An unhappy holiday for Target customers
A week before Christmas, Target in the US revealed it had suffered a massive payment card data breach, with some 40 million customers affected. Details of the breach are still emerging. No well-informed criticism has yet to emerge of Target's security; instead most observers say that Target has very serious security, and therefore this latest attack must have been very sophisticated, or else an inside job. It appears Target was deemed PCI-DSS compliant -- which only goes to prove yet again the futility of the PCI audit regime for deterring organized criminals.
Security analyst Brian Krebs has already seen evidence of a "fire sale" on carding sites. Cardholder records are worth several dollars each, up to $44 according to Krebs for "fresh" accounts. So the Return on Investment for really big attacks like this one on Target (and before that, on Adobe, Heartland Payments Systems, TJMaxx and Sony) can approach one billion dollars.
We have to face the fact that no amount of conventional IT security can protect a digital asset worth a billion dollars. Conventional security can repel amateur attacks and prevent accidental losses, but security policies, audits and firewalls are not up to the job when a determined thief knows what they're looking for.
It's high time that we rendered payment card data immune to criminal reuse. This is not a difficult technological problem; it's been solved before in Card Present transactions around the world, and with a little will power, the payments industry could do it again for Internet payments, nullifying the black market in stolen card data.
A history of strong standardisation
The credit card payments system is a paragon of standardisation. No other industry has such a strong history of driving and adopting uniform technologies, infrastructure and business processes. No matter where you keep a bank account, you can use a globally branded credit card to go shopping in almost every corner of the world. This seamless interoperability is created by the universal Four Party settlement model, and a long-standing plastic card standard that works the same with ATMs and merchant terminals absolutely everywhere.
So with this determination to facilitate trustworthy and supremely convenient spending in every corner of the earth, it's astonishing that the industry is still yet to standardise Internet payments! We have for the most part settled on the EMV chip card standard for in-store transactions, but online we use a wide range of confusing and largely ineffective security measures. As a result, Card Not Present (CNP) fraud has boomed. I argue that all card payments -- offline and online -- should be properly secured using standardised hardware. In particular, CNP transactions should either use the very same EMV chip and cryptography as do Card Present payments, or it should exploit the capability of mobile handsets and especially Secure Elements.
CNP Fraud trends
The Australian Payments Clearing Association (APCA) releases twice-yearly card fraud statistics, broken down by fraud type: skimming & carding, Card Not Present, stolen cards and so on. Lockstep Consulting monitors the APCA releases and compiles a longitudinal series. The latest Australian card fraud figures are shown below.
APCA like other regulators tend to varnish the rise in CNP fraud, saying it's smaller than the overall rise in e-commerce. There are several ways to interpret this contextualization. The population-wide systemic advantages of e-commerce can indeed be said to outweigh the fraud costs, yet this leaves the underlying vulnerability to payments fraud unaddressed, and ignores the qualitative problems suffered by the individual victims of fraud (as they say, history is written by the winners). It's pretty complacent to say the systemic benefit exceeds the cost of the fraud; it's would be like meekly attributing a high road toll to the popularity of motor cars. At some point, we have to do something about safety!
Frankly it's a mystery why the payments industry seems so bamboozled by CNP fraud, because technically it's a very simple problem. And it's one we've already solved elsewhere.
Card Not Present fraud is simply online carding.
Skimming and Carding
In carding, criminals replicate stolen customer data on blank cards; with CNP fraud they replay stolen data on merchant servers.
A magstripe card stores the customer's details as a string of ones and zeroes, and presents them to a POS terminal or ATM in the clear. It's child's play for criminals to scan the bits and copy them to a blank card.
The payments industry responded to skimming and carding with EMV (aka Chip-and-PIN). EMV replaces the magnetic storage with an integrated circuit, but more importantly, it secures the data transmitted from card to terminal. EMV works by first digitally signing those ones and zeros in the chip, and then verifying the signature at the terminal. The signing uses a Private Key unique to the cardholder and held safely inside the chip where it cannot be tampered with by fraudsters. It is not feasible to replicate the digital signature without having access to the inner workings of the chip, and thus EMV cards resist carding.
Online card fraud
Conventional Card Not Present (CNP) transactions are vulnerable because, like the old magstripe cards themselves, they rest on cleartext cardholder data. On its own, a merchant server cannot tell the difference between the original card data and a copy, just as a terminal cannot tell an original magstripe card from a criminal's copy.
Despite the simplicity of the root problem, the past decade has seen a bewildering patchwork of flimsy and expensive online payments fixes. Various One Time Passwords have come and gone, from scratchy cards to electronic key fobs. Temporary SMS codes have been popular but were recently declared unsafe by the Communications Alliance in Australia, a policy body representing the major mobile carriers.
Meanwhile, extraordinary resources have been squandered on the novel "3D Secure" scheme (MasterCard SecureCode and Verified by Visa). 3D Secure take-up is piecemeal; it's widely derided by merchants and customers alike. It upsets the underlying Four Party settlements architecture, slowing transactions to a crawl and introducing untold legal complexities.
A solution is at hand -- we've done it before
Why doesn't the card payments industry go back to its roots, preserve its global architecture and standards, and tackle the real issue? We could stop most online fraud by using the same chip technologies we deployed to kill off skimming.
It is technically simple to reproduce the familiar card-present user experience in a standard computer or in digital form on a smart phone. It would just take the will of the financial services industry to standardise digital signatures on payment messages sent from a card holder's device or browser to a merchant server.
And there is ample room for innovative payments modalities in online and mobile commerce settings:
- A smart phone can hold a digital wallet of keys corresponding to the owner's cards; the keys can be invoked by a payments app, ideally inside a Secure Element in the handset, to digitally sign each payment, preventing tampering, theft and replay.
- A tablet computer or smart phone can interface a conventional contactless payment card over the NFC (Near Field Communications) channel and use that card to sign transactions (see also the NFC interface demo by IBM Research).
- Many laptop computers feature smartcard readers (some like the Dell e-series Latitudes even have contactless readers) which could accept conventional credit or debit cards.
Conclusion
All serious payments systems use hardware security. The classic examples include SIM cards, EMV, the Hardware Security Modules mandated by regulators in all ATMs, and the Secure Elements of NFC mobile devices. With well-designed hardware security, we gain a lasting upper hand in the cybercrime arms race.
The Internet and mobile channels will one day overtake the traditional physical payments medium. Indeed, commentators already like to say that the "digital economy" is simply the economy. Therefore, let us stop struggling with stopgap Internet security measures, and let us stop pretending that PCI-DSS audits will stop organised crime stealing card numbers by the million. Instead, we should kill two birds with one stone, and use chip technology to secure both Card Present and CNP transactions, to deliver the same high standards of usability and security in all channels.
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