Posts tagged Credit
Swipe, sign, and pay—it’s a simple ritual that we may perform several times a day with our ubiquitous plastic credit and debit cards.
But as the Target security breach showed us, the classic magnetic stripe, which shares our account number with a merchant, is a dangerously insecure technology. It’s on its way out—but it can’t go fast enough.
Here in the United States, we’re about to get entirely new kinds of physical cards already in use overseas. We are also on the cusp of a revolution that might see smartphones play a key role in how we pay for things. It all adds up to a lot of confusion. And it’s not clear we’re actually getting any safer.
What Will Replace The Stripe?
The problem with the magnetic stripe is that once someone else has your card, they have all the secure information they need to compromise it. The full 16-digit account number is embossed on the card. It’s also encoded in the magnetic stripe in a format that’s easy for anyone with the right kind of device to read—and hence copy. There’s one more security feature, the Card Verification Value, or CVV2 number—which is printed on the back of the card. Oh, and a clerk might check your signature and your driver’s license.
As the Target hack exposed, there’s another problem with these cards: They transmit your account number—and, in the case of debit cards, your PIN—to merchants. We used to think this was safe, that merchants would protect their internal systems from hacking. Thanks to Target, and previous incidents of mass card theft like the T.J. Maxx hack a decade ago, we now know better.
There are two main contenders to replace that thoroughly broken system: chip-and-PIN swipe cards and contactless, or NFC (near-field communication), cards.
Chip-and-PIN cards are a descendant of the smart cards I’m familiar with from my time selling government systems for Apple. There’s a chip in the card that communicates with a chip in newer card-processing machines, or terminals. NFC uses short-range radio waves to communicate with terminals, which means you can just tap your card to pay. You’ll sometimes see both features in newly issued cards.
Chip-and-PIN and NFC both have an advantage over the magnetic stripe: At least with the latest versions of these cards, you’re not transmitting an actual credit-card number, as you do with a magnetic stripe. Instead, they transmit a “token”—a one-time-use number that banks and card processors can match up with your account on the other end to process the transaction, but that doesn’t reveal your account number, even to the merchant.
Here’s the problem: New cards with these more-secure payment features will carry—you guessed it—an insecure magnetic stripe for “backwards compatibility” with ATMs, gas pumps, and other payment devices that are costly to upgrade. We’re paying for convenience with our safety.
I found this out myself when I talked to American Express the other day. The customer-support rep said they would be happy to send me a new chip-and-PIN credit card. However, it would come with my information encoded on the magnetic stripe. They did assure me that I have zero liability for fraud.
Someone’s going to pay for fraud, though, and it’s likely to be retailers. Right now, retailers are largely protected if they follow the rules around swiping magnetic-stripe cards. That will change once chip-and-PIN cards are widely available: Banks and card processors will shift fraud liability to retailers who let their customers swipe the old-fashioned way.
Here’s the other irony of this transition: American Express and a lot of other card issuers are favoring an approach called “chip-and-signature.” That means that while you’ll dip your card in a reader instead of swiping it, you’ll still approve transactions by signing a piece of paper instead of entering a PIN.
It’s not hard to see why they’re doing this. Chip-and-signature might work better in, say, a restaurant where the waiter brings you the bill. It will also require a lot less retraining of store clerks (and consumers). Again, though, we’re going to pay for the convenience with our security.
Just Ditch The Card
You’re seeing a pattern here: Adding security features to a physical card makes the simple, fast swipe of a card a needlessly complicated process. Yet we just can’t rely on the magnetic stripe the way we used to.
Some people have tried replacing the card with your phone. But this has been riddled with complexity, too. Google has had a big failure with trying to get people to use Google Wallet in retail stores. Isis, a joint venture backed by wireless carriers, has similarly flopped.
I’m not convinced that replacing the card with a phone is a great idea. That might be okay if your phone doesn’t get stolen, is securely protected from unauthorized use, and can be remotely wiped clean before someone has time to crack into it. But I need to hear more to be convinced.
Ultimately we may need a system that combines cards and phones. For example, what if I could tap a card and then enter a one-time PIN sent to my smartphone? That seems more secure than using the same PIN every time—we know that fraudsters have hacked ATM-card PINs to get into our bank accounts.
Ultimately, what we may realize is we don’t really need a card at all. If all the card does is carry our account number, we have machines that do a good job of storing numbers for us. And if we can’t trust retailers with our credit-card details, maybe we shouldn’t be giving them a piece of plastic printed with our account number in the first place.
The way of the future may be carrying out commerce in physical stores the same way we do on Amazon and iTunes—we click “buy” and the retailer charges our account, with the details walled off in many layers of digital security. If banks carry out their current plans, they’ll make buying things in stores more complicated without making them any less secure—and that may be the thing that kills off the magnetic-stripe card for good.
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One night, a decade ago, I was on a sales trip. My wife called me up to complain about the $1,700 dinner that I had enjoyed in Bangkok. Of course she was mostly concerned because she knew that I was in Washington, DC, not Thailand. A copy of my credit card had made it there, however. The next day. someone using my fake card tried to buy over $2,000 in antiques in Singapore. Fortunately, the credit-card folks were on top of the situation and my only real inconvenience was waiting a few days for a new credit card to show up.
That time I was a victim of one of the then-high-tech pocketable skimmers that unscrupulous employees used while settling your bill at a restaurant. That incident happened long after most businesses quit using carbon-copy credit-card receipts where we had to worry about tearing up the copies that carried our full card number.
Fast forward ten years, and things have gotten worse, not better. The New York Times recently reported that Target is investigating a huge security breach. According to a December 19 update on the Target problem by security reporter Brian Krebs, as many as “40 million credit and debit card accounts may have been impacted between Nov. 27 and Dec. 15, 2013.” After first claiming that ATM PINs weren’t involved, Target later conceded they were stolen, too.
A Hack On Small-Town America
If you have read some of my articles on ReadWrite, you might know that I live in fairly rural area along the North Carolina coast. I have joked that putting a hand-lettered sheet at the main intersection is a better way of getting information broadcast in our county than Twitter.
Our area is one of those places where you likely recognize the cashier at the grocery store and some places they even remember your name. It is not a place that you think might be a target for high-tech crime, but it turns out that we were an extremely inviting target for organized criminals.
A very large number of area residents were victimized in the last few months. Some estimates suggest that hundreds of people in the area had their ATM cards compromised in recent weeks. That is a lot of folks when the largest town in the area has 3,600 year-round residents. The issue became very personal when in the space of a week both my wife’s and my ATM card numbers were used fraudulently.
This came on top of a credit-card compromise that snared a rarely used card just a month ago. In dealing with these situations, we got a lot of misleading information. Multiple people who were helping us fix the problem claimed that sophisticated new skimmers could read the magnetic stripe on your card without it even being out of your pocket.
I did some research on the Internet and found the information available to be almost as confusing. Just to make us feel better as we were trying to understand the situation, we ordered some credit-card protector sleeves and a couple of blocker cards that we could carry in our wallets. I suspected these were useless, designed to protect the RFID-enabled cards that I don’t even have. However, when you have three card numbers stolen in a short space of time, you start looking for solutions quickly and hope that something will work.
What really shocked us was that our ATM cards which were compromised were from a bank that does not even have a branch in the area. I only used my card in the four local grocery stores and my ATM card never leaves my hand. Also each time I was careful when using my PIN. My wife’s card theft was even scarier in that the only time she used it in months was for a small transaction in the local US Post Office when she pulled out the wrong card.
Shortly after we finally resolved our issues with the bank, an article was published in the local newspaper. It suggested that much of the card-number theft might have happened with skimmers on gas pumps.
That was the final straw that convinced me that we were not hearing the full story. I called the regional Secret Service office—that agency is involved in both protecting the President and investigating financial crimes—and talked to the agent that was handling the investigation. He confirmed my suspicions: The problem is far worse than we imagined.
While there are no real answers yet in our area, it appears that some computer systems have been compromised either at stores or in the companies handling the processing of card transactions. In other words, a company involved in the flow of payments has been hacked. It could be more than one company. The computer hacking has exposed everyone whose cards are going through those systems. The thieves are using the ATM card information in a way that does not require the PINs.
As the agent explained it to me, what happens once the thieves have stolen a bunch of numbers from a company is that they print gift cards with their name on them and our billing information on the magnetic stripe. He said they rarely bother with printing up credit cards anymore.
So here is what we have learned.
- ATM cards with their current security are too dangerous to use. The Secret Service agent I talked to quit using his years ago. We no longer use ours. They stay in a secure place in our home. If a thief gets your ATM card, they can clean your bank account out and it can take weeks to fix the problem.
- Credit card issuers are smarter than regular banks when it comes to fraud. When someone tried to do a $7.01 trial purchase using our compromised credit-card number, we got an automated call from the credit card company 30 minutes after the transaction because they thought it was fraud. The transaction never went through.
- When someone tried a similar transaction with my compromised ATM card, we caught it ourselves and called the bank. I had to fill out a fraud affidavit and fax it back to the bank. It took 10 days to get back our money.
- The only reason a $1,400 fraudulent transaction did not go through on my wife’s compromised ATM card was that we only had $1,300 in the account.
- The standard response from the companies is that someone is reading your card number while the card is still in your pocket. That is probably not the case.
What We Can Do
I asked the Secret Service agent for some advice—aside from just not using ATM cards, period.
He said he always tests the card-reading device on a gas pump to make certain it is part of the pump and not an attachment. He also looks for anything suspicious before swiping his credit card in a store. He said if you must use an ATM machine, you should only use a trusted one at your local bank. The banks check those daily.
He also recommended checking your credit-card balances and your bank statement as often as you can, probably once every 24 hours. He also confirmed the online security precautions that most of us are already practicing such as being very careful about downloading any software that you do not trust and avoiding clicking on links that might be suspicious. He basically said that you might as well accept the fact that your cards will be compromised and be ready for it. He said his credit cards had been compromised a number of times.
We were lucky this time and did not lose any money. We have gone back to cash now that our ATM cards have been replaced. The new ones have never been used. I carry only two credit cards in my wallet and even though I suspect the card sleeves do nothing for non-RFID cards, my two credit cards are in them.
As far as RFID cards, I am not interested in one. I have read about some clever smartphone software that uses some of the newest smart phones to read your RFID card information. I do not need more risks in my wallet.
Europeans do make use of make use of chip-and-PIN cards. Those have their own problems—for starters, they’re completely unsuitable for e-commerce and mobile payments. And I suspect their protections don’t help when the thieves manage to crack into companies processing the transactions.
Right now cash sounds like a good low-tech solution to me. Maybe the banks should start hiring more tellers if they’re not going to fix this problem.
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