Fraudsters find holes in debit card fraud detection

Over the last few weeks, criminals have been exploiting weak fraud detection systems used for debit cards with "flash" attacks, where hundreds of withdrawals are made over a very short period of time.

Banking executives have noticed a rise in such attacks, where fraudsters withdraw money throughout a wide region within a span of just minutes, said Avivah Litan, a vice president at Gartner who frequently consults with banks about fraud issues.

"The fraud happens within 10 minutes in these geographic diverse locations," she said.

The amounts withdrawn are usually within a range that would not immediately raise a red flag, Litan said. She said a Canadian banker she recently spoke with said they noticed withdrawals from 100 ATMs all over Canada within 10 minutes.

The pattern is particularly interesting since it means that the criminal gangs are clearly coordinating the timing of the withdrawals using money mules, or people who are hired to do the risky job of taking a fraudulent payment cards to ATMs that are often under video surveillance.

The fraudsters seem to be primarily targeting debit cards, which have less sophisticated fraud detection systems in place than credit cards, Litan said.

Credit card systems are more likely to catch anomalies such as when a person uses a card in New York, and then just hours later a transaction with the same card shows up in California. Still, since the fraudsters in these cases are withdrawing small amounts from places close to where the victim is located, it makes it tricky to detect.

"There's no way to catch this fraud with the fraud detection systems unless they start looking at location or behavior," said Litan, who also wrote a blog post on the issue.

The fraudsters are believed to be obtaining card details and PIN (personal identification numbers) by compromising point-of-sale (POS) devices, Litan said. They do this by either surreptitiously sneaking into stores and replacing the POS terminals with special ones that record PINs and magnetic stripes details -- which contain account information -- or installing "skimming" devices to record the information, she said.

The skimming devices can be later retrieved, and some modified terminals are equipped with wireless transmitters to send the details to a remote server, Litan said.

The discount grocer Aldi acknowledged earlier this month that payment terminals at stores in 11 U.S. states were tampered with between June and August. More than 1,000 people who shopped at Aldi in the Chicago and Indianapolis areas reported fraudulent use of their cards.

The stolen account information can then be encoded onto blank payment cards. Those cards are then distributed to money mules -- often with the PIN taped to the card -- to hit the ATMs.

Tracing the source of the data breaches can be difficult particularly in countries such as the U.S., which uses many different payment processors. Banks that issue debit cards don't process the transactions, so they need to contact payment processor such as Visa and MasterCard, which must hunt through transactions to find the retailer where all of the victims shopped, Litan said.

The next step is then providing the banks with a list of cards that are at risk of fraud. Banks must then decide if the card should be blocked and replaced, which costs between $8 to $20 per card.

Smaller banks tend to be more proactive than larger ones in replacing cards so they don't have to deal with customer complaints of fraud, Litan said. Large banks that have millions of card holders will replace ones that have been compromised or if it's probable that fraudsters have the card's PIN.

Traditionally, banks have felt that PIN numbers were enough to guarantee transactions, but the view is changing and stronger security systems are being considered. Litan said.

Still, the flash attacks are designed to fly under the radar and may be very difficult to stop. "Probably no banks that I know of have sophisticated fraud detection systems to detect [a fraudulent transaction] just a few hundred miles from where a person is supposed to be," Litan said.

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