Strong Customer Authentication in the Payment Services Directive 2

Within the European Union, since 2007, banks are regulated by the Payment Services Directive. This directive sets out which types of institutions can offer payment services, and what rules they must follow. Importantly for customers, these rules include in what circumstances a fraud victim is entitled to a refund. In 2015 the European Parliament adopted a substantial revision to the directive, the Payment Services Directive 2 (PSD2), and it will soon be implemented by EU member states. One of the major changes in PSD2 is the requirement for banks to implement Strong Customer Authentication (SCA) for transactions, more commonly known as two-factor authentication – authentication codes based on two or more elements selected from something only the user knows, something only the user possesses, and something the user is. Moreover, the authentication codes must be linked to the recipient and amount of the transaction, which the customer must be made aware of.

The PSD2 does not detail the requirements of Strong Customer Authentication, nor the permitted exemptions to this rule. Instead, these decisions are to be made by the European Banking Authority (EBA) through Regulatory Technical Standards (RTS). As part of the development of these technical standards the EBA opened an initial discussion, to which we submitted a response based on our research on the security usability of banking authentication. Based on the discussion, the EBA produced a consultation paper incorporating a set of draft technical standards. In our response to this consultation paper, included below, we detailed how research both on security usability and banking authentication more broadly should guide the assessment of Strong Customer Authentication. Specifically we point out that there is an incorrect assumption of an inherent tradeoff between security and usability, that for a system to be secure it must be usable, and that evaluation of Strong Customer Authentication systems should be independent, transparent, and follow principles developed from latest research.

False trade-off between security and usability

In the reasoning presented in the consultation paper there is an assumption that a trade-off must be made between security and usability, e.g. paragraph 6 “Finally, the objective of ensuring a high degree of security and safety would suggest that the [European Banking Authority’s] Technical Standards should be onerous in terms of authentication, whereas the objective of user-friendliness would suggest that the [Regulatory Technical Standards] should rather promote the competing aim of customer convenience, such as one-click payments.”

This security/usability trade-off is not inherent to Strong Customer Authentication (SCA), and in fact the opposite is more commonly true: in order for SCA to be secure it must also be usable “because if the security is usable, users will do the security tasks, rather than ignore or circumvent them”. Also, SCA that is usable will make it more likely that customers will detect fraud because they will not have to expend their limited attention on just performing the actions required to make the SCA work. A small subset (10–15%) of participants in some studies reasoned that the fact that a security mechanism required a lot of effort from them meant it was secure. But that is a misconception that must not be used as an excuse for effortful authentication procedures.

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Steven Murdoch – Privacy and Financial Security

Probably not too many academic researchers can say this: some of Steven Murdoch’s research leads have arrived in unmarked envelopes. Murdoch, who has moved to UCL from the University of Cambridge, works primarily in the areas of privacy and financial security, including a rare specialty you might call “crypto for the masses”. It’s the financial security aspect that produces the plain, brown envelopes and also what may be his most satisfying work, “Trying to help individuals when they’re having trouble with huge organisations”.

Murdoch’s work has a twist: “Usability is a security requirement,” he says. As a result, besides writing research papers and appearing as an expert witness, his past includes a successful start-up. Cronto, which developed a usable authentication device, was acquired by VASCO, a market leader in authentication and is now used by banks such as Commerzbank and Rabobank.

Developing the Cronto product was, he says, an iterative process that relied on real-world testing: “In research into privacy, if you build unusable system two things will go wrong,” he says. “One, people won’t use it, so there’s a smaller crowd to hide in.” This issue affects anonymising technologies such as Mixmaster and Mixminion. “In theory they have better security than Tor but no one is using them.” And two, he says, “People make mistakes.” A non-expert user of PGP, for example, can’t always accurately identify which parts of the message are signed and which aren’t.

The start-up experience taught Murdoch how difficult it is to get an idea from research prototype to product, not least because what works in a small case study may not when deployed at scale. “Selling privacy remains difficult,” he says, noting that Cronto had an easier time than some of its forerunners since the business model called for sales to large institutions. The biggest challenge, he says, was not consumer acceptance but making a convincing case that the predicted threats would materialise and that a small company could deliver an acceptable solution.

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Do you know what you’re paying for? How contactless cards are still vulnerable to relay attack

Contactless card payments are fast and convenient, but convenience comes at a price: they are vulnerable to fraud. Some of these vulnerabilities are unique to contactless payment cards, and others are shared with the Chip and PIN cards – those that must be plugged into a card reader – upon which they’re based. Both are vulnerable to what’s called a relay attack. The risk for contactless cards, however, is far higher because no PIN number is required to complete the transaction. Consequently, the card payments industry has been working on ways to solve this problem.

The relay attack is also known as the “chess grandmaster attack”, by analogy to the ruse in which someone who doesn’t know how to play chess can beat an expert: the player simultaneously challenges two grandmasters to an online game of chess, and uses the moves chosen by the first grandmaster in the game against the second grandmaster, and vice versa. By relaying the opponents’ moves between the games, the player appears to be a formidable opponent to both grandmasters, and will win (or at least force a draw) in one match.

Similarly, in a relay attack the fraudster’s fake card doesn’t know how to respond properly to the payment terminal because, unlike a genuine card, it doesn’t contain the cryptographic key known only to the card and the bank that verifies the card is genuine. But like the fake chess grandmaster, the fraudster can relay the communication of the genuine card in place of the fake card.

For example, the victim’s card (Alice, in the diagram below) would be in a fake or hacked card payment terminal (Bob) and the criminal would use the fake card (Carol) to attempt a purchase in a genuine terminal (Dave). The bank would challenge the fake card to prove its identity, this challenge is then relayed to the genuine card in the hacked terminal, and the genuine card’s response is relayed back on behalf of the fake card to the bank for verification. The end result is that the terminal used for the real purchase sees the fake card as genuine, and the victim later finds an unexpected and expensive purchase on their statement.

A rigged payment terminal capable of performing the relay attack can be made from off-the-shelf components
The relay attack, where the cards and terminals can be at any distance from each other

Demonstrating the grandmaster attack

I first demonstrated that this vulnerability was real with my colleague Saar Drimer at Cambridge, showing on television how the attack could work in Britain in 2007 and in the Netherlands in 2009.

In our scenario, the victim put their card in a fake terminal thinking they were buying a coffee when in fact their card details were relayed by a radio link to another shop, where the criminal used a fake card to buy something far more expensive. The fake terminal showed the victim only the price of a cup of coffee, but when the bank statement arrives later the victim has an unpleasant surprise.

At the time, the banking industry agreed that the vulnerability was real, but argued that as it was difficult to carry out in practice it was not a serious risk. It’s true that, to avoid suspicion, the fraudulent purchase must take place within a few tens of seconds of the victim putting their card into the fake terminal. But this restriction only applies to the Chip and PIN contact cards available at the time. The same vulnerability applies to today’s contactless cards, only now the fraudster need only be physically near the victim at the time – contactless cards can communicate at a distance, even while the card is in the victim’s pocket or bag.

Continue reading Do you know what you’re paying for? How contactless cards are still vulnerable to relay attack

International Comparison of Bank Fraud Reimbursement: Customer Perceptions and Contractual Terms

Terms and Conditions (T&C) are long, convoluted, and are very rarely actually read by customers. Yet when customers are subject to fraud, the content of the T&Cs, along with national regulations, matter. The ability to revoke fraudulent payments and reimburse victims of fraud is one of the main selling points of traditional payment systems, but to be reimbursed a fraud victim may need to demonstrate that they have followed security practices set out in their contract with the bank.

Security advice in banking terms and conditions vary greatly across the world. Our study’s scope included Europe (Cyprus, Denmark, Germany, Greece, Italy, Malta, and the United Kingdom), the United States, Africa (Algeria, Kenya, Nigeria, and South Africa), the Middle East (Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Oman, Palestine, Qatar, Saudi Arabia, UAE and Yemen), and East Asia (Singapore). Out of 30 banks’ terms and conditions studied, 26 give more or less specific advice on how you may store your PIN. The advice varies from “Never writing the Customer’s password or security details down in a way that someone else could easily understand” (Arab Banking Corp, Algeria), “If the Customer makes a written record of any PIN Code or security procedure, the Customer must make reasonable effort to disguise it and must not keep it with the card for which it is to be used” (National Bank of Kenya) to “any record of the PIN is kept separate from the card and in a safe place” (Nedbank, South Africa).

Half of the T&Cs studied give advice on choosing and changing one’s PIN. Some banks ask customers to immediately choose a new PIN when receiving a PIN from the bank, others don’t include any provision for customers to change their PIN. Some banks give specific advice on how to choose a PIN:

When selecting a substitute ATM-PIN, the Customer shall refrain from selecting any series of consecutive or same or similar numbers or any series of numbers which may easily be ascertainable or identifiable with the Customer…

OCBC, Singapore

Only 5 banks give specific advice about whether you are allowed to re-use your PIN on other payment cards or elsewhere. There is also disagreement about what to do with the PIN advice slip, with 7 banks asking the customer to destroy it.

Some banks also include advice on Internet security. In the UK, HSBC for example demands that customers

always access Internet banking by typing the address into the web browser and use antivirus, antispyware and a personal firewall. If accessing Internet banking from a computer connected to a LAN or a public Internet access device or access point, they must first ensure that nobody else can observe, copy or access their account. They cannot use any software, such as browsers or password managers, to record passwords or other security details, apart from a service provided by the bank. Finally, all security measures recommended by the manufacturer of the device being used to access Internet banking must be followed, such as using a PIN to access a mobile device.

HSBC, UK

Over half of banks tell customers to use firewalls and anti-virus software. Some even recommend specific commercial software, or tell customers how to find some:

It is also possible to obtain free anti-virus protection. A search for `free anti-virus’ on Google will provide a list of the most popular.

Commercial International Bank, Egypt

In the second part of our paper, we investigate the customers’ perception of banking T&Cs in three countries: Germany, the United States and the United Kingdom. We present the participants with 2 real-life scenarios where individuals are subject to fraud, and ask them to decide on the outcome. We then present the participants with sections of T&Cs representative for their country and ask them then to re-evaluate the outcome of the two scenarios.

Question DE UK US
Scenario 1: Card Loss 41.5% 81.5% 76.8%
Scenario 1: Card Loss after T&Cs 70.7% 66.7% 96.4%
Scenario 2: Phishing 31.7% 37.0% 35.7%
Scenario 2: Phishing after T&Cs 43.9% 46.3% 42.9%

The table above lists the percentage of participants that say that the money should be returned for each of the scenarios. We find that in all but one case, the participants are more likely to have the protagonist reimbursed after reading the terms and conditions. This is noteworthy – our participants are generally reassured by what they read in the T&Cs.

Further, we assess the participants’ comprehension of the T&Cs. Only 35% of participants fully understand the sections, but the regional variations are large: 45% of participants in the US fully understanding the T&Cs but only 22% do so in Germany. This may indeed be related to the differences in consumer protection laws between the countries: In the US, Federal regulations give consumers much stronger protections. In Germany and the UK (and indeed, throughout Europe under the EU’s Payment Service Directive), whether a victim of fraud is reimbursed depends on if he/she has been grossly negligent – a term that is not clearly defined and confused our participants throughout.

 

International Comparison of Bank Fraud Reimbursement: Customer Perceptions and Contractual Terms by Ingolf Becker, Alice Hutchings, Ruba Abu-Salma, Ross Anderson, Nicholas Bohm, Steven J. Murdoch, M. Angela Sasse and Gianluca Stringhini will be presented at the Workshop on the Economics of Information Security (WEIS), Berkeley, CA USA, 13–14 June 2016.

Biometrics for payments

HSBC and First Direct recently announced that they are introducing fingerprint and voice recognition authentication for customers of online and telephone banking. In my own research, I first found nearly 20 years ago that people who have a multitude of passwords and PINs cannot manage them as security experts want them to. As the number of digital devices and services we use has increased rapidly, managing dozens of login details has become a headache for most people. We recently reported that most bank customers juggle multiple PINs, and are unable to follow the rules that banks set in their contracts. Our research also found that many people dislike the 2-factor token solutions that are currently used by many UK banks.

Passwords as most people use them today are not particularly secure. Attackers can easily attempt to collect information on individuals, using leaks of password files not properly protected by some websites, “phishing” scams or malware planted on people’s computers. Reusing a banking password on other websites – something that many of us do because we cannot remember dozens of different passwords – is also a significant security risk.

The introduction of fingerprint recognition on smartphones – such as the iPhone – has delighted many users fed up with entering their PINs dozens of times a day. So the announcement that HSBC and other banks will be able to use the fingerprint sensor on their smartphones for banking means that millions of consumers will finally be able to end their battle with passwords and PINs and use biometrics instead. Other services people access from their smartphones are likely to follow suit. And given the negative impact that cumbersome authentication via passwords and PINs has on staff productivity and morale in many organisations, we can expect to see biometrics deployed in work contexts, too.

But while biometrics – unlike passwords – do not require mental gymnastics from users, there are different usability challenges. Leveraging the biometric from the modality of interaction – e.g. voice recognition phone-based interactions – makes authentication an easy task, but it will work considerably better in quiet environments than noisy ones – such as a train stations or with many people talking in the background. As many smartphone users have learnt, fingerprint sensors have a hard time recognising cold and wet fingers. And – as we report in a paper presented at IEEE Identity, Security and Behavior Analysis last week – privacy concerns mean some users ‘don’t like putting their face on the Internet’. Biometrics can’t come soon enough for most users, but there is still a lot of design and testing work to be done to make biometrics work for different interaction, physical and social contexts.

Are Payment Card Contracts Unfair?

While US bank customers are almost completely protected against fraudulent transactions, in Europe banks are entitled to refuse to reimburse victims of fraud under certain circumstances. The EU Payment Services Directive (PSD) is supposed to protect customers but if the bank can show that the customer has been “grossly negligent” in following the terms and conditions associated with their account then the PSD permits the bank to pass the cost of any fraud on to the customer. The bank doesn’t have to show how the fraud happened, just that the most likely explanation for the fraud is that the customer failed to follow one of the rules set out by the bank on how to protect the account. To be certain of obtaining a refund, a customer must be able to show that he or she complied with every security-related clause of the terms and conditions, or show that the fraud was a result of a flaw in the bank’s security.

The bank terms and conditions, and how customers comply with them, are therefore of critical importance for consumer protection. We set out to answer the question: are these terms and conditions fair, taking into account how customers use their banking facilities? We focussed on ATM payments and in particular how customers manage PINs because ATM fraud losses are paid for by the banks and not retailers, so there is more incentive for the bank to pass losses on to the customer. In our paper – “Are Payment Card Contracts Unfair?” – published at Financial Cryptography 2016 we show that customers have too many PINs to remember them unaided and therefore it is unrealistic to expect customers to comply with all the rules banks set: to choose unguessable PINs, not write them down, and not use them elsewhere (even with different banks). We find that, as a result of these unrealistic expectations, customers do indeed make use of coping mechanisms which reduce security and violate terms and conditions, which puts them in a weak position should they be the victim of fraud.

We surveyed 241 UK bank customers and found that 19% of customers have four or more PINs and 48% of PINs are used at most once a month. As a result of interference (one memory being confused with another) and forgetting over time (if a memory is not exercised frequently it will be lost) it is infeasible for typical customers to remember all their bank PINs unaided. It is therefore inevitable that customers forget PINs (a quarter of our participants had forgot a 4-digit PIN at least once) and take steps to help them recall PINs. Of our participants, 33% recorded their PIN (most commonly in a mobile phone, notebook or diary) and 23% re-used their PIN elsewhere (most commonly to unlock their mobile phone). Both of these coping mechanisms would leave customers at risk of being found liable for fraud.

Customers also use the same PIN on several cards to reduce the burden of remembering PINs – 16% of our participants stated they used this technique, with the same PIN being used on up to 9 cards. Because each card allows the criminal 6 guesses at a PIN (3 on the card itself, and 3 at an ATM) this gives criminals an excellent opportunity to guess PINs and again leave the customer responsible for the losses. Such attacks are made easier by the fact that customers can change their PIN to one which is easier to remember, but also probably easier for criminals to guess (13% of our participants used a mnemonic, most commonly deriving the PIN from a specific date). Bonneau et al. studied in more detail exactly how bank customers select PINs.

Finally we found that PINs are regularly shared with other people, most commonly with a spouse or partner (32% of our participants). Again this violates bank terms and conditions and so puts customers at risk of being held liable for fraud.

Holding customers liable for not being able to follow unrealistic, vague and contradictory advice is grossly unfair to fraud victims. The Payment Services Directive is being revised, and in our submission to the consultation by the European Banking Authority we ask that banks only be permitted to pass fraud losses on to customers if they use authentication mechanisms which are feasible to use without undue effort, given the context of how people actually use banking facilities in normal life. Alternatively, regulators could adopt the tried and tested US model of strong consumer protection, and allow banks to manage risks through fraud detection. The increased trust from this approach might increase transaction volumes and profit for the industry overall.

 

“Are Payment Card Contracts Unfair?” by Steven J. Murdoch, Ingolf Becker, Ruba Abu-Salma, Ross Anderson, Nicholas Bohm, Alice Hutchings, M. Angela Sasse, and Gianluca Stringhini will be presented at Financial Cryptography and Data Security, Barbados, 22–26 February 2016.

Forced authorisation chip and PIN scam hitting high-end retailers

Chip and PIN was designed to prevent fraud, but it also created a new opportunity for criminals that is taking retailers by surprise. Known as “forced authorisation”, committing the fraud requires no special equipment and when it works, it works big: in one transaction a jewellers store lost £20,500. This type of fraud is already a problem in the UK, and now that US retailers have made it through the first Black Friday since the Chip and PIN deadline, criminals there will be looking into what new fraud techniques are available.

The fraud works when the retailer has a one-piece Chip and PIN terminal that’s passed between the customer and retailer during the course of the transaction. This type of terminal is common, particularly in smaller shops and restaurants. They’re a cheaper option compared to terminals with a separate PIN pad (at least until a fraud happens).

The way forced authorisation fraud works is that the retailer sets up the terminal for a transaction by inserting the customer’s card and entering the amount, then hands the terminal over to the customer so they can type in the PIN. But the criminal has used a stolen or counterfeit card, and due to the high value of the transaction the terminal performs a “referral” — asking the retailer to call the bank to perform additional checks such as the customer answering a security question. If the security checks pass, the bank will give the retailer an authorisation code to enter into the terminal.

The problem is that when the terminal asks for these security checks, it’s still in the hands of the criminal, and it’s the criminal that follows the steps that the retailer should have. Since there’s no phone conversation with the bank, the criminal doesn’t know the correct authorisation code. But what surprises retailers is that the criminal can type in anything at this stage and the transaction will go through. The criminal might also be able to bypass other security features, for example they could override the checking of the PIN by following the steps the retailer would if the customer has forgotten the PIN.

By the time the terminal is passed back to the retailer, it looks like the transaction was completed successfully. The receipt will differ only very subtly from that of a normal transaction, if at all. The criminal walks off with the goods and it’s only at the end of the day that the authorisation code is checked by the bank. By that time, the criminal is long gone. Because some of the security checks the bank asked for weren’t completed, the retailer doesn’t get the money.

Continue reading Forced authorisation chip and PIN scam hitting high-end retailers

Just how sophisticated will card fraud techniques become?

In late 2009, my colleagues and I discovered a serious vulnerability in EMV, the most widely used standard for smart card payments, known as “Chip and PIN” in the UK. We showed that it was possible for criminals to use a stolen credit or debit card without knowing the PIN, by tricking the terminal into thinking that any PIN is correct. We gave the banking industry advance notice of our discovery in early December 2009, to give them time to fix the problem before we published our research. After this period expired (two months, in this case) we published our paper as well explaining our results to the public on BBC Newsnight. We demonstrated that this vulnerability was real using a proof-of-concept system built from equipment we had available (off-the shelf laptop and card reader, FPGA development board, and hand-made card emulator).

No-PIN vulnerability demonstration

After the programme aired, the response from the banking industry dismissed the possibility that the vulnerability would be successfully exploited by criminals. The banking trade body, the UK Cards Association, said:

“We believe that this complicated method will never present a real threat to our customers’ cards. … Neither the banking industry nor the police have any evidence of criminals having the capability to deploy such sophisticated attacks.”

Similarly, EMVCo, who develop the EMV standards said:

“It is EMVCo’s view that when the full payment process is taken into account, suitable countermeasures to the attack described in the recent Cambridge Report are already available.”

It was therefore interesting to see that in May 2011, criminals were caught having stolen cards in France then exploiting a variant of this vulnerability to buy over €500,000 worth of goods in Belgium (which were then re-sold). At the time, not many details were available, but it seemed that the techniques the criminals used were much more sophisticated than our proof-of-concept demonstration.

We now know more about what actually happened, as well as the banks’ response, thanks to a paper by the researchers who performed the forensic analysis that formed part of the criminal investigation of this case. It shows just how sophisticated criminals could be, given sufficient motivation, contrary to the expectations in the original banking industry response.

Continue reading Just how sophisticated will card fraud techniques become?

What are the social costs of contactless fraud?

Contactless payments are in the news again: in the UK the spending limit has been increased from £20 to £30 per transaction, and in Australia the Victoria Police has argued that contactless payments are to blame for an extra 100 cases of credit card fraud per week. These frauds are where multiple transactions are put through, keeping each under the AUS $100 (about £45) limit. UK news coverage has instead focussed on the potential for cross-channel fraud: where card details are skimmed from contactless cards then used for fraudulent online purchases. In a demonstration, Which? skimmed volunteers cards at a distance then bought a £3,000 TV with the card numbers and expiry dates recorded.

The media have been presenting contactless payments are insecure; the response from the banking industry is to point out that customers are not liable for the fraudulent transactions. Both are in some ways correct, but in other ways are missing the point.

The law in the UK (Payment Services Regulations (PSR) 2009, Regulation 62) indeed does say that the customers are entitled to a refund for fraudulent transactions. However a bank will only do this if they are convinced the customer has not authorised the transaction, and was not negligent. In my experience, a customer who is unable to clearly, concisely and confidently explain why they are entitled to a refund runs a high risk of not getting one. This fact will disproportionately disadvantage the more vulnerable members of society.

Continue reading What are the social costs of contactless fraud?

UCL Code Breaking Competition

6689260_sModern security systems frequently rely on complex cryptography to fulfil their goals and so it is important for security practitioners to have a good understanding of how cryptographic systems work and how they can fail. The Cryptanalysis (COMPGA18/COMPM068) module in UCL’s MSc Information Security provides students with the foundational knowledge to analyse cryptographic systems whether as part of system development in industry or as academic research.

To give students a more realistic (and enjoyable) experience there is no written exam for this module; instead the students are evaluated based on coursework and a code breaking competition.

UCL has a strong tradition of experimental research and we have been running many student competitions and hacking events in the past. In March 2013 a team directed by Dr Courtois won the UK University Cipher Challenge 2013 award, held as part of the UK Cyber Security Challenge.

This year the competition has been about finding cryptographically significant events in a real-life financial system. The competition (open both to UCL students and those of other London universities) requires the study of random number generators, elliptic curve cryptography, hash functions, exploration of large datasets, programming and experimentation, data visualisation, graphs and statistics.

We are pleased to announce the winners of the competition:

  • Joint 1st prize: Gemma Bartlett. Grade obtained 92/100.
  • Joint 1st prize: Vasileios Mavroudis.  Grade obtained 92/100.
  • 2nd prize: David Kohan Marzagão.  Grade obtained 82/100.

About the winners:

gemmb vasmdavm

  • Gemma Bartlett (left) is in her final year at UCL studying for an M.Eng. in Mathematical Computation with a focus on Information Security. Her particular interests include digital forensics. She will be starting a job in this field after graduation.
  • Vasilios Mavroudis (middle) received his B.Sc. in Applied Informatics from the University of Macedonia, Greece in 2012.  He is currently pursuing an M.Sc. in Information Security at UCL. In the past, he has worked as a security researcher in Deutsche Bank, University of California Santa Barbara and at the Centre for Research and Technology Hellas (CERTH). His research interests include network and systems security, malware, and applied cryptography.
  • David Kohan Marzagão (right) is currently undertaking a PhD in Computer Science under the supervision of Peter McBurney at King’s College London.  In 2014, he received his BSc in Mathematics at the University of São Paulo, Brazil. His research interests include cryptography, multi-agent systems, graph theory, and random walks.