ATM/debit card fraud resulted in US$2.75 billion

04.08.2005
Von Computing SA

Thieves are increasingly exploiting vulnerabilities in consumer bank account systems, with an estimated three million U.S. consumers victimized by fraud involving automated teller machine (ATM)/debit cards in a recent 12-month period, according to Gartner.

Gartner estimates that in the 12 months ending in May, ATM/debit card fraud in the U.S. generated losses of US$2.75 billion, with an average loss of more than $900. Criminals secretly are obtaining consumer banking account and password information by online phishing and keystroke logging attacks, and then using this information to hack into consumers" ATM accounts.

Most of the losses were covered by banks and other financial institutions that issued the specific ATM/debit cards exploited by thieves. The findings are based on a Gartner survey in May of 5,000 U.S. adults who are active online and demographically representative of the U.S. online adult population.

"Criminals sometimes counterfeit ATM/debit cards with just account numbers and PINs in hand, and they can use this stolen information at ATMs to withdraw cash from a cardholder"s account," says Avivah Litan, vice-president and research director at Gartner. "They succeed when the card-issuing bank is not validating security codes on the magnetic stripe of the card while authorizing transactions."

"These security codes are stored on Track 2 of the magnetic stripe and include PIN offsets and Card Verification Value (CVV) codes," Litan adds. "The codes link the physical card to the customer"s account number. Surprisingly, perhaps as many as half of US-based financial institutions are not validating Track 2 security data while authorizing ATM and PIN debit transactions. Most of these institutions are unaware that they, or the outsourced ATM transactions processor that they rely on, should be doing so."

Banks have the ability to stop these attacks, but many have not taken the extra steps needed to prevent them. Banks can modify their ATM host systems to check for security data on a card"s magnetic strip. This data is unknown to bank customers and, therefore, cannot be phished. Thieves generally cannot duplicate this security data unless they have insider knowledge of the bank"s algorithms and security codes.

"Criminals are seeking out customers of banks that are not validating ATM cards" Track 2 magnetic stripe security data, during cash withdrawal transactions," Litan says. "The hackers call these banks "cashable". The prime candidates are banks with high cash withdrawal limits."

Gartner analysts said banks must protect against all types of fraud committed against checking accounts, regardless of the channel used, such as insider theft, online banking, phone banking, and automated clearing house (ACH) transfers.

"The best defense is a transaction anomaly detection system that compares incoming transactions with profiles of what is expected from the user," Litan says. "Anomalies are flagged for further investigation and/or subsequent interactive authentication of the user, perhaps through a phone call to the user."