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Weak US Card Security Made Target a Juicy Target

Target Data Breach

NEW YORK (AP) -- The U.S. is the juiciest target for hackers hunting credit card information. And experts say incidents like the recent data theft at Target's stores will get worse before they get better.

That's in part because U.S. credit and debit cards rely on an easy-to-copy magnetic strip on the back of the card, which stores account information using the same technology as cassette tapes.

"We are using 20th century cards against 21st century hackers," says Mallory Duncan, general counsel at the National Retail Federation. "The thieves have moved on but the cards have not."

In most countries outside the U.S., people carry cards that use digital chips to hold account information. The chip generates a unique code every time it's used. That makes the cards more difficult for criminals to replicate. So difficult that they generally don't bother.

"The U.S. is the top victim location for card counterfeit attacks like this," says Jason Oxman, chief executive of the Electronic Transactions Association.

The breach that exposed the credit card and debit card information of as many as 40 million Target customers who swiped their cards between Nov. 27 and Dec. 15 is still under investigation. It's unclear how the breach occurred and what data, exactly, criminals have. Although security experts say no security system is fail-safe, there are several measures stores, banks and credit card companies can take to protect against these attacks.

Companies haven't further enhanced security because it can be expensive. And while global credit and debit card fraud hit a record $11.27 billion last year, those costs accounted for just 5.2 cents of every $100 in transactions, according to the Nilson Report, which tracks global payments.

Another problem: retailers, banks and credit card companies each want someone else to foot most of the bill. Card companies want stores to pay to better protect their internal systems. Stores want card companies to issue more sophisticated cards. Banks want to preserve the profits they get from older processing systems.

Card payment systems work much the way they have for decades. The magnetic strip on the back of a credit or debit card contains the cardholder's name, account number, the card's expiration date and one of two security codes. When the card is swiped at a store, an electronic conversation is begun between two banks. The store's bank, which pays the store right away for the item the customer bought, needs to make sure the customer's bank approves the transaction and will pay the store's bank. On average, the conversation takes 1.4 seconds.

During that time the customer's information flows through the network and is recorded, sometimes only briefly, on computers within the system controlled by payment processing companies. Retailers can store card numbers and expiration dates, but they are prohibited from storing more sensitive data such as the security codes printed on the backs of cards or other personal identification numbers.

Hackers have been known to snag account information as it passes through the network or pilfer it from databases where it's stored. Target says there is no indication that the three or four-digit security codes on the back of customer credit cards were stolen. That would make it hard to use stolen account information to buy from most Internet retail sites. But because the magnetic strips on cards in the U.S. are so easy to generate, thieves can simply reproduce them and issue fraudulent cards that look and feel like the real thing.

"That's where the real value to the fraudsters is," says Chris Bucolo, senior manager of security consulting at ControlScan, which helps merchants comply with card processing security standards.

Once thieves capture the card information, they check the type of account, balances and credit limits, and sell replicas on the Internet. A simple card with a low balance and limited customer information can go for $3. A no-limit "black" card with the security number printed on the back of the card can go for $1,000, according to Al Pascual, a senior analyst at Javelin Strategy and Research, a security risk and fraud consulting firm.

To be sure, thieves can nab and sell card data from networks processing cards with digital chips, too, but they wouldn't be able to create fraudulent cards.

Credit card companies in the U.S. have a plan to replace magnetic strips with digital chips by the fall of 2015. But retailers worry the card companies won't go far enough. They want cards to have a chip, but they also want each transaction to require a personal identification number, or PIN, instead of a signature.

"Everyone knows that the signature is a useless authentication device," Duncan says.

Duncan, who represents retailers, says banks want to preserve the higher profits they can get when a signature is needed because there are fewer signature processing networks, and less price competition. The higher profits outweigh the cost of fraud, Duncan says.

"Compared to the tens of millions of transactions that are taking place every day, even the fraud that they have to pay for is small compared to the profit they are making from using less secure cards," he says.

Even so, there are a few things retailers can do, too, to better protect customer data. The most vulnerable point in the transaction network, security experts say, is usually the merchant.

"Financial institutions are more used to having high levels of protection," says Pascual. "Retailers are still getting up to speed."

The simple, square, card-swiping machines that consumers are used to seeing at most checkout counters are hard to infiltrate because they are completely separate from the Internet. But as retailers switch to faster, Internet-based payment systems they may expose customer data to hackers.

Retailers need to build robust firewalls around those systems to guard against attack, security experts say. They could also take further steps to protect customer data by using encryption, technology which scrambles the data so it looks like gibberish to anyone who accesses it unlawfully. These technologies can be expensive to install and maintain, however.

Thankfully, individual customers are not on the hook for fraudulent charges that result from security breaches. But these kinds of attacks do raise costs -and, likely, fees for all customers.

"Part of the cost in the system is for fraud protection," Oxman says. "It costs money, and someone's going to pay for it eventually."

Join the discussion

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Urology South PC December 22 2013 at 10:34 PM

This is one example where the Ged Gov should be heavy handed and pass a law forcing the cards to be secure, forcing the banks to be secure, and forcing the stores to have a standard protection against hackers. Hackers pick the weak sites, not the robust sites to hack (because they simply cant hack the good sites and give up on them.

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mgh406 December 22 2013 at 9:02 PM

The banks and consumer credit industry will squeeze every last penny from the system until the fraud costs exceeds the cost of 21st Century security. In the end the consumer will pay.

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whitcombc December 22 2013 at 9:01 PM

Along with the really silly comments on this site is the fact that our wonderful country has been repeating to itself - over and over - that everything we do is exceptional because WE do it. It is still a common argument against Health Care Reform (for example). "The US has the best health care in the world" is shouted out as fact. Nope! We have the #43 best health care in the world. And "we have a Bank and Credit System that is the envy of every other country".... - actually we don't. We have been the laughing stock of the rest of the world's developed country because most of them have STOPPED doing it our way. Canadians have trouble buying gas when they drive in the US because their cards are too secure for our 1990 era readers. WE have met our enemy - it IS us!

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1 reply
rocker whitcombc December 22 2013 at 9:11 PM

very true

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jhps32 December 22 2013 at 8:59 PM

we as Americans think that we are first rate, but it seems that other countries are light years ahead of us when it comes to credit/debit card scanning and this is a prime example

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linda lee December 22 2013 at 8:58 PM

i went on vacation in s/c for thanksgiving came home and my bank card was hacked ,this is the second time .Last year even macys called me and asked if i had just orderd something i said no .This was not even my macys card lucky for me the girl called she said they did not put the order through it was for pots and pans 450.00 .this is just getting out of control .even if you cancel all you credit card s then you dont have a credit report if you want to buy house or car .We live in a very different wourld today sad :(

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Eve Locke December 22 2013 at 8:56 PM

Good idea, American companies ought to get their fngers out of their ass's and protect their depositors.

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almnaples December 22 2013 at 8:55 PM

Let's get on the ball - tomorrow

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paulsant1 December 22 2013 at 8:55 PM

Maybe using your Finger print could work

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lbrycemaynor December 22 2013 at 8:55 PM

"...even the fraud that they have to pay for is small compared to the profit they are making from using less secure cards,..." There's your answer.

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8531rdu December 22 2013 at 8:53 PM

I think it is time for the United States to get out of the 19 th century. We have ervolved.

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1 reply
adjrk31697 8531rdu December 22 2013 at 8:57 PM

When youu say we, I hope you are not refering to the banking and commercial institutions that put profits above safety. and consumers that put cheapness above all else.

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