Any ideas to curtail CNP fraud?
The Australian Payments Clearing Association (APCA) releases card fraud statistics every six months for the preceding 12m period. Lockstep monitors these figures and plots the trend data. The latest stats were released this week, for FY 2012.
Here's the latest picture of Australian payment card fraud growth over the past seven financial years FY2006-12.
Compared with FY2011:
- Total card fraud is up 25%
- CNP fraud is up 27%
- CNP fraud represents three quarters (72%) of all card fraud.
- Card Not Present fraud as a proportion of all fraud remains at just under three quarters (72%).
As with the CY2011 stats we discussed last July, card fraud has again grown in all categories at once, not just Card Not Present, and this is unusual. The explanation may be a burst of skimming and counterfeiting in late 2011 which would be reflected in both the FY2012 and CY2011 numbers.
APCA's press release this week notes that card fraud has dropped in the past six months, contrasting financial 2012 ($189M) with calendar 2011 ($198M). This may not be a statistically valid comparison. We should expect seasonal buying habits will cause asymmetries within 12 months, making FY against CY a case of apples and oranges. Indeed, this looks like the first time APCA themselves have plotted CY and FY stats together. It certainly makes the latest figures look better.
Time will tell whether the trend is changing. The long term trend is that CNP fraud has grown at 38% p.a. on average, from $27M in FY2006 to $189M in FY2012. A 5% drop in the past six months may not mean much. The $189M loss most recently reported is probably close to the true trend.
APCA says "Broadly, the value of CNP fraud reflects growing retail activity in the online space, with many more businesses ... moving online". That's true but the question is: What will we do about it? Bank robbers rob banks because that's where the money is. Think about high road tolls: they reflect the popularity of driving, but we don't put up with them!
In any case, a cardholder's exposure to CNP fraud has nothing to do with whether they themselves shop online! Stolen card data are replayed online by criminals because they can. The online boom provides more places to use stolen cards but it's not where the criminals get most of their cards. Instead, it appears that account numbers are mostly obtained from massive database breaches at processors and large bricks-and-mortar retailers, like Heartland Payments, Global Payments, and Hannaford. So it's not fair to play down CNP fraud as relating to the cost of going digital, because it hurts people who haven't gone digital.
I'm afraid payments regulators seem light on ideas for actually rectifying CNP fraud.
Until recently, APCA actively promoted 3D Secure (Verified by Visa or Mastercard SecureCode) as a response to CNP fraud. In June 2011, APCA went so far as to say "retailers should be looking at a 3D Secure solution for their online checkout". But their most recent press release makes no mention of 3D Secure at all.
It looks to me that 3D Secure, after many years of disappointing performance and terrible take-up, is now too contentious to rate a mention from Australia’s regulators.
In my view, the industry needs to treat CNP fraud as seriously as it did skimming and carding. The industry should not resign itself to increasing rates of fraud just because online shopping is on the rise.
CNP fraud is not a technologically tough problem. It's just the digital equivalent of analogue skimming and carding, and it could be stopped just as effectively by using chips to protect cardholder data online.
Card fraud in Australia even worse than feared
Seasoned security analysts know the card fraud trends, but the latest stats in Australia are surprisingly bad.
The Australian Payments Clearing Association (APCA) releases card fraud statistics every six months for the preceding 12m period. Lockstep monitors these figures, crunches them and plots the trend data.
Here's the latest picture of Australian payment card fraud growth over the past six calendar years CY2006-11.
For the first time in many years, card fraud has grown in all categories at once. The ratio of Card Not Present fraud to all fraud remained steady at just under three quarters. Any up-turn in skimming and counterfeiting is surprising given the strong penetration of chip-and-PIN cards in Australia, although most ATMs here still use the stripe and remain vulnerable to carding. Still, CNP fraud remains the preferred MO of organised crime, and its cost grew by 61% from 2010 to 2011.
"Innovation" is a topical notion in Australian payments systems circles, but for the most part innovation is confined to back end systemic improvements to interbank settlements. Regulators take a light touch on the user side. The market is fostering innovative payments applications in mobile devices, but so far, security still proves to be too hard. APCA's only position on security is to wait and see what happens when 3D Secure comes to Australia. Given that nothing has stood in its way, and CNP fraud is doubling every two years, the very absence of 3D Secure here should be worrying to the regulators.
For more information about Lockstep Technologies' R&D in CNP payments security, see our recent blogs Killing two birds with one chip and CNP fraud is just online carding.
Killing two birds with one chip
Last week saw the biggest credit card data breach for a while, with around 1.5 million card numbers being stolen by organised crime from processor Global Payments [updated figures per Global Payments investor conference call, Apr 2nd].
So now there will be another few rounds of debate about how to harden these cardholder databases against criminal infiltration, and whether or not the processor was PCI-DSS compliant. Meanwhile, stolen card numbers can be replayed with impugnity and all the hapless customers can do is monitor their accounts for suspicious activity -- which can occur years later.
These days, the main use for stolen payment card data is Card Not Present (CNP) fraud. Traditional "carding" -- where data stolen by skimming is duplicated onto blank mag stripe cards to fool POS terminals or ATMs -- has been throttled in most places by Chip-and-PIN, leaving CNP as organised crime's preferred modus operandi. CNP fraud now makes up three quarters of all card fraud in markets like Australia, and is growing at 40-50% p.a.
All card fraud exploits a specific weakness in the Four Party card settlement system shown below. The model is decades old, and remains the foundation of internationally interoperable cards. In a triumph of technology neutrality, the four party arrangement was unchanged by the advent of e-commerce. The one problem with the system is that merchants accepting card numbers may be vulnerable to stolen numbers. Magnetic stripe terminals and Internet servers are unable to tell original cardholder data from copies replayed by fraudsters.
The most important improvment to the payments system was and still is to make card numbers non-replayable. Chip-and-PIN stops carding thanks to cryptographic processes implemented in hardware (the chip) where they cannot be tampered with, and where the secret keys that criminals would need are inaccessible. In essence, a Chip-and-PIN card encrypts customer data within the secure chip (actually, digitally signs it) using keys that never leave the confines of the integrated circuit. Even if a criminal obtains the card holder data, they are unable to apply the additional cryptographic transformations to create legible EMV card-present transactions. This is how Chip-and-PIN stemmed skimming and carding.
CNP fraud is just online carding, fuelled by industrial scale theft of customer records by organised crime, like the recent Global Payments episode. While the PCI-DSS regime reduces accidental losses and amateur attacks, it remains powerless to stop determined criminals, let alone corrupt insiders. When card numbers are available by the tens of millions, and worth several dollars each ($25 or more for platinum cards) truly nothing can stop them from being purloined.
The best way to tackle CNP fraud is to leverage the same hardware based cryptography that prevents skimming and carding.
Lockstep Technologies has developed and proven such a solution. Our award winning Stepwise digitally signs CNP transactions within an EMV chip, rendering card details sent to the merchant non-replayable. The merchant server checks a Stepwise CNP transaction using standard public key libraries; a valid Stepwise transaction can only have come from a genuine Chip-and-PIN card under the control of its holder.
All serious transaction and payments systems use hardware cryptography. The classic examples include mobile telephones' SIM cards, EMV chips, the Hardware Security Modules mandated by financial regulators in all ATMs, and the "secure elements" of NFC devices. With well designed hardware security, we gain a robust upper hand in the cybercrime arms race. So let's stop struggling with flabby distracting systems like 3D Secure, and let's stop pretending that PCI-DSS audits will stop organised crime getting hold of card numbers by the million. Instead, let's kill two birds with one stone and use chips to secure both card present and CNP transactions.
Stepwise creates uniquely secure, fast and easy-to-use CNP payments. It has zero impact on the security certifications of digital signature capable EMV chips, and zero impact on existing four party card processing arrangements.
For more details, please see http://lockstep.com.au/technologies/stepwise.
Posted in Smartcards, Payments, Fraud
CNP fraud is just online carding
I recently posted the latest Card Not Present fraud figures for Australia. Technologically, CNP fraud is not a novel problem. We already have the tools and the cardholder habits to solve the CNP problem. We should look at the experience of skimming and carding, which was another tech problem that demanded a smart tech solution.
Card Not Present fraud is simply online carding.
A magnetic stripe card keeps the cardholder's details as a string of ones and zeroes, stored in the clear, and presents that string to a POS terminal or ATM. It's easy for a criminal to scan the ones and zeroes and copy them to a blank card.
In general terms, EMV or Chip-and-PIN cards work by encrypting those ones and zeros in the chip so they can only be correctly decoded by the terminal equipment. In reality the explanation is somewhat more complex, involving asymmetric cryptography, but for the purposes of explaining the parallel between skimming/carding and CNP fraud, we can skip the details. The salient point is that EMV cards prevent carding by using encryption inside the secure chip using keys that cannot be tampered with or substituted by an attacker.
As with mag stripe cards, conventional Card Not Present transactions transmit cleartext cardholder data, this time to a merchant server. On its own, a server cannot tell the difference between the original data and a copy, just as a POS terminal cannot tell an original bank issued cards from a criminal's copy.
Lockstep Technologies was first to see the parallel between skimming/carding and CNP fraud. Our solution "Stepwise" uses the same cryptographic technology in chip cards that prevents carding to digitally sign transactions created at a browser or mobile device. Stepwise signatures can be verified at any merchant server, using standard built-in software libraries and a widely distributed "master key".
I presented the Stepwise solution to the Payments Innovation stream at Cards & Payments Australia 2012 last week. The presentation is available here.
See also technical details here and a live demo on the ABC TV "New Inventors" program.
Posted in Smartcards, Payments, Fraud
Card Not Present now three quarters of all fraud
The Australian Payments Clearing Association (APCA) releases card fraud statistics every six months for the preceding 12m period. Lockstep monitors these figures, condenses them and plots the trend data.
Here's the latest picture of Australian payment card fraud in three major categories over the past six financial years.
Card fraud by skimming and counterfeiting is holding steady, thanks to the security of EMV chip-and-PIN cards. Card Not Present (CNP) fraud is the preferred modus operandum of organised crime, and continues to grow unabated. The increase in CNP fraid from last financial year was 46%; CNP now represents 71% -- or nearly three quarters -- of total annual card fraud.
What's to be done about this never ending problem?
- The credit card associations' flagship online payment protocol "3D Secure", rolled out selectively and tentatively overseas, is loathed by customers and merchants alike. 3D Secure is virtually unknown in Australia.
- There have been various attempts to stem the tide of stolen cardholder details that fuels CNP fraud. Examples include 'big iron' software changes like "Tokenization" and the PCI-DSS security audit regime, which has proven expensive and largely futile. Arguments raged over whether Heartland Payments Systems (which suffered the world's biggest card data theft in 2009) was "really" PCI-DSS compliant. It's become so arbitrary that by the time the Sony PSN was breached last year with the loss of up to 70 million credit cards (nobody really knows how many) the question of whether Sony was PCI compliant never even came up.
- Or we could get smart and exploit the same cryptographic security that allows chip cards to stop skimming, to protect cardholder details between the user's device and the merchant server. See Lockstep Technologies' award winning Stepwise CNP security solution.
Card numbers are like nitroglycerine
No before time, merchants are pushing back on the PCI-DSS regime, with a new law suit brought by a restaurant against the card companies. Infosec commentators like Ben Wright ask why all the onus should be on merchants when the payments industry could invest in better security technology?
Credit card numbers are a bit like nitroglycerine: handle them with great care or they'll blow up. The slightest slip-up, the smallest weakness in database security in the face of sophisticated Advanced Persistent Threats, and tens of millions of card numbers are lost to criminals. PCI-DSS compliance is fiercely expensive, but all it does is protect against accidents; it is powerless to stop determined attackers or corrupt insiders.
Is it fair to hold merchants responsible for the highly technical handling procedures of the PCI-DSS regime, when instead the card companies could stabilise their highly volatile card data?
The fundamental problem with payment card safety (as is the case with most digital identity security) is that numbers are replayable. It's child's play to take account data and replay it against unsuspecting merchants, either via cloned mag stripe cards or even easier, in online Card Not Present fraud.
[See also updated CNP fraud trends for FY2011.]Yet with chip technologies now widespread, and digital signature primitives ubiquitous in computing and Internet platforms, it's nearly trivial to eliminate replay attacks. Not only could we dramatically reduce the cost of stolen card details, we'd pull the rug out from under organised crime, and we'd boost privacy by cutting the vicious cycle of gathering more and more ancillary personal data for proving customer identity.
Lockstep's R&D has proven a solution for this problem. Fast, easy-to-use, private, secure, low cost, mature, and feasible.
Fighting cyber crime like it really matters
It is no exaggeration to characterise the theft of personal information as an epidemic. Personal information in digital form is the lifeblood of banking and payments, government services, healthcare, a great deal of retail commerce, and entertainment. But personal records―especially digital identities―are stolen in the millions by organised criminals, to appropriate not just money but also the broader and fast growing intangible assets of “digital natives”. The Internet has given criminals x-ray vision into peoples’ details, and perfect digital disguises with which to defraud business and governments.
Credit card fraud over the Internet is the model cyber crime. Childs play to perpetrate, and fuelled by a thriving black market in stolen personal data, online card fraud represents 70% of all card fraud in Australia, continues to grow at 30-50% p.a., and here cost over A$120 million in 2010 (see http://lockstep.com.au/blog/2011/09/27/au-cnp-fraud-cy2010). The importance of this crime goes beyond the gross losses, for some of the proceeds are going to fund terrorism, as acknowledged by the US Homeland Security Committee.
Yet there is a deeper lesson in online card fraud: it needs to be seen as a special case of digital identity theft. ID theft is perpetrated by sophisticated organised crime gangs, behind the backs of the best trained and best behaved users, aided and abetted by insiders corrupted by enormous rewards. No amount of well meaning security policy or user awareness can defeat the profit motives of today’s online fraudsters.
As the digital economy is to the wider economy, so cyber crime is to crime at large. And yet the e-business environment remains stuck in a Wild West stage of development: it’s everyone for themselves! There is no consistency in the gadgets foisted upon consumers to access online businesses and services; worse, most are flawed and readily subverted by hackers. We could build security deep into our transaction platforms to prevent identity theft, phishing, web site spoofing and spam―the requisite building blocks like digital signature toolkits and personal smart devices are now ubiquitous―but instead, almost all attention turns to user awareness. Yet education has reached its use-by date, rendered utterly obsolete by the industrialisation of cybercrime (see also http://lockstep.com.au/library/online_banking_review/obr-lockstep-200810-many-hand.pdf). Most everyone now knows they need a firewall and anti-virus software but they're misguided measures when most identities are stolen in other channels utterly beyond the users' control. The predominant technology neutral policy position of government and the banking industry has not fostered market driven innovation as hoped but instead has created a leadership vacuum, leaving consumers to fend for themselves.
To really curtail cyber crime we need the sort of concerted and balanced effort that typifies security in all other walks of life, like transportation, energy and finance. Car owners don't fit their own seat belts and airbags as after-market nice-to-haves; bank customers don’t need to install their own security screens; bank robbers are not kept at bay by security audits alone. The time has come, now that we’re constructing the digital economy, to embrace intelligent security technologies that can actually prevent identity theft and cyber crime.
CNP fraud keeps growing without limit
The Australian Payments Clearing Association (APCA) releases card fraud statistics every six months for the preceding 12m period. Lockstep monitors these figures, condenses them and plots the trend data.
Here's the latest picture of card fraud in three major categories over the past five calendar years.
It appears that EMV chip cards continue to stifle skimming and counterfeiting, but Card Not Present (CNP) fraud is left as the preferred MO of organised crime, and continues to grow unabated.
It's high time that banks and online merchants took definitive steps to prevent the replay of stolen card numbers. See Lockstep Technologies' Stepwise.
I just don't get Levels of Assurance
IDAM practitioners and government authentication policy makers have settled on a generic quaternary categorisation of transaction risk and of quality-of-enrolment. Let's recap: the idea is to characterise the seriousness of a transaction in terms of LOA 1/2/3/4 and then match the LOA of the party you’re planning to do business with. Quaternary LOA schemas are codified in NIST SP 800-63 and described more loosely in the Australian National Electronic Assurance Framework (NEAF).
The idea of LOAs came from risk management methodologies and standards like AS 4360 and now ISO 31000. These approaches involve gauging the severity and frequency of anticipated adverse events, and combining them to deduce a rolled-up risk rating for each event on an ordinal scale, like {Negligible, Low, Medium, High, Extreme}. Examples given in the NEAF documentation use consequence-severity tables lifted straight out of AS 4360.
A powerful feature of this approach is that each enterprise is empowered (in fact expected) to create its own internal calibrations of adverse events. Severity can be gauged in different ways, by referencing monetary losses, health consequences, political impact and so on, and the most appropriate frame will depend on the business environment. Organisations also set their own policies for what level of risk is acceptable for each anticipated threat. So some will not tolerate residual risks that are worse than Low, while others will live with Medium risks on a case-by-case basis with special contingency plans.
As a result, risk determinations made against ISO 31000 and the like are not transferable between organisations. Simply saying that a certain event (for example compromise to a user account) has a risk rating of “Medium” tells someone outside the organisation nothing at all about the details of the threat, its impacts, its expected likelihood, nor how it might be mitigated.
And yet the authentication LOA paradigm has us pick and choose externally issued identities based on a rolled up rating of LOA 1, 2, 3 or 4. There really cannot be any definitive assurance that all “LOA 3” credentials for instance issued by all IdPs are equivalent, nor that they will satisfy the detailed needs of all Relying Parties conducting “LOA 3” transactions.
The idea of quaternary LOAs was based on schemas that are used to communciate risk within organisations. They do not work for communciating about risk between organisations, and therefore the same approach is as useful for LOAs as it might first appear.
Posted in Internet, Identity, Fraud, Federated Identity, Security
Identity Evolves [AusCERT Conference Presentation Abstract]
This is the abstract for my paper that has been accepted in the main program at the AusCERT 2011 Conference.
Why Federated Identity is easier said than done
AusCERT2011 | "Overexposed" | 15th-20th May 2011
Royal Pines Resort | Gold Coast, Australia
http://conference.auscert.org.au/conf2011
Abstract
Why does digital identity turn out to be such a hard problem? People are social animals with deep seated intuitions and conventions around identity, but exercising our identities online has been hugely problematic.
In response to cyber fraud and the password plague, there has been a near universal acceptance of the idea of Federated Identity. All federated identity models start with the intuitively appealing premise that if an individual has already been identified by one service provider, then that identification should be made available to other services, to save time, streamline registration, reduce costs, and open up new business channels. It’s a potent mix of supposed benefits, and yet strangely unachievable. True, we can now enjoy the convenience of logging onto multiple blogs and social networks with an OpenID or an unverified Twitter account. But higher risk services like banking, e-health and e-government have steadfastly resisted federation, maintaining their own identifiers and sovereign registration processes.
This paper shows that Federated Identity is in fact a radical and deeply problematic departure from the way we do business. It complicates long standing business arrangements and exposes customers and service providers alike to brand new risks which existing contracts are unable to deal with. Federated identity naively fails to understand that identities are proxies for relationships we have in different contexts. Business relationships don’t easily “interoperate”. They can’t be arbitrarily tweaked to suit different contexts, because each relationship has evolved to fit a particular niche. While the term identity “ecosystem” is fashionable, genuine ecological thinking has been lacking. The alternative presented here is to faithfully conserve business contexts and replicate existing trusted identities when we go from real world to digital, without massively re-engineering proven business rules and risk management strategies.
A still unproven idea
The past decade is littered with earnest identity initiatives that failed to get off the ground (including at least three in Australia alone) and security industry consortia that over-promised and under-delivered. We’ve endured endless deconstructions of “trust” and theoretical dissertations on “identity” but none of this work has led to the sort of breakthrough that’s desperately needed. Online identity fraud continues to grow. The direct cost is hundreds of billions of dollars globally; the indirect cost includes a malaise inhibiting such truly transformative initiatives as e-health.
In spite of its conspicuous failures and the revolving door of technical working groups, Federated Identity has become an orthodoxy. The US federal government’s proposed National Strategy for Trust Identities in Cyberspace (NSTIC) takes federation as a given. Its central tenets such as the pigeonholing of identification risk into four generic “trust levels” have been standardised in SAML and productised, but not yet realised.
Hidden complexities
If we take a closer look, we can see that nothing like Federated Identity has ever been done before. The proposition that banks, telcos, universities and governments should act in the open as “Identity Providers” is not something these institutions have contemplated outside their own closed business contexts.
Most federation initiatives hold out self-evidently noble objectives like “interoperability”, “openness” and the eradication of “silos”. Yet these feel-good words don’t stand up to scrutiny. Federation implies widespread changes to business rules and risk management arrangements, which lawyers and legislators have yet to come to grips with. Consider that banks have long established (and highly regulated) protocols for identifying customers. Introducing new third party identity providers and new enrolment pathways is a true paradigm shift, demanding untold revision of conventions, contracts and legislation.
The benefits of decentralisation claimed of Federated Identity are largely illusory. It is good for privacy and security that federation generally deprecates any one master ID, but it introduces legally novel intermediaries and new aggregations of personal information. For instance, in order to provide for “verified anonymity”, Federated Identity has customers enrol with brand new Identity Providers, handing over bulk personal information to them, only so that it may be withheld from service providers.
A simpler way forward
It is often said that identity management is “not a technology issue”. The statement is both right and wrong. The biggest challenges in federated identity are certainly not technological; rather, they relate to risk allocation in an unprecedented joined-up matrix which changes the legal fundamentals of how we do business. On the other hand, the pressing problems of ID theft and fraud really are technologically straightforward.
We all agree that identities are context dependent; the deeper truth is that identities are proxies for complex relationships that have evolved to fit distinct niches in the identity ecosystem. As with real life ecology, characteristics that bestow fitness in one niche can work against the organism in another. Thus the derided identity “silos” are a natural and inevitable consequence of how business rules are matched to particular contexts.
We need to avoid complicated generalisations about identity, and instead focus on simplifying assumptions. The password plague is only a problem because traditional access control was devised for technicians; consumer authentication simply needs better human-machine interfaces.
The real problem lies not in existing identity issuance processes; it’s to do with the way perfectly good identities once issued are taken ‘naked’ online where they’re vulnerable to takeover and counterfeiting. If we focussed on conserving context and replicating existing real world identities in non-replayable forms, most routine transactions could take place safely online, without the incalculable cost of re-engineering proven business arrangements.
Posted in Smartcards, Security, Privacy, Internet, Identity, Fraud, Culture