End of the Magnetic Stripe

In 1956 my senior colleagues in "Advanced Product Planning" at IBM Research wrote a "blue sky" paper in which they visualized our modern token based retail payment system.  They could not foresee the personal computer, the mobile computer, or the Internet but they did get cards right.  Frankly, I do not think they gave enough thought to the fraud that might come with it.  It was to be another generation before we began to worry about "Data Security and Privacy" as we called what we now call "cyber security."

While it is long over due, there is finally a plan with a date certain for removing the magnetic stripe from credit and debit cards.  https://www.mastercard.com/news/perspectives/2021/magnetic-stripe/    I have argued for a plan with a schedule https://tinyurl.com/paymentindustrysecurity and I should not whine about how far out it is. This is a major change and those few merchants who cannot yet process EMV, much less contactless, deserve some time to catch up.  However, 13 years seems a little much.  

As with other innovations in this space, the plan is for the US to trail the rest of the world.  We were the last to get EMV and we will be last to get rid of the mag-stripe.  There will continue to be a lot of fraud exploiting this fundamental vulnerability in the window in this plan, but better late than never.

Perhaps there is some difficulty in getting rid of this obsolete mechanism that I do not understand.  Mastercard is clearly not bringing to this effort the pressure that it brought on the industry to adopt EMV or the Payment Card Industry Data Security Standards (PCI DSS). 

Comment:   Now I feel better.  A colleague reminded me that we do not have to rely upon the brands to eliminate the magnetic stripe; the consumer may do it for use  Cards may well have disappeared long before Mastercard's unrealistic timeline for removing the mag-stripe.  

I am close to cardless already.  I carry one card; however, I rarely have to use it; I usually pay with my watch.  I use my card at my dentist and, of course, in restaurants.  (In Europe they do not even need cards in restaurants.  On a recent ferry trip, I asked if I could use Apple Pay.  The bartender simply put his wireless point of sale device on the bar, just like in European restaurants.) 

Because of the way I carry the one card, on two recent excursions into NYC, I simply forgot it.  When the waiter presented the check, instead of putting down my card, I simply put down my iPhone with an  image of my card.  The waiter took it away without comment and returned it without comment.  I signed the credit card receipt and we were done.  

Most of my retail transactions are done with my watch.  For e-commerce, I prefer merchants who offer PayPal, Apple Pay, or Google Pay.  Many already do.  More will do so as they learn that it protects them from fraud, perhaps at a higher, but efficient, transaction rate.  

As I think about, it is almost too late to worry about the mag-stripe.  The brands can do more to resist fraud by promoting check-out proxies, than by eliminating the mag-stripe.

Apple Titanium Card

I have been waiting for the delivery of my Titanium Card to be delivered to write this evaluation.  Read it in the context of my last post.  

The card is delivered via FedEx in a large envelope.  There is a return address but it does not say "Apple."  This resists theft of the card in transit.

Inside the FedEx envelope is a tamper evident 4.5" x 6.25" x 0.25" corrugated cardboard package containing the card.  This protects against tampering with or skimming the card in transit.  

While a signature is not required for delivery, one gets a notification of delivery.  This may narrow the window of opportunity for theft from the doorstep.  

Only after receipt does one see the button in the Wallet App to "activate" the card.  This resists any use of the card prior to receipt by the legitimate owner.  

While the owner's name is on the face of the card, the card number, expiration date, and the CVV are not.  While the number is on the magnetic strip, unlike with all other cards, it is different from the number that one would use at an e-commerce site.  Thus, the only way that one might monetize knowledge of the number would be to use it to counterfeit a card.  

Note that any fraudulent use of the number on the stripe will show up immediately on the owner's iPhone so that the transaction can be reported as fraudulent and the number can be reported as compromised.  Skimming the number and counterfeiting a card for one or two uses is a high hurdle.  

The value on the magnetic stripe, provided for backwards compatibility, on a card which will be used sparingly, is a limited vulnerability.  From a security perspective, consumers should prefer Apple Pay (using iPhone of Apple Watch), EMV, manual entry of the number (from the iPhone Wallet App), and swiping the magnetic stripe in that order.  While the magnetic stripe is more convenient than manual entry, many users may never have to use either.  As point of sale devices are modernized, the requirement for any alternative to contactless or "chip" will decline.  

Finally, in the app, one can disable and enable the card.  Thus one can carry the card while mitigating the risk of fraudulent use should it be lost or stolen.  Since I expect the use of the Titanium card to be sparse, mine remains disabled by default.  Others may choose to leave it enabled by default, disabling it only should it be lost or stolen.

The vulnerability of the number on the magnetic stripe is not limited to the Titanium card; so far it is not possible to get any other credit card without this vulnerability.  On the other hand, the Titanium card does not have the vulnerability of having the primary account number, the expiration date, and the CVV on the face.  Therefore, if one is going to carry a credit of debit card with a number in the clear on the magnetic stripe, the Titanium card is the clear favorite.  

(Incidentally, I convinced myself.  I got the Titanium card, intending to put it in the drawer and never carry it.)

MasterCard to Eliminate Signatures

MasterCard has announced that in the US and Canada, it will no longer require signatures on credit card transactions.  (PINs will continue to be required on debit card transactions.)   MC says that this will be more convenient for the customer and that it will rely on other (unnamed) mechanisms and processes for security.  Let us look at some.

First, many issuers use computer aided mechanisms to detect fraudulent use by looking at such clues as location and other patterns of use.  Most of us have had calls from our banks checking on the legitimacy of activity.

In theory, the required signature resists fraudulent use of lost or stolen cards.  In practice, not so much.  Even when clerks reconciled the signature on the check to the one on the card, it was an imperfect mechanism.  In modern systems, where no one really reconciles the signature, the best that the mechanism can do is to permit the consumer to recognize disputed items that he really did sign. However, for the most part, issuers simply accept the word of the consumer that a transaction is fraudulent.  The signature does not come into play. 

The best way to resist the fraudulent use of lost or stolen cards is to check that a proffered card has not been reported lost or stolen.  This works well in the US and Canada, where most transactions take place on line.  In countries where many transactions take place off line, PINs are used. 

American Express CEO, Kenneth Chennault told President Obama that Am Ex detects many fraudulent transactions within 60 seconds by sending a notification of use to the consumer’s mobile or e-mail in real time. 

Bank of America and others resist fraudulent use by permitting the consumer to turn the card on and off using an app.  Again, works well where most transactions are on line. 

Android, Apple, and Samsung Pay resist fraudulent use by simply taking the card out of the transaction and substituting a digital token for the credit card number.  Lost mobile phones resist fraudulent reuse with PINs for security and biometrics, e.g. facial and fingerprint recognition, for convenience. 

On line merchants have never had the benefit of signatures but  can resist fraud by using PayPal or other proxies instead of accepting credit cards at check out.  Where the merchants cooperate and the consumer uses Ámerican Express at checkout, AmEx will prompt the user for a one-time-password sent to the users mobile.  This protects the merchant, the consumer and AmEx.  All of these resist “card not present” fraud. 

Only the brands and issuers really know how necessary and effective signatures and PINs are: they take the risk when they are not required.

The fundamental vulnerability in the retail payment system is the credit card number in the clear on the magnetic stripe.  Remains a risk to merchants and issuers but is only a nuisance to the consumer. 

In short, the future is mobile, tokenized, cordless, contactless, signature and Pin less, and secure. 

Chip and PIN Compared to Chip and Signature

As we begin on the long process of changing credit cards from the obsolete magnetic stripe technology to smart (EMV) "chip" cards, there has been a lot of criticism of the decision of the credit card issuers not to implement "Chip and PIN."  Much of this discussion has asserted that "Chip and PIN" is more secure than the chosen chip card and signature strategy.  Apparently this position is so obvious that it has stifled analysis.

I assert that Chip and PIN is only marginally more secure than Chip and Signature. It protects against the fraudulent use of lost or stolen cards. However, fraudulent use of lost or stolen cards is only a small portion of the fraud. The largest part uses counterfeit cards; chips resist counterfeiting.

For both the individual and the issuer, the best protection against fraudulent use of lost or stolen cards is to report the card lost or stolen. The individual is now protected against any use of the card. The issuer will revoke the card and is now protected against any online use of the card.

Note that the effectiveness of revocation depends in part upon the market. In the U.S., where most transactions take place online, it is very effective. In markets where the infrastructure is less robust and many transactions take place offline, revocation is less effective. Thus in the U.S. issuers are opting for Chip and Signature while in other markets Chip and PIN is chosen.

Note that only the issuers know what the losses are for fraudulent use of lost or stolen cards is, that is, how much fraud might be reduced by the use of a PIN on all transactions. It is fair to assume that they know what they are doing.

Some have asserted that, in the absence of the PIN, security will rely upon clerks to reconcile a signature on the transaction document to,the reference signature on the card.  For most routine transactions we do not rely upon the clerk to verify the signature or even to touch the card. While in some places we still sign a chit, at checkout stands we sign on a little tablet (I hate them.) No one ever checks the signature unless the transaction is disputed. Said another way, at least in the U.S., we rely mostly on possession of a current card to authenticate most transactions; both signatures and PINs are backup and there is little to choose between them?