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Take On Payments, a blog sponsored by the Retail Payments Risk Forum of the Federal Reserve Bank of Atlanta, is intended to foster dialogue on emerging risks in retail payment systems and enhance collaborative efforts to improve risk detection and mitigation. We encourage your active participation in Take on Payments and look forward to collaborating with you.

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December 16, 2019

ATM Cash-Out Attacks Return

I first wrote about ATM cash-outs back in 2013 when these attacks were escalating. But the frequency of the attacks quickly declined when card issuers and their processors and networks hardened their defenses. So why am I writing about it again? There were some major attacks in mid-2018. A bank in India, for example, lost approximately US$13 million from more than 12,000 fraudulent transactions at ATMs located in Canada, India, and Hong Kong. The United States has seen isolated attacks in recent years, but law enforcement is concerned that these attacks will grow because perpetrators stand to obtain a large amount of money. It's critical that financial institutions and other transaction processors remain vigilant, so I'd like to bring some attention back to this especially costly crime.

These attacks require careful planning and a synchronized effort, but the payoff for the criminals can make it worth all the work. First, the criminal gains remote access to an issuer's card management system and transaction controls. Next, the criminal uses a money mule network to open new accounts with a chip card or distributes debit or prepaid cards with cloned magnetic stripes and compromised PINs to the money mules spread across the globe. In a carefully synchronized operation, the money mules begin making withdrawals at numerous ATMs. With access to the card management system, the criminal keeps resetting balances and transaction counters to get around amount and transaction limits, and withdrawals continue to be authorized. The mules continue to make withdrawals until the cash supply in the ATM is exhausted. This is how such attacks can result in a loss to issuers in the millions of dollars worldwide in just a couple of hours. Most networks have now implemented transaction monitoring capabilities that can detect abnormal transaction traffic both at the account and the financial institution levels. If the networks identify abnormalities, they contact the issuer or processor to examine the transactions more closely. Some networks, if they can't contact the financial institution or processor, are authorized to block the activity right away to prevent additional transactions until the situation can be evaluated. Some criminals have responded by increasing the number of targeted accounts so the activity is spread across more accounts and the detection thresholds are not crossed as quickly.

Here are some steps that issuers and processors can take to defend against cash-out attacks:

  • Follow standard cybersecurity protocols related to password strength and management of system access controls to prevent compromise of system access credentials.
  • Evaluate adding further layers of authentication/approval for remote changes to card management data fields such as account balances and transaction counters.
  • Discuss with processors and networks any additional monitoring capabilities they may have to mitigate such attacks.

As the ATM celebrates its golden anniversary, cash-out attacks remind us of the constant efforts by criminals to defraud financial institutions and other stakeholders in the payments industry. Cash-out attacks are not new, but they can still result in huge losses, so the industry needs to remain vigilant and continue to look for ways to defeat them.

February 26, 2018

Explosive News Regarding ATMs

You've probably seen at least one video of a criminal attaching a chain from a truck an ATM to try to pull the ATM out of its mounts. Or maybe you've seen one of someone using a sledgehammer to try to smash an ATM open. Although these types of attacks are destructive, they do not rise to the level of the explosive attacks that have been taking place in Europe, Australia, and South America—and, just recently, in the United States. First reported about 10 years ago in Europe, their frequency has increased dramatically over the last several years.

I learned a bit about these and other ATM dangers at a conference I recently attended in Las Vegas on emerging functionality for ATMs and cash dispensers. One of the most interesting sessions was a presentation on ATM crimes that a U.S. Secret Service agent gave. The agent talked about the two major categories of ATM terminal crimes: logical and physical attacks. Criminals carry out logical attacks using software, skimming devices, or cameras. With software, they aim to gain access to the ATM software or operating system so they can intercept data transmissions or issue commands to dispense currency. With skimming or shimming devices and cameras, they can capture card and PIN data. A recent logical attack "jackpotted" an ATM—that was the first time in the United States that a criminal forced an ATM to dispense all its currency.

Criminals trying to blow up ATMs in Europe have predominately used gas. They pump a combustible gas like oxyacetylene, used in welding, into the ATM enclosure through a drilled hole, currency slot, or other entry point, and then detonate it. This 2015 Bloomberg Businessweek article describes explosive attacks in England in great detail.

Unfortunately, reports indicate that solid explosives such as dynamite, explosive gel, and C4 are becoming more common in Europe and South America. In Brazil, dynamite is the predominant explosive, in part because a large supply of dynamite was stolen from a mining operation. As expected, these attacks are highly destructive, not only to the ATM but also to the surrounding building, which you can see in the photo below (this ATM attack recently took place in Atlanta). Normally these attacks are carried out at ATMs in isolated locations at off-hours. Fortunately, I have not heard of any loss of life or injuries to innocent people from these attacks.

From tweet
Source: WSB-TV

Because the frequency of these attacks is growing, ATM manufacturers and other third parties have developed countermeasures either to detect and thwart the attacks or to reduce the monetary value of a successful attack. For gas attacks, detection sensors installed in the ATM may do several things: trigger an audible—and monitored—alarm, release a gas-suppression system to prevent detonation, open a cover to prevent the gas pressure from building to a level that will detonate, or trigger a currency-staining mechanism that would put an ink stain on the currency in the machine, neutralizing its ability to be used. Additionally, penetration mats may be installed inside the ATM fascia that could detect drilling. Regrettably, attacks with solid explosives are more difficult to mitigate, but the industry has responded with harder enclosures and currency-inking neutralization systems.

We can hope that such attacks will not grow in frequency the United States, but security folks will probably tell us that we are being a bit Pollyannaish. Best be prepared.

Photo of David Lott By David Lott, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

January 9, 2017

The Year in Review

As we move into 2017, the Take on Payments team would like to share its perspectives of major payment-related events and issues that took place in the United States in 2016, in no particular order of importance.

Cybersecurity Moves to Forefront—While cyber protection is certainly not new, the increased frequency and sophistication of cyber threats in 2016 accelerated the need for financial services enterprises, businesses, and governmental agencies to step up their external and internal defenses with more staff and better protection and detection tools. The federal government released a Cybersecurity National Action Plan and established the Federal Chief Information Security Office position to oversee governmental agencies' management of cybersecurity and protection of critical infrastructure.

Same-Day ACH—Last September, NACHA's three-phase rules change took effect, mandating initially a credit-only same-day ACH service. It is uncertain this early whether NACHA will meet its expectations of same-day ACH garnering 1 percent of total ACH payment volume by October 2017. Anecdotally, we are hearing that some payments processors have been slow in supporting the service. Further clarity on the significance of same-day service will become evident with the addition of debit items in phase two, which takes effect this September.

Faster Payments—Maybe we're the only ones who see it this way, but in this country, "faster payments" looks like the Wild West—at least if you remember to say, "Howdy, pardner!" Word counts won't let us name or fully describe all of the various wagon trains racing for a faster payments land grab, but it seemed to start in October 2015 when The Clearing House announced it was teaming with FIS to deliver a real-time payment system for the United States. By March 2016, Jack Henry and Associates Inc. had joined the effort. Meanwhile, Early Warning completed its acquisition of clearXchange and announced a real-time offering in February. By August, this solution had been added to Fiserv's offerings. With Mastercard and Visa hovering around their own solutions and also attaching to any number of others, it seems like everybody is trying to make sure they don't get left behind.

Prepaid Card Account Rules—When it comes to compliance, "prepaid card" is now a misnomer based on the release of the Consumer Financial Protection Bureau's 2016 final ruling. The rule is access-device-agnostic, so the same requirements are applied to stored funds on a card, fob, or mobile phone app, to name a few. Prepaid accounts that are transactional and ready to use at a variety of merchants or ATMS, or for person-to-person, are now covered by Reg. E-Lite, and possibly Reg. Z, when overdraft or credit features apply. In industry speak, the rule applies to payroll cards, government benefit cards, PayPal-like accounts, and general-purpose reloadable cards—but not to gift cards, health or flexible savings accounts, corporate reimbursement cards, or disaster-relief-type accounts, for example.

Mobile Payments Move at Evolutionary, Not Revolutionary, Pace—While the Apple, Google, and Samsung Pay wallets continued to move forward with increasing financial institution and merchant participation, consumer usage remained anemic. With the retailer consortium wallet venture MCX going into hibernation, a number of major retailers announced or introduced closed-loop mobile wallet programs hoping to emulate the success of retailers such as Starbucks and Dunkin' Brands. The magic formula of payments, loyalty, and couponing interwoven into a single application remains elusive.

EMV Migration—The migration to chip cards and terminals in the United States continued with chip cards now representing approximately 70 percent of credit/debit cards in the United States. Merchant adoption of chip-enabled terminals stands just below 40 percent of the market. The ATM liability shift for Mastercard payment cards took effect October 21, with only an estimated 30 percent of non-FI-owned ATMs being EMV operational. Recognizing some of the unique challenges to the gasoline retailers, the brands pushed back the liability shift timetable for automated fuel dispensers three years, to October 2020. Chip card migration has clearly reduced counterfeit card fraud, but card-not-present (CNP) fraud has ballooned. Data for 2015 from the 2016 Federal Reserve Payments Study show card fraud by channel in the United States at 54 percent for in person and 46 percent for remote (or CNP). This is in contrast to comparable fraud data in other countries further along in EMV implementation, where remote fraud accounts for the majority of card fraud.

Distributed Ledger—Although venture capital funding in blockchain and distributed ledger startups significantly decreased in 2016 from 2015, interest remains high. Rather than investing in startups, financial institutions and established technology companies, such as IBM, shifted their funding focus to developing internal solutions and their technology focus from consumer-facing use cases such as Bitcoin to back-end clearing and settlement solutions and the execution of smart contracts.

Same Song, Same Verse—Some things just don't seem to change from year to year. Notifications of data breaches of financial institutions, businesses, and governmental agencies appear to have been as numerous as in previous years. The Fed's Consumer Payment Choices study continued to show that cash remains the most frequent payment method, especially for transactions under 10 dollars.

All of us at the Retail Payments Risk Forum wish all our Take On Payments readers a prosperous 2017.

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Mary Kepler
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Julius Weyman
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Doug King
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Dave Lott
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Jessica Washington
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Steven Cordray

 

November 7, 2016

The Downside of a Wide Paintbrush

Fall is the time of the year that I normally do my exterior home painting and touchup. During the summer, I noticed that my deck and stair metal support poles were a bit dull and had some rust spots, so that was to be my project. The poles have a 4-inch diameter, so I was in a bit of a quandary over the best width paintbrush to use—a 2-inch or a 4-inch. The 4-inch brush would provide faster coverage so my football-game-watching time wouldn't be compromised, but the 2-inch brush would give me greater control and reduce drips and splatters. I went with the expedient choice, and it turned out to be a mistake, as my coverage was uneven with plenty of drips and splatters.

I mention this story because I recently appeared at the National ATM Council's (NAC) annual conference. NAC is an industry trade organization representing nonfinancial-institution ATM owners/operators in the United States. I was asked to speak primarily about the Fed's research into the use of cash as well as the current chip card and terminal deployment status. After my presentation and in the subsequent days of the conference, I was approached by a number of owners/operators telling me that their banks had recently terminated their longstanding relationships; they were deemed to be "high risk" since they were in the currency business. Many were scrambling to establish new banking relationships and wondering why this was happening.

Being an old ATM guy, I was a bit surprised hearing about this action due to the built-in controls on ATM currency settlement and reconciliation that severely limit the ability for an ATM owner/operator to launder money through an ATM. It would be very easy for the bank to spot an imbalance if the money being replenished far exceeded the currency paid out by the ATM. There is still the concern, of course, regarding the initial load (deposit) to establish the account to ensure that those are legitimate funds, but that concern exists with the establishment of all banking relationships by any type of business.

Financial institutions certainly have the obligation to develop a risk management strategy and determine which types of business activities they deem acceptable versus those considered high risk. Supporting ATM operators with their currency needs could be considered a niche business with some unique requirements and may not be the best allocation of resources for all financial institutions. At the same time, bankers may not want to paint a business with the wide brush of "high risk" just because they deal with currency as a major part of their business operation. To do so may force many of these operators to shutter their units, which often are located in areas where there is not a wide choice of ATM locations.

Photo of David Lott By David Lott, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed