Banks Undermine Chip and PIN Security

Image result for chip and pin security

The Chip and PIN card payment system has been mandatory in the UK since 2006, but only now is it being slowly introduced in the US. In Western Europe more than 96% of card transactions in the last quarter of 2014 used chipped credit or debit cards, compared to just 0.03% in the US.

Yet at the same time, in the UK and elsewhere a new generation of Chip and PIN cards have arrived that allow contactless payments – transactions that don’t require a PIN code. Why would card issuers offer a means to circumvent the security Chip and PIN offers?

Chip and PIN is supposed to reduce two main types of fraud. Counterfeit fraud, where a fake card is manufactured based on stolen card data, cost the UK £47.8m in 2014 according to figures just released by Financial Fraud Action. The cryptographic key embedded in chip cards tackles counterfeit fraud by allowing the card to prove its identity. Extracting this key should be very difficult, while copying the details embedded in a card’s magnetic stripe from one card to another is simple.

The second type of fraud is where a genuine card is used, but by the wrong person. Chip and PIN makes this more difficult by requiring users to enter a PIN code, one (hopefully) not known to the criminal who took the card. Financial Fraud Action separates this into those cards stolen before reaching their owner (at a cost of £10.1m in 2014) and after (£59.7m).

Unfortunately Chip and PIN doesn’t work as well as was hoped. My research has shown how it’s possible to trick cards into accepting the wrong PIN and to produce cloned cards that terminals won’t detect as being faked. Nevertheless, the widespread introduction of Chip and PIN has succeeded in forcing criminals to change tactics – £331.5m of UK card fraud (69% of the total) in 2014 is now through telephone, Internet and mail order purchases (known as “cardholder not present” fraud) that don’t involve the chip at all. That’s why there’s some surprise over the introduction of less secure contactless cards.

Not only do contactless cards allow some transactions without a PIN, but the data can be stolen from the card and, by extension, potentially money from any account linked to it, just by brushing past someone near enough to trigger the contactless chip into transmitting.

Figures for UK card fraud reveal the effect Chip and PIN has had of forcing criminals to change tactics. So why are some banks issuing chip cards which don’t support PIN verification at all, leaving customers to sign for transactions instead? Why has the US been so slow to roll out Chip and PIN and why have UK banks actually decreased security for contactless cards? All three decisions are driven by, perhaps unsurprisingly, profit.

The share of transactions that card issuers take (the interchange fee) depends on the country and type of transaction. In the US, a lower fee is charged for PIN transactions than for those verified by signature. The fee are paid by the merchants to the card companies and banks and this explains why merchants upgraded their terminals to support Chip and PIN long before the US banks started issuing chip cards. Encouraging banks to start issuing cards is being handled the same way. And so from October 2015 if the merchant’s terminal, which accepts a fraudulent payment, supports Chip and PIN, but the card doesn’t, the card issuer pays for the cost of the fraud. If the merchant’s terminal doesn’t support Chip and PIN but the card does, the merchant pays.

Contactless cards are being promoted because it appears they cause customers to spend more. Some of this could be accounted for by a shift from cash to contactless, but some could also stem from a greater temptation to spend more due to the absence of tangible cash in a wallet as a means of budgeting.

Greater convenience leads to increased spending, which means more fees for the card issuers and more profit for the merchant – this is the real reason why the PIN check was dropped from contactless cards. The risk of fraud is mitigated to some degree by limiting transactions in the UK to £20 (rising to £30 in September), but it’s been demonstrated that even these limits can be bypassed.

Card fraud involves a very large amount of money, £479m in 2014 in the UK, and it affect many millions of people. In a EU-wide survey, 17% of UK Internet users said they had been the victim of credit card or online banking fraud, which was the worst in the EU. Some of the costs of fraud are borne by the merchants. Others are passed to the victim because the Payment Services Directive allows banks to refuse to refund customers if they can’t identify a more likely cause for the fraud than customer negligence.

However, even if all the costs of fraud was paid for by the card companies, the cost they would bear would only make up 0.075% of the value of card transactions. This sum they could comfortably pay for from the interchange fees they charge on these transactions, currently set at 0.7% of the transaction value – nearly ten times larger than the costs of fraud.

The Conversation

« Snowden Explains Exactly How the US Government Can Get Access to Private Images
Seeing Your Business Through the Eyes of a Hacker »

Infosecurity Europe
CyberSecurity Jobsite
Perimeter 81

Directory of Suppliers

ZenGRC

ZenGRC

ZenGRC (formerly Reciprocity) is a leader in the GRC SaaS landscape, offering robust and intuitive products designed to make compliance straightforward and efficient.

MIRACL

MIRACL

MIRACL provides the world’s only single step Multi-Factor Authentication (MFA) which can replace passwords on 100% of mobiles, desktops or even Smart TVs.

The PC Support Group

The PC Support Group

A partnership with The PC Support Group delivers improved productivity, reduced costs and protects your business through exceptional IT, telecoms and cybersecurity services.

XYPRO Technology

XYPRO Technology

XYPRO is the market leader in HPE Non-Stop Security, Risk Management and Compliance.

Clayden Law

Clayden Law

Clayden Law advise global businesses that buy and sell technology products and services. We are experts in information technology, data privacy and cybersecurity law.

Arcitura Education

Arcitura Education

Arcitura is a leading global provider of progressive, vendor-neutral IT training and certification programs.

Red Canary

Red Canary

Red Canary continuously monitors and analyzes your endpoints, users, and network activity in search of threatening behaviors, patterns, and signatures.

MBL Technologies

MBL Technologies

MBL Technologies specializes in information assurance, enterprise security, privacy, and program/project management.

PRODAFT

PRODAFT

PRODAFT, Proactive Defense Against Future Threats, is a cyber security and cyber intelligence company providing solutions to commercial customers and government institutions.

CloudMask

CloudMask

CloudMask patent technology provides Dynamic Data Masking (DDM) that masks sensitive data, structured or non-structured, in real-time.

MrLooquer

MrLooquer

MrLooquer provide a solution to automatically discover the assets of organizations on the internet, determine the level of exposure to attacks and help to manage risk accurately.

Jooble

Jooble

Jooble is a job search aggregator operating in 71 countries worldwide. We simplify the job search process by displaying active job ads from major job boards and career sites across the internet.

IT Governance

IT Governance

IT Governance is a leading global provider of information security solutions. Download our free guide and find out how ISO 27001 can help protect your organisation's information.

Innovation Cybersecurity Ecosystem at BLOCK71 (ICE71)

Innovation Cybersecurity Ecosystem at BLOCK71 (ICE71)

Innovation Cybersecurity Ecosystem at BLOCK71 (ICE71) is Singapore's first cybersecurity entrepreneur hub.

IntaPeople

IntaPeople

IntaPeople are IT and engineering recruitment specialists. We have specialist teams for job sectors including Cybersecurity, IT infrastructure and DevOps.

Riskaware

Riskaware

CyberAware, by Riskaware, provides business-critical cyber attack analysis and impact assessments using NIST standards aligned with NCSC guidance.

SuperCom

SuperCom

SuperCom are a global secure solutions integrator and technology provider for governments and other consumers facing organizations around the world.

Canonic Security

Canonic Security

Canonic streamlines app review, continuously monitors apps, and reduces the risks involved in third-party access to your data.

Teleport

Teleport

Teleport is a remote-first technology company. We enable engineers to quickly access any computing resource anywhere on the planet.

Information Technology Solutions (ITS)

Information Technology Solutions (ITS)

Information Technology Solutions is a single source provider for managing and securing mission-critical IT services.

Amyna Systems

Amyna Systems

Amyna has developed an IoT cybersecurity platform that prevents malignant attacks, helping users to protect themselves from cyberattacks.