Avivah Litan

A member of the Gartner Blog Network

Avivah Litan
VP Distinguished Analyst
12 years at Gartner
30 years IT industry

Avivah Litan is a Vice President and Distinguished Analyst in Gartner Research. Her area of expertise includes financial fraud, authentication, access management, identity proofing, identity theft, fraud detection and prevention applications…Read Full Bio

Chip and PIN is alive and well in Europe

by Avivah Litan  |  January 30, 2014  |  3 Comments

I’m just finishing a trip overseas, now in Holland where I’ve been meeting with banks and other Gartner clients. The verdict is in – Chip cards are in fact working to substantially reduce losses from counterfeit cards. Some of the banks I met also instituted geo-blocking to stop the cards’ magnetic stripe from being accepted in certain countries. One major bank told me EMV chip combined with geo-blocking has brought their card present fraud down as low as possible.

I think most of us know this already but it’s always good to hear it again. Yes, the fraud shifts to ecommerce channels when chip cards are implemented, but thankfully there’s plenty of good technology out there to stop ecommerce fraud as well.

By the way, I understand that the financial institutions and the retailers in the U.S. are now debating whether the U.S. should implement Chip and Signature or Chip and PIN. Supposedly, the rates will be the same on each (I’m not sure but that’s what I hear), but I imagine it comes down to who eats the fraud if it occurs. With PIN, banks will likely eat the fraud – with Signature the retailers are more likely to because the issuer can always claim the retailer didn’t check the signature properly.

The rest of the world has implemented Chip and PIN. Handicapped people who can’t enter their PIN are accommodated with special cards that don’t require one.

Frankly, I prefer entering my PIN over signing my name. It’s much faster.

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How PCI failed Target and U.S. Consumers

by Avivah Litan  |  January 20, 2014  |  17 Comments

The PCI (Payment Card Industry) security standard has largely been a failure when you consider its initial purpose and history. Target and other breached entities before it, such as Heartland Payment Systems, were all PCI compliant at the time of their breach. These companies spent untold sums of money annually certifying compliance to the payment card networks and their acquiring banks but it didn’t stop their breaches.

The payment card industry failed to face up to major security problems when there was still time to do something back in 2005 after the first major card breach at Card Systems International, when 40 million cards were compromised. At that time, the card issuing banks and the card networks (Visa, Mastercard) came up with the PCI security standard as their answer for stronger card security, when Congress took them to the mat during congressional hearings.

Visa, MasterCard and the banks they represent thought that with PCI they could enforce adequate security at retailers and payment processors, while letting them bear major security burdens and costs. This was much easier and less costly for the U.S. banks, who are the last major holdouts in the world to upgrade to much more secure EMV Chip cards. None of them wanted to pay for those costly chip upgrades unitl now, when it’s almost too late.

If anyone was looking at the situation clearly back in 2005, they would have been able to forecast the trajectory we are now on – which is more and more devastating card breaches (ala TJX, Heartland Payment Systems) executed by more organized crime rings who know how to cash out the cards very quickly. A happy ending to this trajectory is far from sight. Indeed, why should the criminals stop when arrests are so far and few between, and when they typically enjoy immunity in their Eastern European countries of residence?

Clearly, PCI compliance is not working very well – despite billions of dollars spent by merchants and card processors in efforts to achieve it. For example, the standard hasn’t kept up with the latest attack vectors and retailers can’t be expected to know more than the security vendors do about detecting new forms of malware that evades conventional measures prescribed by PCI.

My understanding of the malware used in the latest round of breaches against Target and other retailers (allegedly there are many more that have not been announced) is that it attached itself in memory to the POS software (as opposed to being a memory scraping program as reported by others) and just captured the data as it went through the POS application. Like a worm, it had propogated itself to all the POS terminals throughout Target before attaching to the POS application. It aggregated the stolen data on a central Target server, and then double encrypted the data on the way out of the company so that the retailer IDS systems couldn’t detect it.

None of the conventional anti-malware applications on the market today look for this sort of program. And one question still not answered is how did it get inside the retailer network in the first place? Some security folks I spoke with said it got past POS whitelisting techniques used at retailers they work with – meaning perhaps somehow the supply chain was corrupted and the malware was attached to a routine POS software update.

Nothing I know of in the PCI standard could have caught this stuff. So I think it’s flat out wrong to blame this all on Target or on any of the other breached entities. The card issuing banks and the card networks (Visa. MasterCard, Amex, Discover) share responsibility for not doing more to prevent the debacles that have predictably occurred over the past nine years, when the big breaches first began.

At the least, they should have upgraded the payment systems infrastructure to support end (retailer) to end (issuer) encryption for card data much like PINs are managed today. They should have also started migrating to stronger cardholder authentication (ala EMV Chip cards) so that the magnetic stripe on the back of our cards can finally be eliminated.

While not perfect, these standardized measures would have gone a long way to preventing card data breaches. Instead the industry just keeps expecting retailers to patch a faulty and antiquated payment system via PCI compliance.

Of course, Visa, MasterCard and the qualified security assessors who perform the PCI audits have all covered themselves legally. That’s one area where they’ve been proactive. The assessor contracts that retailers and processors sign state that the assessor has no liability in the case of a breach. Further, when PCI first came out, Visa and MasterCard used to give merchants “safe harbor” from penalties in the case of breaches when the breached merchant was PCI compliant. But they eliminated that safe harbor right after the first big breach. When I asked Visa to explain, they told me “well the merchant must not have really been PCI compliant if they got breached. And perhaps they didn’t give their assessor all the information they needed to properly audit their systems.”

The banks and the card networks incorrectly assumed they could keep relying on the retailers and payment processors to lock down the payment system. That was shortsighted thinking that has unfortunately caught up with them as customer service costs mount and consumer confidence is shaken.

As for the merchants – they are still basically toast and not in an enviable position.

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Target Saga continues – too much for Fraud Detection systems?

by Avivah Litan  |  December 23, 2013  |  1 Comment

Chase’s and Citi’s action of setting thresholds on cash withdrawals on debit cards as a result of the Target breach is unprecedented, as least as far as I remember. It’s a little frightening that the fraudsters can cause such havoc.

How is the Target Breach affecting Card Issuers’ Fraud Detection operations?

a) PIN Codes Stolen Target claims that PIN codes were not stolen during their heist. PIN codes are needed by a debit cardholder to authenticate for cash withdrawals at ATM machines or merchant registers – activities recently limited by Chase and Citi. Citi and Chase must have seen PIN fraud occurring on the cards stolen at Target in order to take such extreme actions.

By design, PINs are encrypted at the POS card readers and decrypted by card issuers, (although there were reports years ago of split microsecond systemic issues in PIN handoffs between processors when PINs were exposed in the clear during momentary decryption).

So we have to assume that if the PINs weren’t skimmed or photographed or otherwise copied at Target’s POS operations, they were stolen in a different heist at another time (stolen perhaps via phishing scams or hidden ATM cameras).

That being the case, the criminals likely linked the previously stolen PINs to the magnetic stripe card data stolen from Target, and used the two data sets in combination to create cloned debit cards and make cash withdrawals.

Card issuers abhor ATM/Debit cash withdrawal fraud because they can’t reverse it to the merchant when it occurs. It’s just between them and the cardholder/consumer.

b) Geographically Smart Fraud The fraudsters are using cards at stores in or near the resident zipcodes of the cardholder for a stolen card. This easily defeats the geographic rules in the card fraud systems that score a transaction as risky if it occurs far away from the cardholder’s locale (unless it’s within a normal profile of the cardholder’s activity to travel frequently within a given timeframe).

c) Taxing Anomaly Detection The card companies’ fraud detection systems are very taxed by the Target breach. With so many active cards available for sale by the criminals, there are too many to put on a meaningful watch-list. After all, watching potentially a couple million cards becomes somewhat a meaningless exercise. Also, anomaly detection – which most card fraud detection systems rely on – fails when there are too many anomalies or outliers as the outliers all start looking normal.

Conclusion
When I first heard of this breach, I was hopeful that the banks’ and card companies fraud detection systems could handle staving off any potential fraud. But after speaking with a few issuers, I realized I was wrong. And after hearing about Chase and Citi’s moves I realized the fraudsters are finally getting the upper hand and disrupting our holiday season.

Thankfully there are some innovative and good technological solutions that can be implemented in the future to more strongly authenticate a card holder — if not EMV Chip cards used by the rest of the world which no one in the U.S. seems to want to pay for.

Of course, nothing is perfect, but almost anything provides stronger security than magnetic stripe cardholder authentication, technology which is over 50 years old. How much technology do you use that’s over 50 years old?

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What can we learn from the Target Breach

by Avivah Litan  |  December 19, 2013  |  37 Comments

UPDATE: Shortly after this blog post was published, I received comments that questioned the veracity of one of the claims in it.  I have looked into the points raised and agree that what I heard from two secret service agents specifically concerning the 2009 security breach at Heartland Payment Systems is not independently verifiable.  In fact, Heartland has confirmed that “Gonzales has never been an employee of Heartland, nor would he have been able to download data to a USB as stated in the article.”
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The recently reported Target breach, first uncovered by security blogger Brian Krebs, (see krebsonsecurity.com ) is the largest retailer breach that has surfaced since the original round of breaches undertaken by Albert Gonzalez began in 2005 which eventually involved many U.S. companies including; BJ’s, JC Penny, Heartland, Dave and Busters , TJX and even Target!

Who’s the real victim here?

The top victim in my opinion is Target itself. Target no doubt has spent a small fortune on payment card security and on becoming PCI compliant. It has tried to do “everything right” as far as I can tell, yet the theft still occurred. Now it will be a “victim” so to speak of the payment card industry, who will likely

a) Raise Target’s merchant fee that it pays Visa, Mastercard, Amex, and others on every transaction by a few basis points – which can add up to a significant amount of money

b) Fine Target for the breach

c) Fine Target for non-compliance with PCI (even though it was certified as compliant – Visa and Mastercard will determine that they really weren’t compliant since they had a breach)

d) Make Target pay back card issuers for any fraud that results from this breach.

Target may also face class action suits undertaken by hungry lawyers or state attorney generals’ offices. If the past is any indicator, any such suits will eventually be dismissed since there is very little direct damage to consumers who typically get any resulting charges reversed. Of course it’s a major hassle for consumers but they rarely lose any money from this (unless PINs were stolen with debit cards, and there is no evidence that this happened at Target).

In the end the actual fraud loss, which Target will have to pay for, is likely to be less than $25 million. But the fees it pays the banks may be twice that amount. If they get much higher Target may have to pass on these costs to consumers in the form of higher prices.

How did this Happen?

Given that Target has instituted so many security controls, I’d be very surprised if the breach occurred because malware was installed on POS devices or in local store systems. My guess is that the data was stolen from Target’s switching system for authorization and settlement.

But I’m not so sure it was due to a piece of malware inserted remotely by a clever hacker. I recently heard a couple of high placed secret service officers say that the Heartland Payment systems breach – the largest breach in history where 130 million payment cards were compromised – was actually executed by Albert Gonzales in a very low tech manner. These agents said Gonzales was working at Heartland as a call center employee and simply walked out with the sensitive payment card data every day on a USB drive. This apparently was AFTER he was arrested for the TJX breach and became a government informant.

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UPDATE: Shortly after this blog post was published, I received comments that questioned the veracity of one of the claims in it.  I have looked into the points raised and agree that what I heard from two secret service agents specifically concerning the 2009 security breach at Heartland Payment Systems is not independently verifiable.  In fact, Heartland has confirmed that “Gonzales has never been an employee of Heartland, nor would he have been able to download data to a USB as stated in the article.”
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If we’ve learned anything from the Snowden/NSA and Wikileaks/Bradley Manning affairs, it’s that insiders can cause the most damage because some basic controls are not in place. I wouldn’t be surprised if that’s the case with the Target Breach – i.e. that Target did a great job protecting their systems from external intruders but dropped the ball when it came to securing insider access.

Bottom line: it’s time for the U.S. card industry to move to chip/smart cards and stop expecting retailers to patch an insecure payment card system.

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How secure is healthcare.gov?

by Avivah Litan  |  October 31, 2013  |  2 Comments

A posting by blogger Ben Simo, a highly-experienced software tester, brings up many important and valid security issues with healthcare.gov. Ben has done a good job documenting some of the most egregious issues with healthcare.gov that are definitive proof of the fact that security will continue to be a major issue for the Obamacare website. See blog.isthereaproblem.com

More fundamentally, it’s important to note that this could very well be a security disaster in the making because of the following facts:

a) The marketplace healthcare.gov is run by an estimated 500 million lines of code which is about 10 times the lines of code in Windows XP. The mammoth code is managed by multiple system administrators and different components reside on separate servers, according to developer Gabriel Harrop who examined the software.

It’s simply too big a program to manage from a security perspective, given the level of expertise and coordination assigned to the project as we have come to know it. I’ve also been informed by developers who examined the application that it isn’t exactly a model of slick coding practices. For example, I was told that rather than build an array to compute 40 variables, someone cut and paste a program to repeat a task forty times.

b) We all know about the performance problems that have surfaced because of the multiple disjointed and uncoordinated groups of contractors who worked to create different components of healthcare.gov. As security vulnerabilities are discovered, it will be very difficult to push out patches to the marketplace and get them properly tested to ensure that all the disjointed parts work together securely. After all, even CMS admitted they didn’t have time to properly vet the security of the initial code set!

c) Healthcare.gov is surely a prime target for hackers. There is an abundance of sensitive personal information that is being submitted that hackers will want to steal. Based on issues already documented by Ben and others, this will be a much easier hacking target than banks, retailers, payment processors and other enterprises where the crooks are already succeeding, despite billions of dollars being spent on security in order to be compliant with government regulations and the rules of the payment card networks (e.g. PCI).

d) Finally we already know that the knowledge based authentication system that healthcare.gov is using to verify applicant identities has been systematically compromised by identity theft gangs. See krebsonsecurity.com

e) Who’s supervising and examining healthcare.gov? Are there any security standards set for this critically important and sensitive website?

Frankly, I think the Obama Administration should cut their losses and fess up and admit they need to get the system overhauled and rewritten. And that is not going to take one or two months, as they say. The best they will be able to do in that timeframe is fix the performance issues. The security issues are surely much more complex – you can’t just throw horsepower at them. You need intelligent software and layers of defense. That takes time to bake in.

You can be sure the Republicans are going to pounce on any bug they can find. Hopefully they won’t be able to find any really serious ones that compromise the confidentiality of Americans already struggling to get health care insurance.

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The Death of KBA; Secret life questions fluster Obamacare applicants

by Avivah Litan  |  October 23, 2013  |  2 Comments

Just as we predicted (actually it didn’t take a rocket scientist to predict this), KBA (knowledge based authentication or secret questions based on life history to validate an identity) has been a flop on the Obamacare exchange websites, adding insult to injury. The topic even made it’s way to the human interest story on the front page of today’s Wall Street Journal, which documented how Americans needing health care insurance couldn’t satisfactorily answer the secret life history questions needed to pass the electronic application process. After all, who can remember the color of your first bicycle when you can’t even remember what you did two weeks ago, recounts an interviewee in the article.

KBA is on life support. It was already ineffective and now everyone knows its been compromised systematically by some of the most organized criminal gangs around. (See blogs.gartner.com and krebsonsecurity.com and krebsonsecurity.com )

Experian, LexusNexis, Kroll and Dunn and Bradstreet and other breached data brokers must be furiously trying to dig themselves out this hole. Frankly, I feel for them because securing the food chain of clients that have access to this sensitive data is a very tall task. And securing the systems against advanced threats is an equally tall task.

But at a minimum, they may want to stop selling identity theft protection services to consumers. It seems to be a conflict of interest, don’t you think?

As for the government and the healthcare exchanges, all they had to do was ask around and they could have easily avoided this latest disaster.

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Experian Identity Proofing Services Compromised; more bad news on the Data Broker front

by Avivah Litan  |  October 21, 2013  |  6 Comments

More bad news on the data broker front. Security blogger Brian Krebs revealed today that Experian, a major U.S. credit bureau has been selling sensitive consumer PII data to a Vietnam-based identity theft service, albeit inadvertently. See krebsonsecurity.com

In March 2012, Experian acquired data broker firm Court Ventures that mistakenly and reportedly started the illicit relationship with the criminal who posed as a private investigator. According to Krebs’ investigation, Experian reportedly kept the relationship alive for a year after its acquisition. The Vietnamese criminal has since been arrested.

So what does all this mean for enterprises that rely on PII (Personally Identifiable Information) data and KBA (Knowledge Based Authentication) processes and for the rest of us mortals whose data are being collected?

a) Identity proofing and know-your-customer processes that depend on data aggregators’ mass troves of sensitive PII information to validate a prospect or customer’s identity are compromised and relatively easily beaten by criminals.

For a fee, determined criminals can electronically impersonate any one they want to at organizations that rely on data matching and knowledge based authentication served up by the credit bureaus or other data brokers/aggregators in this ecosystem.

b) Identity proofing processes used by the data brokers themselves are also fallible, as evidenced in this case. This means that clever criminals can pose as legitimate businesses and gain access to these most sensitive services. If the data brokers can’t prove identities properly, then who can?

c) As consumers, we just have to realize that there is no data privacy anymore. Our life history and records on major financial transactions are for sale in the underground.

d) Regulators and legislators are years away from getting on top of these leaky faucets. And given the dysfunction in Washington, they could be decades away.

What’s the alternative?

Frankly there is no easy alternative for identity proofing. We outline some of the steps that can be taken in G00239627 “The Four Layers of Identity Proofing Lead to Stronger Identity Verification” but this requires that enterprises stitch together several niche solutions. Most of the banks we speak with who are using data brokerage services for identity proofing are planning to wean themselves off these compromised services, especially the KBA processes whose systematic compromise was exposed by Krebs a few weeks ago. See our previous blog on the KBA breach and also krebsonsecurity.com

But because of the ‘no-easy-alternative’ situation, government agencies, financial services, health care and companies in other sectors are likely to continue to rely on data brokerage services, at least partially, for years to come – knowing full well that that this reliance may come back to bite them financially.

And what about us consumers? Should we just hope for the best? The truth is it’s beyond our control and all we can do is check our financial records as often as we can so that we can report a problem as quickly as possible before too much damage is done.

So let’s just keep our fingers crossed. And expect more such revelations of similar breaches in the years to come.

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Experian acquisition of 41st Parameter underscores KBA weakness

by Avivah Litan  |  October 3, 2013  |  1 Comment

Experian’s October 1 announcement that it acquired web fraud detection vendor The 41st Parameter for $324 million underscores the weakness of knowledge based authentication or KBA. Experian sells KBA to companies verifying identities of consumers conducting high-risk transactions. KBA systems are under siege and a systematic compromise of these applications was recently uncovered by security blogger Brian Krebs. See our previous blog on this as well as krebsonsecurity.com

Although Experian was not part of the uncovered botnet-based infiltration, the so called secret questions and answers used across most major KBA vendors such as Experian and LexisNexis are typically the same. As noted previously, KBA has — on average — a 10-15% failure rate which can go much higher and up to 30% in certain populations such as new immigrants or young students. Most KBA failures are legitimate individuals who can’t successfully answer the secret ‘out-of-wallet’ questions or for whom there is not enough data to ask any. At the same time, criminals who buy this information on the black market have no trouble answering them perfectly. (See our September 2012 research note G00237377 “When Knowledge-Based Authentication Fails, and What You Can Do About It”).

No doubt, Experian saw the handwriting on the wall and wanted to avert these systemic problems, especially after it won part of a $80 million contract to verify ObamaCare applicants using KBA. See bobsullivan.net By purchasing the 41st Parameter at a healthy multiple (the 41st’s 2012 revenues were just about $20 million), Experian acquires much needed technology to help screen new accounts and verify identities. The 41st Parameter pioneered the introduction of server-based device identification, which is used extensively by banks and online merchants, when it was founded in 2004. It also patented its “TDL” (time differential linking) technology that complements device identification by measuring the time differential between a server and a client device, an especially useful technique for identifying iOS mobile users where device ID is essentially useless.

Aside from device ID, the 41st has populated a database of linkages (scored for risk) across devices, email addresses, phone numbers, credit cards and other data used for ecommerce shopping, by leveraging information it already collects from its extensive ecommerce merchant base (See G00247632 ”Magic Quadrant on Web Fraud Detection”). Assuming the 41st’s customers keep this data up to date and relevant (for example by marking an attribute such as a device ID as associated with fraud), this database will be very useful for Experian when it comes to assessing the validity of an identity (see G00239627 “The Four Layers of Identity Proofing Lead to Stronger Identity Verification”). In theory it should go a long way to improving Experian’s ability to detect bad guys trying to disguise themselves as good ones, while simultaneously identifying the good ones and letting them in without too much hassle.

Of course none of these identity verification methods are foolproof – plus it’s important to note that technology from The 41st only works with online and mobile transactions and not with in-person or on-the-phone transactions.

Yesterday I heard a somewhat funny story from a banker colleague about criminals pretending to be deaf and therefore ‘forced’ to use a “Service for Handicapped individuals” to call their bank’s call center. The criminal was trying to impersonate a legitimate deaf user whose account he was trying to take over. The criminal communicated (via a keyboard) to the rep at the Handicap service, who then called the bank’s call center agent to convey his request to withdraw money from the target victim’s account. When the call center agent started trying to verify the requestor’s identity, the criminal couldn’t answer the KBA questions correctly (obviously he didn’t know how to buy the answers on the black market) so the agent would not honor his money transfer request. The fraudster then started cussing the agent out by typing messages to the Handicap service rep who then told the agent she was obligated by law to relay to the agent the four letter words being cited by her customer).

Buying The 41st won’t solve all of these identity proofing challenges, but all in all it is a good move for Experian. And of course happy days are finally here for The 41st Parameter’s shareholders who join the growing club of web fraud detection vendors earning hefty multiples by selling out to large acquiring companies. (See recent acquisitions of Silvertail Systems, Trusteer, and Versafe, all in less than a year). Let’s hope it’s a also a good move for Obamacare and Experian customers.

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Knowledge Based Authentication Breached Big Time! Another dagger for Obamacare, the Banks and many others

by Avivah Litan  |  September 25, 2013  |  6 Comments

Today’s blog post by Brian Krebs reveals serious automated compromises at some of the U.S.’ largest data aggregators of sensitive identity information for consumers and businesses – e.g. LexisNexis, Kroll Background America, Dun & Bradstreet. See krebsonsecurity.com Krebs’ investigation makes it crystal clear that we shouldn’t be relying on knowledge based authentication to verify an identity.

We’ve known for a long time that KBA is being beaten by the criminals and first wrote about well over three years ago. See blogs.gartner.com But at that time the compromises were not nearly as automated as they apparently are now, according to Krebs’ seven month investigation.

We’ve also known, from talking with lots of Gartner clients, that KBA failure rates in the U.S. are on average 10-15%, and can go as high as 30% for some populations, when they include many individuals who are either new to this country or young in age and therefore without a lot of public data built up on them. (For more information see our September 2012 research note G00237377 “When Knowledge-Based Authentication Fails, and What You Can Do About It”). Most failures are good people who can’t answer the questions while the bad guys who buy the stolen information have no problems answering them.

Our clients have been trying for a while to get around the failures of KBA by using other identity indicators and scoring information (see G00239627 “The Four Layers of Identity Proofing Lead to
Stronger Identity Verification”) but weaning themselves totally away from relying on KBA for identity verification has been difficult at best because there are no readily-available alternatives that work as technically easily as KBA does. (Biometrics anyone??)

Still it’s not smart to turn a blind eye to the fact that the criminals can get their hands on anyone’s KBA or identity information through the black market exchanges that Krebs writes about. Frankly, it’s another ominous and bad sign for Obamacare, since as I understand it, the new healthcare insurance exchanges will be using the same KBA to verify applicants for healthcare insurance. I imagine their failure rates will near 25-30% given the population of applicants, (while the bad guys should have no trouble getting new health care benefits at much lower rates than they presumably have to pay now). The likely results will be chaotic and troublesome, and will no doubt fuel the fire of Obamacare opponents.

And where are the regulators in all this? In fact and ironically the U.S. banking regulators (the FFIEC) recommended in their latest iteration of their Guidance for Internet Banking Authentication that banks use relatively costly KBA (average $1 an inquiry for most) based on external data from companies like LexisNexis to verify the identities of users requesting high risk transactions. I remember cringing when I read that recommendation. And in 2006 the FTC fined ChoicePoint – now part of Reed Elsevier which also owns LexisNexis – for a previous breach in 2004 (which only potentially affected 140,000 consumer records, which looks like pittance these days) and ordered them to conduct ‘rigorous’ and independent security audits for up to 20 years. (For more information see our research note published in September 2006 “Case Study: ChoicePoint Incident Leads to Improved Security, Others Must Follow” G00142771).

I know it’s tempting to turn a blind eye to Krebs’ findings and to ignore the profound implications for our most sensitive financial operations. But that’s a very bad idea that will surely catch up with those who do. It’s just a matter of time before the bad chickens come home to roost. The good news is that there are technical alternatives to KBA – albeit not as easy to implement.

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F5 gets good deal with Versafe acquisition – another fraud company joins security

by Avivah Litan  |  September 24, 2013  |  Comments Off

On September 17, F5 Networks acquired Versafe, an Israeli security startup, for an undisclosed sum which I would bet is a small fraction of the $800 million plus that IBM just paid for its closest competitor Trusteer. Of course, Versafe doesn’t have the elite customer roster and healthy revenues that Trusteer does, but it does have reportedly very good technology according to customers I recently spoke with.

Frankly, I think Versafe would have given Trusteer a run for their money if they had been able to compete directly without IBM and F5 behind them. Versafe was started by boy security wonder Eyal Gruner who broke into his Israeli bank’s ATM network when his mother got him his first ATM card and later went on to ‘discreetly’ publish PII data belonging to Israeli army officers he was recruited to work for.

Versafe recently got its act together to beef up sales and marketing. Backed by Susquehanna International Group, a Philadelphia-based investment firm (who no doubt influenced the relatively fast acquisition here), Versafe was starting to catch on quickly with customers around the world who are experiencing nasty malware and phishing attacks against their customers. Their software really does work, and when integrated with F5 appliances, is easy to implement as it requires no client download. You can read more on their website.

So this makes the third acquisition in the past year where a big security company acquired a small web fraud detection/prevention start up. First came RSA’s acquisition of Silvertail for about $350M, then came IBM’s acquisition of Trusteer for $800M to $1 billion and now this one.

Is this good for the security and fraud market? Frankly, I think we were better off with the small innovators growing large on their own. I haven’t seen strong evidence that the security companies know how to handle these innovators. I’m not sure they will successfully bring their technology to the enterprise security market while enabling it to continue to thrive in the customer/consumer web fraud detection/prevention market.

It could be that F5/Versafe will be different in this case, only because they are smaller and have a focused solution that is easy to implement. Customers do like that and may be willing to pay for it – as long as the F5 sales reps remember to try and sell it. Time will tell of course.

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