Despite the existence of EMV and Apple Pay, we’re a long way from true payment security, especially in the US.
With such threats out there, merchants have had to pay more attention to secure payment technology. But most of it doesn’t have anything to do with malware lifting payment card data off of PoS terminals. Rather, the principal goal of new tech is to simply prevent PoS terminals from ever holding that data in the first place — so even if attackers can compromise a terminal, the data they slurp off is of no use to them.
Here are a few things you should know about the state of secure payments today.
image: “alec – Mr. Money Bags,” by Aisle22
Data lifted off magnetic stripe payment cards fetches a high price on the black market because it can be used to print counterfeit cards, and skimmers make it relatively easy to steal. Payment cards equipped with EMV chips — for “Chip-and-PIN” transactions — eliminate that particular risk.
Yet, while 99.9% of PoS terminals in Europe are chip-enabled by now, the U.S. is one of the last countries to adopt EMV.
“We should have done it five- to seven years ago,” says Avivah Litan, vice president and distinguished analyst for Gartner. “Now it will still take us another two- to four.”
Al Pascual, director of security, risk, and fraud for Javelin Strategy and Research, explains that part of the reason for the disparity is that European merchants needed the technology more (or thought they did). In the U.S., most card-present payments are authorized at the time of purchase, yet, in Europe, there are still many purchases made “offline” — which makes the protection provided by EMV more important.
Card issuers, not merchants, have usually been the ones to absorb the costs of fraud. So for them, there’s reason to put EMV chips into cards. (Though, they’ve still been slow to do it, stating that customers weren’t asking for it, merchants weren’t accepting it, and therefore it wasn’t worth the investment of replacing cards, which is approximately $1 to $2.50 per card.)
For merchants, EMV is just another thing to have to implement — at the cost of $300 to $400 per terminal — and why bother, if the banks aren’t even issuing chip-equipped cards?
In October 2015, the grand “liability shift” takes effect. From then on, in the event of payment card fraud, whichever party has the lesser security is the one to be stuck with liability. So, if the card issuer has put an EMV chip in the card, but the merchant has not updated their PoS terminals to accept EMV, then the merchant is liable; and vice versa.
“Monopoly Money [Explored],” by Jason Devaun
As Litan explains, attackers are finding ways around EMV. Part of the reason they’re able to do it is that card issuers relax their fraud protection controls on EMV purchases.
She provides the example of a group of attackers in Brazil who were able to complete fake EMV transactions using stolen magstripe data. As she explained in a recent report:
They took the stolen card data and attached to it dummy cryptograms and dummy one-time codes that are part of EMV card transaction sets, and successfully transmitted payment authorization requests over payment processing networks to EMV and non-EMV card issuers across the globe. These fraudulent transactions were subsequently authorized and settled, and the fraud scheme succeeded against non-EMV (only magstripe) U.S. card issuers and EMV card issuers in different countries.
EMV card issuers outside the U.S. authorized these fraudulent EMV transactions because their controls simply looked for the EMV transaction indicator, which was enough for their authorization systems to approve the card payment request. The EMV issuers were caught off guard because they had not implemented “handshakes” for the transaction’s EMV cryptograms and one-time codes.
“They relaxed fraud controls,” says Litan, “so they got caught with their pants down.”
Attackers targeting Home Depot stores in Canada found another way around EMV, leveraging the fact that PoS terminals have to accept both EMV and magnetic stripe cards. They infected point-of-sale terminals with malware that social-engineered shoppers. The PoS would simply prompt customers to swipe their cards — even if they had EMV-equipped cards. They’d lift the magstripe data, then complete the transaction through the EMV chip.
Even when tokenization technology is added to the mix, Litan explains that malware authors can steal the magstripe data before it’s tokenized. The only way to prevent that is by implementing point-to-point encryption (P2PE).
“P2PE is really what the retailers are focused on,” says Litan, but unfortunately most P2PE solutions have not yet been PCI-certified, so some retailers are hesitant to deploy them. Merchants get some breaks on their PCI audits if they use P2PE, but only if they use PCI-certified P2PE applications.
“rolled my age,” by john.d.mcdonald
If, because of tokenization, merchants and payment processors don’t need to actually see payment data, then attackers won’t need to steal payment data — they’ll just need to steal tokens.
“Token vaults will become a huge target,” says Pascual. “That’s where the [attackers’] focus will be.”
So why bother with tokenization?
“You could teach a 5-year-old how to skim cards,” says Pascual, but “you’re not going to teach a 5-year-old to break into a token vault.”
“Monopoly Free Parking Ver2,” by StockMonkeys.com.
In September, Apple announced details on the iPhone 6 and Apple Watch, including that the new devices will be equipped with Apple Pay — a contactless mobile payment scheme that tokenizes payments, never communicates credit card data to the merchant, and essentially turns an iPhone into a mini point-of-sale terminal.
As Apple describes it:
With Apple Pay, instead of using your actual credit and debit card numbers when you add your card, a unique Device Account Number is assigned, encrypted, and securely stored in the Secure Element, a dedicated chip in iPhone and Apple Watch. These numbers are never stored on Apple servers.
So, the only point of failure is on the card-holder’s Apple device, not on an Apple server that could be targeted by attackers. There are certainly benefits to that system, but Apple Pay raises a new question: do you want Apple, not merchants, to be responsible for payment data security?
“While for those who work in fraud and security there is still a bit of a question mark,” says Pascual, “the average consumer, they don’t care.”
In any case, Apple Pay is “worlds more secure than what you’re using now,” says Pascual. “Regardless of whether or not Apple has the payment security chops, it’s better than the pedestrian, old-school” magnetic stripe methods that are currently in use.
Litan agrees: “It’s actually very secure,” she says, noting that it is not built on a proprietary Apple tokenization protocol, but rather the EMVCo tokenization standard.
“Monopoly Thimble,” by Rich Brooks
Merchants are more likely to invest in new payment tech if it reduces “friction” — in other words, if it speeds up the transaction process or reduces the number of hoops a potential buyer has to jump through to complete a purchase.
Conversely, any tech that increases friction is usually avoided. Case in point: 3D Secure — the technology behind Verified by Visa, Mastercard Secure Code, and American Express SafeKey.
3D Secure helps prevent fraudulent card-not-present transactions, like those made through online stores. When a user initiates a purchase, they are redirected to a separate web page — the issuing bank’s 3D Secure authentication page. If the card holder authenticates successfully, the transaction will proceed.
3D Secure is “being used pretty extensively in Europe,” says Litan. “But Amazon would never use it,” because it adds friction, eliminating “one-click shopping.”
“Monopoly,” by Mike Mozart
Apple Pay isn’t the only new payment technology out there. There are rumors that Google is testing something called Google Plaso — a point-of-sale system which presumably reduces friction by allowing users to complete purchases simply by telling the cashier their initials.
There’s the “Hidden Mastercard” revealed at CES, which aims to make the transition from magstripe to Chip-and-PIN a bit smoother and more secure. It looks like a card, but it’s really a little computer. The user must authenticate to the card itself, and then is given a one-time card number — which appears on the front of the card and is fed into the magnetic stripe and the EMV chip. Once the purchase is made, the one-time card data is erased.
There’s also Natural Security, a payment technology that uses biometric authentication, which has been around for years, but still hasn’t caught on.
There will, no doubt, be others — but how different will they be, really? Pascual says there’s “so much money tied up in cards,” and it would be at least 10 years before we move away from cards and onto some other form factor.
Further, explains Litan, all of these technologies are still linked to bank accounts. The only payment tech that is truly different are alternative currencies, like Bitcoin, which comes with its own set of problems.
Do any of the new payment technologies pique your fancy? Do you think Apple Pay is all it’s cracked up to be? Do you think EMV adoption will really accelerate when the liability shift happens in October? Let us know in the comments below.
Sara Peters is Senior Editor at Dark Reading and formerly the editor-in-chief of Enterprise Efficiency. Prior that she was senior editor for the Computer Security Institute, writing and speaking about virtualization, identity management, cybersecurity law, and a myriad … View Full Bio