Do you know the route your application takes to get to underwriting for approval? Data security is presumed in the merchant services industry, but it shouldn’t be. Background checks are required to sell merchant services, but what kind of training do salespeople get on data security? A lot of salespeople work from home, using their personal computers and smartphones. Since your application will contain all the information needed to become a victim of identity theft, ask questions about how it will be secured.  If you’re given the option to send your application via email, don’t bother asking these, call a different company.

1. Do you work from home? (Salespeople review applications for accuracy and add additional internal documents before turning in to management.)
2. Do you personally keep a copy of my merchant application? (HIGH RISK: Only corporate should have access to your personal data.)
3. What kind of shredder do you have?  (Whether stored at home or not, sensitive data WILL be printed at home. Who hasn’t brought work home at least occasionally?  A cross cut shredder is an essential part of a secure home office.)
4. How long do you store my application on your computer? (If it’s ever stored on the computer, the answer should be no longer than ‘until it’s approved by underwriting’. )
5. What’s your  process to remove from your computer? (Secure delete or Erase is critical. Moving to the trash can or recycle bin is not secure at all, as the data is still on the computer. )

There’s lots of other questions that could be asked, but if the person passes the above, he or she is likely following other security steps too.  In my opinion, if the salesperson doesn’t know this much about data security, they probably don’t know a heck of a lot about how to help you mitigate fraud or identity theft risk, or manage the cost of accepting credit cards either. Digital security and merchant services are synonymous.

Increasingly, criminals with sophisticated tools are actively targeting vulnerable merchant  point-of-sale (POS) terminals to steal payment card data and PINs for counterfeit fraud purposes. Criminal gangs worldwide are illegally accessing active POS terminals and modifying them by inserting an undetectable electronic “bug” that captures cardholder data and PINs during normal transaction processing.

Visa has released an excellent bulletin all brick and mortar merchants should read.

Point-of-Sale Terminal Tampering (pdf download)
Is a Crime . . .
and You Can Stop It

Results from the 2010 LexisNexis True Cost of Fraud study show that 20% of merchant fraud losses are attributed to friendly fraud, 42% to lost or stolen merchandise, 18% to identity fraud, and 20% to  fraudulent requests for a return/refund. Friendly fraud occurs when a consumer purchases an item online and receives the product but claims not to have received it, requesting a refund
or chargeback from the merchant or delivery of a duplicate item.

Prevention holds the greatest impact in minimizing fraud losses.

Fraud Loss by Company Size, Product Type, Channel and Industry, 2010 Company Size

For the complete study, get it free by registering at the Lexis Nexus web site:  2010 LexisNexis True Cost of Fraud.

Comments:

Friendly fraud- A small business owner was able to successfully defend against consumer claim that box was delivered empty by showing Fedex records of the weight. The difficulty with this going forward is that new rules have a 180 day chargeback period. Make sure your shipping company keeps those records for as long as you need them.

Identity fraud- Unless there is an issue of verifying ownership, such as when a customer is picking up a car left for repair, merchants cannot ask for a drivers license or other identification for a standard transaction. However, there are many other ways to prevent this type of crime. In the brick and mortar world, a mandatory check for the last 4 digits is a simple and effective way to block cloned credit cards. Due to the global nature of our society, requiring the zip code would frequently result in too many declines. However, you can add additional filters with our payment processing platform that sits in front of your existing processor. Essentially it is your fraud protection dashboard where you control in real-time the level of risk you’re will to accept either by blocking specific transactions entirely, or by sending automated email alerts to managers who then can assess the situation. This works very similar for online transactions.

In this first article of a series we explore insider theft, related to data breaches,  based on key elements of the Verizon 2011 data breach report.  The number of 2010 data breaches exploded in companies with 11 to 100 employees. A key commonality is simply the opportunity was there.

The 2011 Data Breach Investigations Report (DBIR) is a study conducted by the Verizon RISK team in cooperation with the U.S. Secret Service and the Dutch High Tech Crime Unit.

Who is behind the data breaches?

• 92% external agents
• 17% implicated insiders
• < 1% business partners
• 9% involved multiple parties

How do breaches occur? ?

• 50% involved some sort of hacking
• 49% incorporated malware
• 29% physical attacks
• 17% from privilege misuse
• 11% employe social tactics

What commonalities exist?

• 83% were victims of opportunity
• 92% were not difficult
• 76% of all data was compromised from servers
• 86% discovered by a third party
• 96% were avoidable through simple or intermediate controls
• 89% of victims subject to PCI-DSS had not achieved compliance

End of excerpt. Continue reading for blog author comments.

A healthcare company stores credit card data on servers, unencrpyted. Their excuse? It’s not connected to the actual credit card processing and access is restricted so it’s not a PCI Compliance problem.  See related article Shocking lack of payment processing security in healthcare industry. No data breach yet, but statistically, the company is at great financial risk, including up to  $1.5 million fine for violating the HITECH ACT.

Employees at a car dealer tape passwords next to their computer and in the first unlocked drawer of their desk. Their excuse?  It’s too hard to remember the password and they don’t acknowledge it’s a security issue.

Employees at a retail rental shop have a file folder in plain view of anyone entering the shop containing copies of drivers licenses and the front and back of credit cards. Their excuse? They didn’t know they couldn’t do it and didn’t know of an alternative method that would meet their needs to bill customers if they never returned with the goods.

Think these are exceptions? Businesses everywhere have these problems in some fashion. As each of these examples illustrate,  employee training is essential. Industry wide, merchants are completing  PCI Compliance Security Standards data worksheets. At that point in time, the merchant can be certified PCI Compliant. But without internal enforcement and training, the merchant is generally not compliant when a data breach occurs and thus is fully liable for all the associated fines, fees and damages.

In conclusion, the establishment of training procedures and distribution of data security expectations to employees is essential. Most employees are honest, right? But when companies have lax security policies, it presents an OPPORTUNITY for good employees to break the law.

Here’s three things you can do to mitigate internal employee risk:

1. Create a data security training checklist for all employees handling sensitive data. Update the training and content quarterly or at least once per year. The employee cannot accept credit cards or any sensitive data until they’ve completed training, plus sign and date the checklist.
2. Make data security a formal part of employee performance reviews. Require annual checklist review and signature at the time of performance reviews.
3. Implement a reward system for identifying vulnerabilities of real life practices- whether people, software, or hardware.

Bonus: Implement a hosted payment processing solution with extensive tools to prevent internal fraud. Call for information.

There’s room for improvement in medical billing for card not present transactions. The lack of security in the healthcare industry with respect to payment processing is evident in nearly every business I’ve interviewed in the last two years. With all the effort put into HIPAA, you’d think they’d be more likely to be PCI Compliant than other industries, but in my experience talking to and interacting with healthcare  companies, I think 50% PCI DSS  (Payment Card Industry Data Security Standards) Compliance would be extremely optimistic.

So what’s got my gander up today? A widespread lack of security by healthcare suppliers with my HSA debit card data. Before giving out my credit card information, I always ask what they are going to do with it.  As a cardholder, I have a right to know. Like many Americans, I have an HSA account and funds for payments are accessible only via a debit card. That means any misuse could wipe out the account.  Under Visa’s Zero Liability policy  consumers are not held responsible for fraudulent charges made with the card or account information, but identity theft is another matter the consumer is left to deal with.

I talked to three different personnel for the story that follows. The last one said the first two didn’t entirely follow normal protocol, which does nothing to spare them from the liabilities associated with identity theft.

This article is about a medical industry merchant storing credit card data in a database and the misunderstanding of potential  liability exposure as a result. Storing card data even for 24 hours poses a huge risk both financially and criminally. In this article we’ll review their processes and solutions to mitigate risk.

First, let’s review the payments process.  Consumers receive invoices in the mail. They can mail a check or pay by Visa or MasterCard by returning a form, or call on the phone. The merchant then uses a multi-step process to collect the information and process it.

PAY INVOICE BY MAIL

This invoice format is quite common for medical billing.

RISK: Merchant collects the CVV code, listed as signature code above, and bills are sent to a their corporate office. Collecting and storing CVV codes is always a bad idea. The mail could be stolen by internal employees familiar with the billing process. Someone could copy or even quickly photo each billing form. It’s doubtful they could prove PCI Compliance and would likely have no safe harbor in the event of a data breach.

SOLUTION: Remove the security code from the form. Have all bills sent to a lockbox. Reduce mail payments by enabling customers to pay their bills online.

PAY INVOICE BY PHONE

The first person to take my payment was covering for someone who was on vacation or otherwise out of the office.

• She took down my invoice number and credit card information on a piece of paper. She entered something into their billing system so there was  a record of my call and payment.
• The paper went into an “in box”. It was Friday.
• The person emptying the “in box” and posting payments would be in Monday to complete the transaction.
• Monday the posting person key entered the transaction into a desktop terminal.
• Tuesday, presumably,  paper was shredded. The paper is held for a day to ensure the payment went through properly so the customer does not need to be called.

RISK:  The paper with full card data was exposed for up to 5 days. Was the ‘in box’ emptied and put in a locked drawer when not being worked on, including breaks? Do cleaning personnel have access to the facility on evenings and weekends?

SOLUTION: Enter the card information directly into our smart virtual terminal. Some flexible options include:

• Entering the card and customer data and instantly charging the account. In this case, you can enter the CVV for extra fraud protection.
• Creating a customer and entering the card information for later billing. Using a process called tokenization, the card data is stored encrypted on PCI Compliant servers, never at the merchant location.  CVV is NEVER stored, not even encrypted, since it’s against card association rules.
• Entering the card and customer information and obtaining an authorization only, for other personnel to charge later.

The seccond person to take my payment on a future date was the actual representative for my account.

• She entered information in the billing system so there was  a record of my call and payment.
• My card data, including CVV,  was entered into a ‘notes’ section of the billing database.
• The customer service representative has no access to see the card data after it is entered.
• An accounting person retrieves the card data for payment in bulk with others within 1 business day.
• The posting person key enters the transaction into a dial-up desktop terminal.
• The next business day, presumably,  the computer notes are deleted.

RISK:  Full card data is exposed on a computer network. It doesn’t matter that access is restricted to certain personnel. This data storage is certainly a violation of FACTA and PCI Compliance standards, and probably HIPAA too. The merchant is open to both criminal and financial penalties in the event of a data breach. Additionally, the merchant would need to securely wipe or destroy every associated hard drive removed from service in the future to eliminate data theft potential.

SOLUTION: Enter the card information directly into our smart virtual terminal, same as above.

What are the financial risks with this data exposure?

• Replacement cost per card compromised, $25.
• Mandatory consumer credit report service for one year, $12/mth per card holder.
• Reimburse all claims from card associations.
• Fines from FACTA, HIPAA, and PCI Compliance violations
• Your business could come to a screeching halt while a forensics team investigates.
• Bad PR could result in loss of business.

What are the criminal risks associated with card data exposure? Felony.

FINAL NOTES: There is some use of an online gateway within the organization, but those details are unknown. I spoke to staff that believes since the payment processing is via a dial up terminal and is not connected to the card data in the database, that there is no risk. That is completely untrue. The company would not only save time by reducing steps, but would tremendously reduce risk by key entering card data directly into a virtual terminal. Moreover, an intelligent VT would provide a boatload of other benefits.

Ignorance is not an excuse. PCI Compliance standards were established nearly a decade ago. A critical first step to compliance and mitigating risk is a solution that supports all your payment processing needs. We offer that solution.

See also related article, How to reduce time and money for outpatient procedure billing.

On a side note, based on the invoice billing form, the merchant is not accepting American Express cards, probably because they don’t want to pay the high fees associated with Amex. If managing costs to improve EBITDA is important, our hosted payment processing platform with intelligent switch is critical.

Cyber Criminals Shifting to Smaller, More Opportunistic Attacks; External Attacks, Especially Hacking, on Rise

April 19, 2011

NEW YORK – Data loss through cyber attacks decreased sharply in 2010, but the total number of breaches was higher than ever, according to the “Verizon 2011 Data Breach Investigations Report.” These findings continue to demonstrate that businesses and consumers must remain vigilant in implementing and maintaining security practices.

The number of compromised records involved in data breaches investigated by Verizon and the U.S. Secret Service dropped from 144 million in 2009 to only 4 million in 2010, representing the lowest volume of data loss since the report’s launch in 2008. Yet this year’s report covers approximately 760 data breaches, the largest caseload to date.

According to the report, the seeming contradiction between the low data loss and the high number of breaches likely stems from a significant decline in large-scale breaches, caused by a change in tactics by cybercriminals. They are engaging in small, opportunistic attacks rather than large-scale, difficult attacks and are using relatively unsophisticated methods to successfully penetrate organizations. For example, only 3 percent of breaches were considered unavoidable without extremely difficult or expensive corrective action.

The report also found that outsiders are responsible for 92 percent of breaches, a significant increase from the 2010 findings. Although the percentage of insider attacks decreased significantly over the previous year (16 percent versus 49 percent), this is largely due to the huge increase in smaller external attacks. As a result, the total number of insider attacks actually remained relatively constant.

Hacking (50 percent) and malware (49 percent) were the most prominent types of attack, with many of those attacks involving weak or stolen credentials and passwords. For the first time, physical attacks — such as compromising ATMs –appeared as one of the three most common ways to steal information, and constituted 29 percent of all cases investigated.

For the second year in a row, the U.S. Secret Service collaborated with Verizon in preparing the report. In addition, the National High Tech Crime Unit of the Netherlands Policy Agency (KLPD) joined the team this year, allowing Verizon to provide more insight into cases originating in Europe. Approximately one-third of Verizon’s cases originated in either Europe or the Asia-Pacific region, reflecting the global nature of data breaches.

“Through our Data Breach Investigations Report series, Verizon continues to provide the industry with a first-hand look at cybercrime around the globe,” said Peter Tippett, Verizon’s vice president of security and industry solutions. “This year, we witnessed highly automated and prolific external attacks, low and slow attacks, intricate internal fraud rings, countrywide device-tampering schemes, cunning social engineering plots and more. And yet, at the end of day, we found once again that the vast majority of breaches can be avoided without extremely difficult, expensive security measures.”

Tippett added: “It is important to remember that data breaches can happen to any business — regardless of size or industry — or consumer, at any place in the world. A good offense remains the best defense. It is imperative to implement essential security measures broadly throughout your security infrastructure, whether that is a small home setup or an expansive enterprise infrastructure.”

U.S. Secret Service Assistant Director A.T. Smith said, “Americans over the past several years have seen the significant impacts data breaches are having on our nation’s financial infrastructure. Today cyber criminals are operating in nearly every civilized nation in the world, exposing Americans’ personal information, either stored or transmitted, to substantial risk.”

Smith added, “By participating in the Verizon 2011 Data Breach Investigations Report, the Secret Service is working closely with our private-sector partners to educate Americans about the threats of cyber criminals. With the help of our Electronic Crimes Task Force partners, such as Verizon, we are studying technologies and trends to prevent and mitigate attacks against critical financial infrastructure.”

The Data Breach Investigation Report (DBIR) series now spans seven years and more than 1,700 breaches involving more than 900 million compromised records, making it the most comprehensive study of its kind.

(NOTE: Additional resources supporting the 2011 Data Breach Investigations Report are available, including high-resolution charts and an audio podcast. B-roll available upon request.)

Key Findings of the 2011 Report

Data from the 2011 report shows that:

• Large-scale breaches dropped dramatically while small attacks increased. The report notes there are several possible reasons for this trend, including the fact that small to medium-sized businesses represent prime attack targets for many hackers, who favor highly automated, repeatable attacks against these more vulnerable targets, possibly because criminals are opting to play it safe in light of recent arrests and prosecutions of high-profile hackers.
• Outsiders are responsible for most data breaches. Ninety-two percent of data breaches were caused by external sources. Contrary to the malicious-employee stereotype, insiders were responsible for only 16 percent of attacks. Partner-related attacks continued to decline, and business partners accounted for less than 1 percent of breaches.
• Physical attacks are on the rise. After doubling as a percentage of all breaches in 2009, attacks involving physical actions doubled again in 2010, and included manipulating common credit-card devices such as ATMs, gas pumps and point-of-sale terminals. The data indicates that organized crime groups are responsible for most of these card-skimming schemes.
• Hacking and malware is the most popular attack method. Malware was a factor in about half of the 2010 caseload and was responsible for almost 80 percent of lost data. The most common kinds of malware found in the caseload were those involving sending data to an external entity, opening backdoors, and keylogger functionalities.
• Stolen passwords and credentials are out of control. Ineffective, weak or stolen credentials continue to wreak havoc on enterprise security. Failure to change default credentials remains an issue, particularly in the financial services, retail and hospitality industries.

Recommendations for Enterprises

The 2011 report found again that the prescription for data breaches is to use simple, essential security practices such as:

• Focus on essential controls. Many enterprises make the mistake of pursuing exceptionally high security in certain areas while almost completely neglecting others. Businesses are much better protected if they implement essential controls across the entire organization without exception.
• Eliminate unnecessary data. If you do not need it, do not keep it. For data that must be kept, identify, monitor and securely store it.
• Secure remote access services. Restrict these services to specific IP addresses and networks, minimizing public access to them. Also, ensure that your enterprise is limiting access to sensitive information within the network.
• Audit user accounts and monitor users with privileged identity. The best approach is to trust users but monitor them through pre-employment screening, limiting user privileges and using separation of duties. Managers should provide direction, as well as supervise employees to ensure they are following security policies and procedures.
• Monitor and mine event logs. Focus on the obvious issues that logs pick up, not the minutia. Reducing the compromise-to-discovery timeframe from weeks and months to days can pay huge dividends.
• Be aware of physical security assets. Pay close attention to payment card input devices, such as ATMs and gas pumps, for tampering and manipulation.

A complete copy of the “Data Breach Investigations Report” is available for download.

About Verizon
Verizon Communications Inc. (NYSE, NASDAQ:VZ), headquartered in New York, is a global leader in delivering broadband and other wireless and wireline communications services to mass market, business, government and wholesale customers. Verizon Wireless operates America’s most reliable wireless network, serving 94.1 million customers nationwide. Verizon also provides converged communications, information and entertainment services over America’s most advanced fiber-optic network, and delivers innovative, seamless business solutions to customers around the world. A Dow 30 company, Verizon employs a diverse workforce of more than 194,000 and last year generated consolidated revenues of $106.6 billion. For more information, visit www.verizon.com.

A Holy Cross Hospital emergency room clerk was convicted for her crimes as part of an identity theft ring. The employee copied patient records which were subsequently used to open credit card accounts. The US Postal inspection Service was alerted after employees noticed debit card mailings with different names being sent to the same address.  Over 525 pieces of mail addressed to a variety of names were found.  See prior article Identity theft at Holy Cross Hospital and securing payments.
Identity theft crime is rampant in South Florida, and this Fort Lauderdale hospital is not alone with data breach risk exposure. A local county hospital completes the intake process for outpatient procedures with semi-private barriers. I.D. is validated and everything done at the desk …except processing the credit card. The employee walks away out of view to swipe the card. Nearby I later learned is a copier. Does this make sense to you?

I contacted the District CFO to inform of the risk and offer a solution. No reply yet. Whether I hear back or not, I sure hope they fix this problem before they have a data breach too.

The Red Flags Rule requires many businesses and organizations to implement a written Identity Theft Prevention Program designed to detect the warning signs — or “red flags” — of identity theft in their day-to-day operations. Below are excerpts that pertain to businesses that probably are not aware they fall under the Red Flags Rule.

What types of businesses and organizations are covered by the Red Flags Rule?

The Rule applies to both  “financial institutions” and “creditors.” It’s important to look closely at how the Rule defines those terms because they apply to groups that might not typically use those words to describe themselves. Whether your business or organization is a financial institution or creditor isn’t based on the line of work you’re in, but rather on whether your activities fall within the definitions in the law. The Red Flags Rule gives examples of businesses and organizations that probably are covered, but the list isn’t exhaustive. 

Under the Rule, the definition of “creditor” is broad, and includes businesses or organizations that regularly provide goods or services first and allow customers to pay later. Examples of groups that may fall within this definition are utilities, health care providers, lawyers, accountants, and other professionals, and telecommunications companies. The definition also covers businesses or organizations that regularly grant loans, arrange for loans or the extension of credit, or make credit decisions. Examples include finance companies, mortgage brokers, and automobile dealers or retailers that offer financing or collect or process credit applications for third party lenders. In addition, the definition includes anyone who regularly participates in the decision to extend, renew, or continue credit, including setting the terms of credit. For example, a third-party debt collector who regularly renegotiates the terms of a debt would be a creditor under the Rule.

RED FLAG RULE FAQ

Do all creditors and financial institutions need to have a written Identity Theft Prevention Program?

If you have covered accounts, you must develop and implement a written Program to detect and respond to the red flags of identity theft — taking into consideration the nature of your business and the risks you face — and update your Program periodically. If you don’t have any covered accounts, you don’t need a written Program, but you still need to conduct periodic risk assessments to determine if you’ve acquired any covered accounts through changes to your business.

Only creditors and financial institutions that have “covered accounts” need a Program. Once you’ve determined you’re a creditor or financial institution under the Red Flags Rule, the next step is to figure out if you have any covered accounts. The Rule defines that term as either: 1) consumer accounts designed to permit multiple payments or transactions, or 2) any other account that presents a reasonably foreseeable risk from identity theft.

Am I a creditor under the Rule if I extend credit to other businesses?

Yes, you’re a creditor whether you have consumer or business customers.

It depends. If you’re a creditor with only business-to-business accounts, you have to assess whether those accounts pose a reasonably foreseeable risk from identity theft. If they do, they’re “covered accounts” under the Rule.

Do I have covered accounts if I’m a business creditor?

Are you covered by the Red Flags Rule? Download the PDF Fighting Fraud with the Red Flags Rule: A How-To Guide for Business to:

By identifying red flags in advance, you’ll be better equipped to spot suspicious patterns when they arise and take steps to prevent a red flag from escalating into a costly episode of identity theft. Take advantage of other resources on this site to educate your employees and colleagues about complying with the Red Flags Rule.