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Risk Management

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Chip & Pain, EMV Will Not Solve Payment Card Fraud

Switching to EMV cards will lower retail fraud, but it's not enough. Here's the good, the bad, and the ugly.

Home Depot, much like Target before it, has responded to its breach with a press release indicating that it will be rolling out Chip and PIN technology. While this is a positive step, it is also a bit of a red herring: Chip and PIN technology alone would have done little to nothing to prevent these breaches.

Chip and PIN is one piece of a larger standard called EMV. This standard defines how chip cards interoperate with point-of-sale terminals and ATMs. It includes the Chip and PIN functionality that we hear so much about as well as Chip and Sign functionality that seems more likely to get rolled out in the US. EMV is not without its flaws.

It's all about the money
The card brands are pushing for EMV to be in place by October 2015 with gas pumps and ATMs allowed an extension until October 2017. The mechanism by which this is being accomplished is a liability shift.

In the US today the bank or card brand is typically responsible for most fraud losses. When the deadlines pass the acquirers will be transferring liability for fraud losses down to whoever isn't using EMV technology. For example, if fraud is committed with an EMV card at a merchant that only supports stripe cards then the merchant will be liable.

The good
The advantage of an EMV card is that the chip is much harder to clone than a magnetic stripe.

The magnetic stripes are like miniature tape cassettes that can easily be overwritten with stolen data while chips are more like miniature computers that cryptographically validate themselves. The chips are not supposed to give up the secret keys that would be necessary in order to create a clone.

Chip and PIN cards also make it more difficult to steal and use a physical card. The thief would need to know the PIN to use the stolen card.

The bad
So far banks in the US are rolling out Chip and Sign cards due to fears about consumer acceptance of PINs. With Chip and Sign it remains possible for a thief to steal a physical card and make a purchase at any store by drawing a squiggle on a piece of paper.

There are deeper problems with the transition though. Not every merchant or bank will support EMV right away so both EMV cards and terminals will continue to support magnetic stripes. Stripe data stolen from a non-EMV merchant can still be used for fraud and unless terminals enforce the use of cards in EMV mode this opens the door to stolen card data being used in magnetic stripe mode regardless of its source.

The ugly
The chip helps verify that the card is legitimate but most EMV terminals read the unencrypted card details off of the chip in nearly the same way that a magnetic stripe terminal reads them now. A compromised point-of-sale terminal could still skim off card details that could be used for fraud elsewhere.

Security researchers have also identified a few different techniques for capturing PINs and an attack that allows an incorrect PIN to be used successfully. EMV terminals are also not immune from people tampering with the terminals themselves, including in the supply chain, and this has already resulted in some real-world breaches.

E-commerce still relies on punching a card number into a website. EMV offers no protection here, cards could be stolen from compromised e-commerce servers and stolen card data could be used to make online purchases.

What, if not EMV?
EMV does lower retail fraud where it is used today because it's easier to steal cards and commit fraud in another geography where EMV is not in use. As other sources of card data dry up we can expect the flaws in EMV that we already know about will be exploited more widely and new exploits will be found. Before too long we will end up right back where we are today.

The real solution to the retail breaches we've been seeing is encryption. By the time the card data gets to the point-of-sale terminal it's too late. Encryption should happen as close to the card as possible, this means in the terminal hardware as the card is read. In this model the only realistic attack a merchant would have to be concerned with is tampering with the terminal hardware itself.

PCI has published the Point-to-Point-Encryption (P2PE) standard to standardize this approach but most merchants are focusing on the migration to EMV instead. I'm afraid that soon after the shift to EMV is complete we will find ourselves making another forced migration to P2PE. Either that or consumers and merchants begin their own migration to alternative payment technologies.

Christopher Camejo is an integral part of the Consulting leadership team for NTT Com Security, one of the largest security consulting organizations in the world. He directs NTT Com Security's assessment services including ethical hacking and compliance assessments. Mr. Camejo ... View Full Bio
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