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Risk

8/16/2009
11:18 PM
George V. Hulme
George V. Hulme
Commentary
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Banks, Credit Card Companies Take Swipe At New Encryption Method

Visa Inc. and Fifth Third Bancorp are testing a novel technique at authenticating in-person credit and debit card transactions by using a fingerprint created by the individual magstripe on each card.

Visa Inc. and Fifth Third Bancorp are testing a novel technique at authenticating in-person credit and debit card transactions by using a fingerprint created by the individual magstripe on each card.From today's Credit Union Journal:

Visa Inc. and Fifth Third Bancorp are testing a system that evaluates the physical properties of the iron in the magnetic stripes on payment cards. The companies say these characteristics are different for every card and can function as a financial "fingerprint" that could prevent stolen account data from being used to produce counterfeit cards. "The right long-term goal is to make data unusable to criminals and therefore reduce the incentive to steal it," said Ellen Richey, Visa's chief enterprise risk officer.

The story then goes on to provide a little more detail into how the technology works:

Though criminals have devised ways to steal data stored on cards, the physical properties of the original card's stripe would not be duplicated if a criminal tried to copy stolen data onto a new card, Visa said. During a transaction, the terminals verify that the stripe is affiliated with the account number being used and then generate a one-time code to authenticate the transaction. Because the technology generates a new code for each purchase, issuers know that if they see the same code twice the second transaction is probably fraudulent. Because so much stolen card data is available, Roeber said it is important that banks "figure out a way to make that data of no value to the criminal."

A one-time transaction code is generated for each transaction, and the unique characteristics of the magnetic stripe is used, in conjunction with the account number to do so. Somehow, the algorithm generates a unique code for each transaction, and if the processor sees the same code twice that transaction can be flagged.

Seems, if the scheme works as purported, would raise the bar for fraudulent purchases using physically cloned cards. However, it doesn't look like it would provide much protection against man-in-the-middle attacks used to sniff the PIN and card data. But it could be a much more practical solution for merchants and the industry than attempting some encryption strategy that forces each retail location to manage encryption keys.

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