Over the last few years, security researchers have estimated that fake messages from PayPal and its parent company, eBay, make up more than half of all the spam sent over the Internet. So why, you may ask, isn't PayPal doing something about it?

Last week at the RSA 2008 conference in San Francisco, the popular payment company quietly revealed what it's doing to stop -- or at least slow -- the proliferation of phishing attacks. In a paper published without fanfare at the show, PayPal outlined a multi-pronged approach that might make an impact on the huge volume of "phishmail" currently transmitted over the Web.

The paper begins with a practical premise: that phishing will never stop as long as there's potential profit in it and that there will never be a single tool, technology, or strategy that can completely prevent it.

"We have not identified any one solution that will singlehandedly eradicate phishing; nor do we believe one will ever exist," the paper says. Instead, PayPal offers a multi-layered strategy: "While no single layer can defeat phishing on its own, in tandem they can make a huge difference, with each layer shaving off some percentage of crime."

In a nutshell, PayPal proposes a combination of strategies to identify and block phishmail from ever reaching the user while also warning and blocking users from accessing phishing sites. The paper also addresses other strategies such as user education, law enforcement, authentication, and phishing site shutdowns, but its primary proposal is to focus on the first two areas.

To slow delivery of phishmail, PayPal is proposing widespread adoption of two technologies for "signing" sent email -- DomainKeys and Sender Policy Framework -- which would allow ISPs to drop all emails that are not verified to be from PayPal (or other popular phishing targets). PayPal has been testing DomainKeys with Yahoo Inc. since October, and the test blocked more than 50 million messages in the first few months and caused phishers to reduce their use of Yahoo! Mail to deliver phishmail, the companies said. (See New Spec Could Cut Phishing, Spam.)

At the same time, PayPal has also been testing a client software package from Iconix that could be embedded in any email application, allowing PCs to identify signed messages and block those that aren't signed. In the tests, this client has helped users to identify and stop phishmail transmitted by ISPs that don't support DomainKeys or SPF.

In addition to email signing and blocking, PayPal is proposing to expand its efforts to block phishing sites and warn users when they are about to go to a suspicious site. In addition to supporting Extended Validation SSL, which is now part of Microsoft's IE7 browser and some others, PayPal says it will warn users of older browsers of their vulnerabilities, implement blacklists to expose known phishing sites, and set up warning pages to discourage users from accessing them.

While a number of reports have cast doubt on the effectiveness of EV SSL, PayPal says it has begun to see changes in user behavior since it implemented the technology nine months ago. "For example, we're seeing lower abandonment rates on signup flows for IE7 users vs. other browsers," the company says. (See Study: Consumers Don't Use Anti-Phishing Defenses.)

PayPal concedes that standards such as DomainKeys and EV SSL are in their early stages of adoption. But the company also suggests that the recent increase in phishmail and spam may be phishers' response to the fact that they are having trouble getting their messages through, and getting victims to bite. "We believe we can already see the 'balloon squeeze' effect at work," the paper says.

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