5 Aug 2012

Improving Credit and Debit Card Security

For someone who understands computer and network security, credit and debit cards are appallingly insecure. Do we really have trillions of dollars on such an insecure system? Here are some ideas (hardly any original) for how we can improve the system.

This system requires a big regulatory stick -- a bank that doesn't follow any of these requirements should be held liable for all loss occurring on their customers' cards except, of course, in cases where it can be proved that the customer was negligent.

1. Passphrases should be supported everywhere -- ATMs, point of sale systems and Internet banking. Any place that requires you to type in a PIN should also accept a password, which are more secure, and no harder to remember for the same security level. Pass phrases, in fact -- all systems should support passphrases of least 1000 characters, with letters, numbers, punctuation and spaces.

2. Cards should support passphrases for transactions in stores and other places. All customers should by default be given such cards, and those who already have a card that can be used without a passphrase should be entitled to and encouraged to go for a free upgrade. Cards without passphrases should be given only to people who explicitly ask for them. Security should be the default.

3. The passphrase used at the point of sale should be different from that used for ATMs, for additional security. Again, someone can choose to use the same passphrase in both places, but the system should support a more secure choice.

4. Don't print the CVV on the card, so that a lost card can't be used for online transactions. After all, a CVV is not required for transactions in person, so why print it on the card?

5. When you enter your passphrase or PIN, you should do so on the card, not on the reader, as a defense against modified readers or ATM machines. This requires the card to be a smart card.

6. Your credit or debit card should give different information to the reader each time, and this information should be one time use only, so that a skimmer is useless.

7. Haven't you found it odd that in a restaurant, you give a tip after the credit card has been swiped? This means that they can charge whatever they want.

8. Restaurants and all other establishments should be required to swipe a customer's card in their presence.

9. Credit and debit cards should have the customer's photo on them. Every customer who doesn't have a photo card should be entitled to and encouraged to go for a free upgrade. People can still opt out, but security should be the default.

10. Banks should be required to send SMS and email notifications for all significant transactions. This isn't the case today for some international transactions.

11. Many people use a credit card in addition to a debit card because it's safer, in that you can dispute a fradulent transaction more easily and, even if it's resolved to your favor, you don't have to pay the money first and get it back later, like with a debit card. Because of this, people carry a debit and a credit card, which is less secure than carrying only one card.

Eliminate this by saying that if the bank gives X days to report a fradulent credit card transaction, it should give at least the same time for the owner to report a fradulent debit card transaction. And, as soon as you dispute a transaction, the bank must immediately and automatically refund the money while it resolves the dispute, after which it might withdraw the money again. Basically, make debit cards as safe to use anywhere as credit cards.

Similarly, also mandate no-charge cash advances on credit cards, as long as its paid for in the next bill.

With these two changes, people will have less of a need to carry both a credit and a debit card -- either one can safely take the role of the other.

A bank that fails to adhere any of these should be held liable for all fraud, not the customer, again, except when it can be proved that the customer is negligent. Yes, these changes will cost money, but having trillions of dollars riding on an insecure system is not acceptable. We can't forever be stuck in the past.

(reposted from https://plus.google.com/104797602913203220453/posts/5mbmRcajtCS)

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