embedded finance compliance
Security & Safety

SOC and PCI Compliance: What They Are and Why You Need Them

As more consumers around the world embrace online buying and digital services, it’s never been more important for your brand to protect its customer data, as well as its own internal data. Not only is a data breach expensive — the average cost reached a record $4.35 million in 2022 — but it can also lead to other consequences, such as revenue loss and irreparable damage to your brand’s reputation.  

Safeguarding your brand’s reputation extends beyond protecting your data — it’s also at stake if your data systems are not functioning properly. Guaranteeing system availability (such as uptime, accessibility, and accuracy) to customers should be a top priority for any brand, especially those that deal with a customer’s money. 

Luckily there’s a system in place to ensure companies are protecting themselves and their customers — SOC 1 and SOC 2 compliance and PCI compliance. While unraveling the nuances of compliance and regulatory measures isn’t necessarily the most exciting topic, understanding how and why they work is crucial for any business or brand collecting customer data online. 

In this blog, we’ll dive into SOC and PCI compliance and why both are important for any brand looking to use embedded finance to power its growth and customer retention. 

 

 What Is SOC Compliance?

SOC, which stands for "Service Organization Control," is defined by the American Institute of Certified Public Accountants (AICPA) as “a suite of service offerings CPAs may provide in connection with system-level controls of a service organization or entity-level controls of other organizations." 

Put more simply, SOC is a set of compliance standards built to protect companies that process and store customer and financial data. 

SOC audits serve as risk assessments and can be an effective risk management tool to ensure a company's data security is exceptional. There are two types of SOC reports: SOC 1 and SOC 2. While each has its own specific roles, both SOC 1 and SOC 2 provide regulatory oversight specifically as it relates to unauthorized access and the use of shared data with third parties.

 

SOC 1 Compliance

SOC 1 compliance involves auditing the framework of a company's financial reporting, system, and controls. Essentially, SOC 1 is an internal auditing process led by outside experts that ensures a company's systems and controls function as promised and that there are no holes in its financial records. 

Being SOC 1 compliant helps ensure you meet other regulations, including PCI compliance (more on that below). It also shows customers that you value their confidential information and that your business is committed to providing accurate financial data (accurate balances, postings of transactions, etc.) in customer and end-user accounts.

 

SOC 2 Compliance

While SOC 1 audits are more of an internal look at a company’s financial reporting, SOC 2 compliance helps ensure a company’s customer data is secure and can’t be compromised. 

A SOC 2 auditing process relies on five Trust Services Criteria:

  • Security (such as network firewalls and intrusion detection)
  • Availability (performance monitoring, disaster recovery, security incident handling)
  • Privacy (encryption, two-factor authentication, and access control) 
  • Processing integrity (process monitoring and quality assurance) 
  • Confidentiality (encryption and access controls)

Meeting these standards is an essential step in ensuring your business is safe and your customer’s data is protected.

 

PCI Compliance

Payment Card Industry (PCI) compliance is a set of regulations set forth by the PCI Security Standards Council and relates to credit and payment processing security. Simply put, PCI compliance refers to standards that businesses follow to ensure a customer’s cardholder data is maintained in an independent, safe, and secure environment, where it is protected from being breached or compromised by internal and external threats. 

PCI compliance is divided into four merchant levels to which businesses are delegated based on the card transaction volume they handle annually.

  • Level 1: Businesses processing over 6 million transactions per year
  • Level 2: Businesses processing 1 million to 6 million transactions per year
  • Level 3: Businesses processing 20,000 to 1 million transactions per year
  • Level 4: Businesses processing less than 20,000 transactions per year 

As digital risk and cybersecurity become increasingly prevalent issues across all industries, this compliance measure is of the utmost importance.

To be PCI compliant, companies must meet six objectives: 

  • Build and protect a secure network 
  • Protect cardholder data 
  • Create a vulnerability management program 
  • Apply strong access control measures 
  • Regularly monitor and test networks 
  • Create a policy regarding information technology security 

Implementing these security practices not only ensures that your business meets compliance requirements but it also protects your customer's sensitive data.

 

Why You Want Your Embedded Finance Partner to Be SOC 1, SOC 2, and PCI Compliant

Meeting compliance requirements is vital for a few reasons. 

Because SOC 1, SOC 2, and PCI require annual audit reports by external auditors, it provides a transparent and clear understanding of how protected your business and customers are. There’s a reasonable expectation of trust that customers look for when they conduct business online. For instance, if they use a debit or prepaid card, customers expect that their sensitive information is safe. Failure to do so can erode customer trust, ultimately driving them to spend their money elsewhere and directly impacting your bottom line. 

As more businesses turn toward embedded finance as a way to grow, it's essential for every brand to ensure their embedded finance partners meet these criteria. Failure to confirm your third-party providers meet regulatory requirements could pose problems for your business and potentially result in costly fines. 

Fortunately, there are embedded finance partners that take these requirements seriously and proactively secure them. Doing so assures clients and customers their personal and financial information is maintained in a safe and secure environment. Alviere is one example of an all-in-one embedded finance company that is a PCI Level 1, SOC 1, and SOC 2 certified service provider. When your brand chooses to work with a fully certified embedded finance company, such as Alviere, it no longer has to worry about compliance requirements. Instead, it can focus on growing market share and driving new revenue. 

Not all embedded finance partners offer these certifications or meet the criteria to obtain one, so if your brand is looking to offer financial services directly to its customers, make sure you ask any potential third-party platforms if they have these compliances. For most large (enterprise) businesses with billions of dollars in revenue, not meeting these compliance requirements is a non-starter.

 

How to Implement Compliance Standards Into Your Business Practices

The best way to implement these compliance standards into your business practices is by vetting your third-party embedded finance provider. For example, if your brand wants to offer its customers branded bank accounts, debit cards, or access to global payments, you'll want to ensure that your provider meets all SOC and PCI regulations. 

Similarly, you can reduce your risk of non-compliance by ensuring that you only work with a single ready-made, full-suite provider that offers various financial services under one roof. To highlight the importance of working with an all-in-one provider, let’s say a company like Nike decides to add financial service providers a la carte. It selects one provider to offer payment processing and picks another provider to issue branded smart cards. By choosing two different third-party providers, Nike would expose its business (and customer information) to more risk. Not only would it require more work and operational oversight from Nike, but it would also increase the risk of software vulnerabilities when the different programs speak (or don’t speak) to one another. And, to escalate matters even more, what if one of the providers didn’t have the proper audits and regulatory compliances?

Working with a one-stop shop embedded finance partner, like Alviere, for all of your brand’s financial deliverables ensures a seamless experience that translates into less risk – especially when the partner is SOC 1, SOC 2, and PCI compliant.

 

Ensure Your Business Is Compliant With SOC and PCI

Protecting your brand’s internal data and its customer data should be a top-of-mind concern for any brand or business looking to embed financial services. 

When your brand works with an embedded finance partner like Alviere, it gains access to a platform built on cutting-edge technology. Our proprietary ledger tracks every transaction instantly, and our AI-powered monitoring system ensures a safe and compliant operating environment. Being PCI Level 1, SOC 1, and SOC 2 certified in three trust principles (security, availability, and confidentiality), we provide best-in-class security and compliance to ensure your brand has the solid foundation it needs to deliver the best in financial technology.

Ready to see what embedded finance can do for your brand? Reach out to us today.

 

Written by Sammi Jones