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Zappos Breach’s Payment Card Pledge Very Risky

January 18th, 2012

The dramatic nature of killing all passwords certainly suggests that management believed it was a recent incident, in the sense that it would seem unnecessary if the breach had been eight months old. Then again, whenever it was discovered, cleaning out all password files is also the best way to cut losses, so that action may not reveal that much about when the incident had been discovered.

Given that the incident wasn’t announced until Sunday, this case may be eligible for an award for the fastest retail data breach class-action lawsuit ever filed. The lawsuit, on behalf of a Texas customer of Zappos “and on behalf of 24 million similarly situated persons,” was filed on Monday (Jan. 16) in federal court in Kentucky.

That lawsuit filing stated facts that differed from the Zappos statement, and one of the attorneys involved in the case, Ben Barnow, wouldn’t say where that information came from. For example, where the Zappos statement referred to a single “criminal,” the lawsuit said the information was “stolen by hackers.” Beyond the plural versus singular issue, a hacker is simply a resourceful programmer. (We hate the maligning of the honorable hacker title.) Then again, the reference to “stolen” probably gets us to the same place. (But the attacker might not have been a hacker. The attacker might have been lazy and uncreative.)

More seriously, though, the lawsuit said the attack hit “the company’s unprotected servers located in western Kentucky.” Unprotected? Had it claimed “insufficiently protected” or “inadequately protected,” that would have made more sense. Are the attorneys actually saying that the attacked server was completely unprotected? If true, that would be E-Commerce heresy. Barnow declined to clarify.

My favorite part of the statement was a wonderful line, where Zappos’ Hsieh showed the math to support the decision to temporarily shutdown the call center. The move was absolutely correct. But seeing the numbers spelled out for employees—and for customers—is wonderfully powerful.

“We have made the hard decision to temporarily turn off our phones and direct customers to contact us by E-mail, because our phone systems simply aren’t capable of handling so much volume,” the CEO penned. “If 5 percent of our customers call, that would be more than 1 million phone calls, most of which would not even make it into our phone system in the first place.”

Word choices—and informational holes—aside, Zappos’ move looks to be a picture-perfect example of how such a data breach response should be done.

  • Halt the damage immediately (clear out all passwords).
  • Assign everyone to get involved to make the pain as short-lived as possible.
  • Take a painful hit for a few days on revenue and operations and get—in theory—done with the bloody thing relatively quickly.

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One Comment | Read Zappos Breach’s Payment Card Pledge Very Risky

  1. Jay Gould Says:

    Zappos is giving everyone a lesson on managing a data breach that everyone who may ever have to deal with the problem should look to for guidance. There is a lot to be learned. People understand that such things happen and, unless you’ve been egregiously lax in protecting their account information, will give you the benefit of the doubt. How you respond to the crisis will be what determines whether or not the issue is resolved with minimal damage or it deteriorates into a PR disaster. As I said, Zappos is giving us a real-time lesson on how to do crisis management properly and we should all be taking notes.

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Most Recent Comments

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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