constitutes 6 months.  

We’ve provided a brief summary of the requirements that Fintechs and other businesses must achieve in order to ensure credit card payment processing compliance and other payment processing standards.

Prior to beginning this complex process, you should get familiar with the relevant regulatory documentation and be prepared to discuss your present company condition and needs with your IT provider and any other parties who may be involved.