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Federal Reserve Listens To Security Vendor CEO Rip Into PCI

October 5th, 2011

This is a very valid point. Indeed, a potentially more serious issue is the power to choose to not levy those punishments. The inconsistency of the punishments creates an environment where retailers have no certainty of punishment, which undercuts the incentives the fines are supposed to establish. Fines and discounted interchange rates are the only tools PCI has, given that no one really believes Visa would really tell Target, Wal-Mart or Home Depot that they’re not allowed to take credit-card payments anymore.

In her speech, MagTek’s Hart then zeros in on more Magtek-specific concern, which is the hardship on vendors of having to get existing hardware approved by the Council. She cited as an example card readers MagTek launched in 2005 (pre-PCI days).

“We have also worked for the last two years with many industry players on an ANSI standard for encryption. As of last week, PCI has announced that all magstripe readers will soon be subject to new rules and bureaucratic certifications,” she said. “In other words, now all reading hardware will require the PCI blessing from a certified PCI lab. You may think this is a good idea, but it is actually ridiculous.”

Her concern is that the process is trying to protect data that is already widely available. “The cardholder data on a magstripe is in the clear. It consists of a bunch of zeros and ones. It is a machine-readable magnetic barcode. Twenty of the characters it contains are printed or embossed on the front of the card. The other sixteen characters can be viewed just as easily. They are not secret. Encryption, no matter how strong, cannot protect data that has already been written on the blackboard. The serial number on a $20 bill cannot be protected with encryption, because anyone can read it. And so you might say, well not everyone can read the data on the stripe, so let’s add encryption to protect it. If you think of the data on the magstripe as written in braille rather than binary code, just because you can’t read braille does not mean the data is safe.”

She continued: “Why should merchants and processors be forced to protect data expensively and needlessly? It starts out in the clear on the card and it ends up in the clear at the brands, but in the middle it’s your responsibility to shroud it. And now PCI will dictate just exactly how to do it.”

Hart then got pointed again: “We know how to protect the card data and PCI doesn’t, or I should say they do know but choose to look the other way. You must understand, PCI is not about fraud reduction or cardholder data protection. Compliance is the name of the game. That’s how you are measured—not by fraud reduction.”

That last point is quite interesting. It’s true, but it’s not clear how it would be done or whether it would even advance anyone’s objectives. Compliance is, in theory, within the control of a retailer (assuming the retailer has an unlimited supply of money, but that’s a different column). Fraud reduction involves what bad guys do, which is out of the control of merchants. It’s like protecting a bank. You can buy an ultra-powerful safe and hire armed guards, but if you put enough money in that safe, the criminals will simply outgun you. Fines and other punishments need to be focused on what the retailer can control


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Why Did Gonzales Hackers Like European Cards So Much Better?

I am still unclear about the core point here-- why higher value of European cards. Supply and demand, yes, makes sense. But the fact that the cards were chip and pin (EMV) should make them less valuable because that demonstrably reduces the ability to use them fraudulently. Did the author mean that the chip and pin cards could be used in a country where EMV is not implemented--the US--and this mis-match make it easier to us them since the issuing banks may not have as robust anti-fraud controls as non-EMV banks because they assumed EMV would do the fraud prevention for them Read more...
Two possible reasons that I can think of and have seen in the past - 1) Cards issued by European banks when used online cross border don't usually support AVS checks. So, when a European card is used with a billing address that's in the US, an ecom merchant wouldn't necessarily know that the shipping zip code doesn't match the billing code. 2) Also, in offline chip countries the card determines whether or not a transaction is approved, not the issuer. In my experience, European issuers haven't developed the same checks on authorization requests as US issuers. So, these cards might be more valuable because they are more likely to get approved. Read more...
A smart card slot in terminals doesn't mean there is a reader or that the reader is activated. Then, activated reader or not, the U.S. processors don't have apps certified or ready to load into those terminals to accept and process smart card transactions just yet. Don't get your card(t) before the terminal (horse). Read more...
The marketplace does speak. More fraud capacity translates to higher value for the stolen data. Because nearly 100% of all US transactions are authorized online in real time, we have less fraud regardless of whether the card is Magstripe only or chip and PIn. Hence, $10 prices for US cards vs $25 for the European counterparts. Read more...
@David True. The European cards have both an EMV chip AND a mag stripe. Europeans may generally use the chip for their transactions, but the insecure stripe remains vulnerable to skimming, whether it be from a false front on an ATM or a dishonest waiter with a handheld skimmer. If their stripe is skimmed, the track data can still be cloned and used fraudulently in the United States. If European banks only detect fraud from 9-5 GMT, that might explain why American criminals prefer them over American bank issued cards, who have fraud detection in place 24x7. Read more...

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