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 »

ManageEngine
CyberSecurity Jobsite
Check Point

Directory of Suppliers

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.

TÜV SÜD Academy UK

TÜV SÜD Academy UK

TÜV SÜD offers expert-led cybersecurity training to help organisations safeguard their operations and data.

CSI Consulting Services

CSI Consulting Services

Get Advice From The Experts: * Training * Penetration Testing * Data Governance * GDPR Compliance. Connecting you to the best in the business.

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.

ManageEngine

ManageEngine

As the IT management division of Zoho Corporation, ManageEngine prioritizes flexible solutions that work for all businesses, regardless of size or budget.

Blue Solutions

Blue Solutions

Blue Solutions is a consultancy-led, accredited software distributor who provides IT solutions and support to small and medium enterprises.

Continuity Shop

Continuity Shop

Continuity Shop provides training and consultancy in Business Continuity and Information Security to some of the world's biggest organisations.

Perkins Coie LLP

Perkins Coie LLP

Perkins Coie LLP is an internationalk law firm with offices across the USA and Asia. Practice areas include Privacy and Data Security.

CircleCI

CircleCI

CircleCI’s platform allows developers to rapidly release code (for web and mobile apps) they trust by automating the build, test, and deploy process.

Altius IT

Altius IT

Altius IT reviews your website for security vulnerabilities and provides a report identifying vulnerabilities and recommendations to make secure.

qSkills

qSkills

QSkills is an independent training provider specialized high-quality IT and IT management training courses including IT security.

Intensity Analytics

Intensity Analytics

Intensity Analytics is a software firm that develops next-generation, physical user and entity behavioral authentication ("physical UEBA") security software technology.

G DATA CyberDefense

G DATA CyberDefense

G Data developed the world's first antivirus software. We now ensure the security of small, large and medium-sized companies all over the world.

KOBIL

KOBIL

KOBIL is a pioneer in the fields of smart card, one-time password, authentication and cryptography.

CloudMask

CloudMask

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

Austrian Institute of Technology (AIT)

Austrian Institute of Technology (AIT)

AIT is Austria's largest research and technology organisation and a specialist in the key infrastructure issues of the future including data science and cybersecurity.

SAIFE

SAIFE

SAIFE has adapted a Software Defined Perimeter approach and paired it with a Zero Trust model that defines access by the user, their device, and where they are located.

Syxsense

Syxsense

Syxsense brings together endpoint management and security for greater efficiency and collaboration between IT management and security teams.

International Association of Financial Crimes Investigators (IAFCI)

International Association of Financial Crimes Investigators (IAFCI)

International Association of Financial Crimes Investigators provides services and information about financial fraud, fraud investigation and fraud prevention.

Beetles Cyber Security

Beetles Cyber Security

Beetles is a crowdsourced penetration testing platform designed to build a trusted, hacker-centric approach to protectan organization’s digital attack surface.

Cyberscore

Cyberscore

CyberScore specialize in digital security assessments that preventively make digital environments safer against malicious attacks from inside and outside.