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.
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.
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
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.
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.