Heartland Breach Hit At Its Unencrypted Point

Written by Evan Schuman
January 21st, 2009

Are data thieves now bypassing retailers and hitting payment processors directly? That may be the case if the initial details about the new Heartland Payment Systems breach—where the data from some 100 million cardholders is handled—hold true. (That said, has anyone ever seen the initial information about a major data breach hold true for more than a week?)

Early on Tuesday (Jan. 20), Heartland issued a statement saying that it had been “the victim of a security breach within its processing system in 2008.”

(NOTE: This story has been updated with news of law enforcement closing in on an overseas suspect.)

“We found evidence of an intrusion last week and immediately notified federal law enforcement officials as well as the card brands,” said Robert H.B. Baldwin, Jr., Heartland’s president and chief financial officer, in that statement. “We understand that this incident may be the result of a widespread global cyber fraud operation, and we are cooperating closely with the United States Secret Service and Department of Justice.” The statement also said that “the investigation uncovered malicious software that compromised data that crossed Heartland’s network” last week.

But that statement started to fall apart as Baldwin talked with reporters. The New York Times, for example, reported that Baldwin said Heartland detected the breach when “it was alerted to the activity in late fall.” That’s a far cry from a January 20 statement that says “last week,” unless you want to get really picky about what Heartland classifies as “evidence.”

(GuestView PCI Columnist David Taylor questions whether processors are really any more secure than their retail counterparts, but he offers several tips on how to find out.)

Baldwin also said the breach apparently happened sometime in May 2008.

In addition, the Heartland statement said that “no merchant data or cardholder Social Security numbers, unencrypted personal identification numbers, addresses or telephone numbers were involved in the breach.” Baldwin was quoted as saying that what the cyber thieves did get were “card numbers, expiration dates and, in some cases, cardholder names.”

The most interesting part of his comments about the point of weakness in Heartland’s system, comments that should sound very familiar to most retail security folk: “We have industry-leading encryption, but the data has to be unencrypted to request the information” from the card brands, Baldwin was quoted as saying. “The sniffer was able to grab that authorization data at that point.”

The statement said that both Visa and MasterCard alerted Heartland to “suspicious activity surrounding processed card transactions.”

It’s All In The Details

Initial media coverage of the breach is interesting, mostly because of its efforts to put specific details on a very vague situation. Some reports have guessed that as many as 100 million cards may have been impacted, given the volume of traffic pouring through Heartland. But no one involved in the case, thus far, has indicated how successful this Trojan horse was, in terms of how much data it illegally grabbed.

Comparisons have been made between this breach and the one at TJX, generally arguing that it’s a lot worse. But the preliminary facts don’t support that conclusion.

Assuming the initial data is correct (again, what are the odds?), the sniffer software was on the system beginning in May 2008 and was detected—and presumably neutralized—in late fall. Even if you take that timeframe to its extreme limits and assume that the sniffer was collecting data from May 1 through December 20 (winter officially began on December 21 last year), the TJX breach lasted more than a year and possibly multiple years. Clearly, the longer a sniffer can work undetected, the more valid card data it has the chance to steal.

Plus, the consumer media frequently refers to the TJX breach as having impacted 45 million accounts, when court documents made clear that it was likely more than 100 million.

Still, the facts might eventually show that Heartland’s figures do grant them the worst-breach-ever honor. (Until then, they’ll have to settle with being the Avis of Data Breaches. They’ll just have to try harder.) Avivah Litan, a security analyst with Gartner and one of the better judges these days of what’s a big deal in security, sums it up nicely: “We don’t have enough details but this looks to me to be very serious.”

She doesn’t base that solely on the fact that word had been spreading recently—right before Heartland’s announcement–of a major breach that is shaking up the card brands. She is also basing it on data breach math. The number of card accounts taken is not really the number to be looking at.

A very substantial percentage of the more than 100 million card accounts grabbed in the TJX breach, for example, were already dead—in other words, expired or discontinued or terminated by a bank. A dead card can’t do any harm to a consumer or a bank or a retailer or anyone else. Given that many of the TJX cards taken were grabbed from files—and some were taken live but not used immediately—many of them were already dead. But the nature of the Heartland breach meant that a much higher percentage of its card data—if not a totality of its card data—was live.

That means that the Heartland breach might ultimately expose far fewer total cards while still exposing a much higher percentage of active cards. “One live card is worth infinitely more than millions of dead ones,” Litan said. “We don’t know the time frames at Heartland yet, but three months of active card track 2 data authorization sniffing where there are 100M authorizations a month could be more focused and effective than years of digging into data stores of dead cards.”

The Heartland statement also said, in what was presumably an attempt to be reassuring, that the company “will implement a next-generation program designed to flag network anomalies in real-time.”

It would have been much more reassuring had Heartland said when the program would be implemented and described the nature of the program. True, such details could be helpful to the next group of cyber thieves. But Heartland can’t have it both ways. If it wants to maintain security through stealth, then it can’t discuss details. If the company wants to reassure customers that it will soon be much more secure, then it has to give some credible and specific details.

Vague, undated promises are not especially reassuring from a company that issues a statement about a massive security breach on letterhead that declares it as having “the highest standards” and “the most trusted transactions.” And announcing it on Inauguration Day so that it gets as little media coverage as possible doesn’t help.


3 Comments | Read Heartland Breach Hit At Its Unencrypted Point

  1. Cy Fenton Says:

    David – Is there any info on the customers of Heartland? It would be interesting to hear from the retailers and restaurants that use Heartland for processing.

  2. A reader Says:

    You wrote: The most interesting part of his comments about the point of weakness in Heartland’s system, comments that should sound very familiar to most retail security folk: “We have industry-leading encryption, but the data has to be unencrypted to request the information” from the card brands, Baldwin was quoted as saying. “The sniffer was able to grab that authorization data at that point.”

    This statement, coupled with the almost countless retailer breaches, demonstrates the need for an industrywide rearchitecture of the fundamentals of credit/debit authorization. Just as retailers are trying different schemes to avoid having unencrypted data, the fact that it still has to be cleartext to cross the interfaces between retailer and processor, and processor and bank, demonstrates the flaws in the system.

    Data should be protected in the cardholder’s hands and in the issuing bank’s systems. Nobody in between should ever be trusted with anything other than presenting or carrying encrypted data.

    This technology has existed for over a decade now. The days of routing paper charge slips are over. We don’t need the credit industry continuing to expose the rest of us to horrendous risks because they can’t modernize beyond carbonless paper.

  3. Jestep Says:

    Looking at this from a network security standpoint, I can’t see how there wasn’t someone on the inside helping. Heartland is a large company, with extremely well protected and complex networks. The precision required to find the only spot on the network where this data is not encrypted and put a piece of software that can extract it without tripping any sort of intrusion detection or other alarm is just too unrealistic for me to buy into. Unless their security was grossly less than what should be required, putting any encryption aside, it’s just not very likely that someone who hacked a random computer on the inside could access this point in one of their networks.

    This really leads me to two possible conclusions. First, someone on the inside, most likely in IT or someone with a high level of network access, and a very high knowledge of exactly how their system works, helped plant the software so it couldn’t be found either inherently or by the massive amount of data being extracted. Or second, Heartland had extremely weak security, unacceptably weak, and someone was actually allowed enough time to hack across multiple systems, and had enough time to find a very unique pathway of data, and had enough time to plant some software that was undetected, and extract this huge amount of data without ever being noticed for months.


StorefrontBacktalk delivers the latest retail technology news & analysis. Join more than 60,000 retail IT leaders who subscribe to our free weekly email. Sign up today!

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...

Our apologies. Due to legal and security copyright issues, we can't facilitate the printing of Premium Content. If you absolutely need a hard copy, please contact customer service.