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Take On Payments, a blog sponsored by the Retail Payments Risk Forum of the Federal Reserve Bank of Atlanta, is intended to foster dialogue on emerging risks in retail payment systems and enhance collaborative efforts to improve risk detection and mitigation. We encourage your active participation in Take on Payments and look forward to collaborating with you.

Take On Payments

February 12, 2018


If the Password Is Dying, Is the PIN Far Behind?

Back in January, I wrote a post that highlighted the rising incidence of lost-and-stolen card fraud in the United Kingdom. I concluded that the decades-old PIN solution for the card-present environment is now showing signs of weakness. Results of a recent Minneapolis Fed survey of 283 financial institutions offer some validity to my conclusion: the survey found that losses on PIN-based debit increased by 50 percent from 2015 to 2016. In fact, 81 percent of the respondents reported fraud losses from PIN-based debit, compared to only 77 percent for credit cards.

The news wasn't all bad for PIN-based debit. Signature-based debit and credit cards still had more fraud attempts than any other payment instrument. At 63 percent, signature debit fraud actually had a higher increase in fraud losses from 2015 to 2016 than did PIN debit. The PIN is a far superior verification method for card payments, but I'm willing to bet that the PIN, much like the password, has become less effective.

Is this coming at a time when the PIN is about to become more prominent? In late January, the PCI Security Standards Council announced a new security standard for software-based PIN entry, also known as "PIN on glass." This standard specifies the security requirements for accepting a PIN on a mobile point-of-sale device such as a Square card reader.

As an aside, I am a bit surprised by this announcement. Apparently, mobile phones are safe enough for entering PINs, but when someone uses a pay wallet such as Apple Pay or Samsung Pay, the card's PAN, or primary account number, is tokenized for security purposes. I'll save a discussion of this inconsistency for another post.

People have been talking for years now about how the password has passed its prime as a standalone authentication solution. Yet it continues to live, and it's as difficult as ever to mitigate its vulnerabilities. In my opinion, attempts to do so have increased customer friction and had minimal impact. I think the PIN is following a similar path. It creates customer friction (especially for me as I now have different PINs for multiple cards that I struggle to keep straight) and is losing its effectiveness, according to the data I mentioned in the first paragraph. But it appears that, with the PCI's recent announcement, the PIN could become even more prevalent for cardholders. Is it time, in the name of security and customer friction, for us to replace PINs and passwords with more modern authentication technologies such as biometrics?

Photo of Douglas King By Douglas A. King, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

 

February 12, 2018 in authentication , banks and banking , cards , chip-and-pin , consumer fraud , debit cards , EMV , mobile payments | Permalink | Comments ( 0)

February 5, 2018


Elements of an Ethical Data Policy

In my last post, I introduced the issue of ethical considerations around data collection and analytics. I asked if, along with the significant expansion of technical capabilities over the last five years, there had been a corresponding increase in awareness and advancement of the ethical issues of big data, such as privacy, confidentiality, transparency, protection, and ownership. In this post, I focus on the disclosures provided to users and suggest some elements concerning ethics to include in them.

The complexities of ethics policies

As I've researched the topic of big data, I've come to realize that developing a universal ethics policy will be difficult because of the diversity of data that's collected and the many uses for this data—in the areas of finance, marketing, medicine, law enforcement, social science, and politics, to name just a few.

Privacy and data usage policies are often disclosed to users signing up for particular applications, products, or services. My experience has been that the details about the data being collected are hidden in the customer agreement. Normally, the agreement offers no "opt-out" of any specific elements, so users must either decline the service altogether or begrudgingly accept the conditions wholesale.

But what about the databases that are part of public records? Often these public records are created without any direct communication with the affected individuals. Did you know that in most states, property records at the county level are available online to anyone? You can look up property ownership by name or address and find out the sales history of the property, including prices, square footage, number of bedrooms and baths, often a floor plan, and even the name of the mortgage company—all useful information for performing a pricing analysis for comparable properties, but also useful for a criminal to combine with other socially engineered information for an account takeover or new-account fraud attempt. Doesn't it seem reasonable that I should receive a notification or be able to document when someone makes such an inquiry on my own property record?

Addressing issues in the disclosure

Often, particularly with financial instruments and medical information, those collecting data must comply with regulations that require specific disclosures and ways to handle the data. The following elements together can serve as a good benchmark in the development of an ethical data policy disclosure:

  • Type of data collected and usage. What type of data are being collected and how will that data be used? Will the data be retained at the individual level or aggregated, thereby preventing identification of individuals? Can the data be sold to third parties?
  • Accuracy. Can an individual review the data and submit corrections?
  • Protection. Are people notified how their data will be protected, at least in general terms, from unauthorized access? Are they told how they will be notified if there is a breach?
  • Public versus private system. Is it a private system that usually restricts access, or a public system that usually allows broad access?
  • Open versus closed. Is it a closed system, which prevents sharing, or is it open? If it's open, how will the information will be shared, at what level, and with whom? An example of an open system is one that collects information for a governmental background check and potentially shares that information with other governmental or law enforcement agencies.
  • Optional versus mandatory. Can individuals decline participation in the data collection, or decline specific elements? Or is the individual required to participate such that refusal results in some sort of punitive action?
  • Fixed versus indefinite duration. Will the captured data be deleted or destroyed on a timetable or in response to an event—for example, two years after an account is closed? Or will it be retained indefinitely?
  • Data ownership. Do individuals own and control their own data? Biometric data stored on a mobile phone, for example, are not also stored on a central storage site. On the other hand, institutions may retain ownership. Few programs are under user ownership, although legal rights governing how the data can be used may be made by agreement.

What elements have I missed? Do you have anything to suggest?

In my next post, I will discuss appropriate guiding principles in those circumstance when individuals have no direct interaction with the collection effort.

Photo of David Lott By David Lott, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed


February 5, 2018 in consumer protection , innovation , regulations | Permalink | Comments ( 0)

January 29, 2018


Big Data, Big Dilemma

Five years ago, I authored a post discussing the advantages and pitfalls of "big data." Since then, data analytics has come to the forefront of computer science, with data analyst being among the most sought-after talents across many industries. One of my nephews, a month out of college (graduating with honors with a dual degree in computer science and statistics) was hired by a rail transportation carrier to work on freight movement efficiency using data analytics—with a starting salary of more than $100,000.

Big data, machine learning, deep learning, artificial intelligence—these are terms we constantly see and hear in technology articles, webinars, and conferences. Some of this usage is marketing hype, but clearly the significant increases in computing power at lower costs have empowered a continued expansion in data analytical capability across a wide range of businesses including consumer products and marketing, financial services, and health care. But along with this expansion of technical capability, has there been a corresponding heightened awareness of the ethical issues of big data? Have we fully considered issues such as privacy, confidentiality, transparency, and ownership?

In 2014, the Executive Office of the President issued a report on big data privacy issues. The report was prefaced with a letter that included this caution:

Big data analytics have the potential to eclipse longstanding civil rights protections in how personal information is used in housing, credit, employment, health, education, and the marketplace. Americans' relationship with data should expand, not diminish, their opportunities and potential.

(The report was updated in May 2016.)

In the European Union, the 2016 General Data Protection Regulation was adopted (enforceable after 2018); it provides for citizens of the European Union (EU) to have significant control over their personal data as well as to control the exportation of that data outside of the EU. Although numerous bills have been proposed in the U.S. Congress for cybersecurity, including around data collection and protection (see Doug King’s 2015 post), nothing has been passed to date despite the continuing announcements of data breaches. We have to go all the way back to the Privacy Act of 1974 for federal privacy legislation (other than constitutional rights) and that act only dealt with the collection and usage of data on individuals by federal agencies.

In a future blog post, I will give my perspective on what I believe to be the critical elements in developing a data collection and usage policy that addresses ethical issues in both overt and covert programs. In the interim, I would like to hear from you as to your perspective on this topic.

Photo of David Lott By David Lott, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

January 29, 2018 in consumer protection , innovation , regulations | Permalink | Comments ( 0)

January 22, 2018


Business Email Compromise Is a Growing Threat

In April 2016, I wrote about the work of the FBI’s Internet Crime Center (IC3) and the rise of reported cases of business email compromise (BEC) attempts. BEC involves what looks like a legitimate email from another employee or customer requesting a transfer of funds. Since I wrote that post, BEC attempts—both successful and prevented—have continued to increase dramatically. The latest figures from the IC3 website show that from January 2016 through June 2017, BEC attempts totaled $223 million, with losses at $148 million. BEC scams are also attracting a wider variety of criminals, including individuals, small gangs, and professional groups.

At first, the fraudsters primarily targeted financial institutions and businesses dealing in frequent and large-value transfers, such as law firms handling real estate or trust account transactions. But as fraudsters have proliferated, they've begun targeting companies of all sizes. Last May, the FBI issued another BEC alert, which includes useful descriptions of BEC scenarios based on actual cases.

The BEC attempt is usually not the start of the criminal activity but rather the culmination of an extended effort that began with the criminal hacking a business's financial records. The hack may have occurred when an employee opened an email with a bogus attachment or link that loaded malware on the computer, or when the criminal purchased a user's credentials off the dark web. Once the fraudster has accomplished the intrusion, a period of information gathering begins. The fraudster obtains current accounts payable records, wire transfer transactions, and transfer procedures, and may also comb social media for information that could be useful. Perhaps a targeted company official will be out of town attending a conference, or on vacation and difficult to contact.

BEC attempts generally have the following common elements:

  • It is a funds transfer request.
  • The request is based on a routine event or legitimate transaction.
  • The bank account where the transfer is to be sent is new or has been modified in some way from previous transactions, or the requested method of payment is different.
  • The request often carries a sense of urgency—late fees or breach of a contract are threatened—to encourage bypassing of controls.

To avoid falling into this trap, it is imperative that businesses have strong funds transfer controls that are monitored to ensure compliance. Also, businesses should have a continuing program of internal education (and perhaps testing) for all employees involved in funds transfer requests. The FBI suggests that the best control is to verify transactions through a second, independent means, similar to two-factor authentication.

There are several actions a business can take if it becomes a victim of BEC:

  • Immediately contact the receiving financial institution to see if the funds can be frozen.
  • Notify all relevant employees of the attack—multiple employees are often targeted.
  • Contact the FBI or the Secret Service.
  • Conduct an internal investigation to determine the point of compromise, and then take the necessary corrective action.

Finally, financial institutions with customer education programs should consider providing business customers with materials regarding this threat.

We are interested in hearing from you about your experiences with BEC and preventive practices. Criminals are constantly changing their attack methods and sharing information is a valuable way to help develop best practices.

Photo of David Lott By David Lott, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

 

January 22, 2018 in banks and banking , data security , fraud , malware | Permalink | Comments ( 0)

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