Malware Inside the Credit Card Machine

By | January 21, 2009


(Update, July 2009: A BusinessWeek article puts the company’s side; maybe I was a little too harsh on them in this post.)

This gives you an idea of how bad malware is getting, and how much we’re underestimating it: a U.S.. company that processes credit card transactions has just revealed that malware inside its computers may have stolen the details of more than 100 million credit card transactions. That would make it the biggest breach in history.

Heartland Payment Systems, one of the fifth largest U.S. processors in terms of volume, began receiving reports of fraudulent activity late last year. But it took until last week to find the source of the breach: “A piece of malicious software planted on the company’s payment processing network that recorded payment card data as it was being sent for processing to Heartland by thousands of the company’s retail clients,” according to Brian Krebs of The Washington Post.

Revealed were credit/debit card numbers, expiry dates and names of customers to some, or all, of more than a quarter of million retail outlets. Bad guys could make fake cards based on this data, but they probably couldn’t use it to buy stuff online, the company said. (At least one observer has characterized this as garbage, opining that a lot of eCommerce merchants turn off their Address Verification System because of errors, and fears of losing the customer.)

That it took so long is pretty extraordinary in itself—these are, after all, the company’s own computers. We’re not talking about investigators having to track down malware on one of its customers computers, or somewhere in between. But that’s not all that’s remarkable: It looks like the certification that these kinds of operations rely on, the Payment Card Industry Data Security Standard, or PCI DSS, was issued last April  (here’s the proof. Certificates are valid for a year). This suggests according to Digital Transaction News, that the bad guys have found a way around the industry standard level of protection.

Also remarkable is this: The company chose to release the news on Inauguration Day, a fact that has rightly prompted accusation the company is burying the news. The company has played down the seriousness of the breach, saying that not enough information was revealed about individual cards for identity theft to be an issue, while at the same time suggesting that it’s part of a wider “cyber fraud operation.” I’m not sure it can have it both ways.

The company but has set up a website for concerned individuals at (Note the cute use of last year to make it seem like something of historical interest only—or maybe was already taken? That doesn’t seem to have stopped worried customers trying to log on; as of writing the website, and those of the company, are down—possibly because of visitor traffic.)

Apart from the insubstantial response of HPS itself, it’s worth pointing out that this kind of attack is not new. CardSystems, another processor was breached in 2005—apparently via malware which grabbed data it was storing (rather than processing.)

I was kinda skeptical back then of the way it was handled—the company itself delayed release of the information for a month. More digging suggested that the information had been available far longer. It was perhaps understandably coy, given these things never end prettily: Within a few months what was left of CardSystems was acquired by Pay By Touch, also known as Solidus Networks, just in time for it be slapped down by the FTC. Pay By Touch itself closed down last year and its website is no longer active.

What this new breach seems to tell us is that the bad guys are—and probably always have been—smarter than the good guys. Data within a payment processor like HPS does not need to be encrypted—indeed, the company argues it can’t be encrypted, because it needs to be processed—so while CardSystems was clearly in breach of the rules by storing data, HPS is arguing that it’s not.

But all this tells us is that the security measures in place to protect our data are not enough. God knows how that malware got into their computers. And why it was so hard to trace once it—or something–was known to be there. But the lesson from this miserably handled episode has to be that security and oversight need to be tightened, while transparency towards customers—the individuals who have to pick up the pieces, by scanning their monthly statements for months to come for possible fraud—has to be seriously improved.

The bigger issue, of course, is to finally wake up to the fact that malware is no longer some obscure corner of security matters, but something that affects all of us.

Image: Screenshot of the inaccessible website.

2 thoughts on “Malware Inside the Credit Card Machine

  1. Ade Barkah

    Nice piece Jeremy. My impressions so far, not knowing the details of this breach:

    1. Malware is a vague term. We usually describe malware as viruses, worms, trojans, etc., (generally things an anti-virus might catch.) However, in this case, “malicious software” might refer generically to custom software specifically crafted to compromise Heartland, or even to unauthorized modifications made to Heartland’s own source-code… not necessarily our typical Windows malware.

    2. AVS aside, the main protection against fraudulent “card-not-present” online transactions are the CVV2 / CVC2 codes — those numbers printed on the back of credit cards. These numbers are not encoded within the magnetic stripe “track data”, and without them online purchases cannot be made. It would be interesting to know whether or not these codes were compromised.

    3. PCI-DSS compliance are assessed by so called “Qualified Security Assessors” (QSAs). However, not all QSAs are created equally, and merchants have been known to “shop around” to find “easy” QSAs. Too many people can become QSAs by simply taking a short course and paying up the QSA fee. The QSA (and related ASV) programs need to be completely revamped.

    4. Yet again this breach demonstrates that compliance is necessary, but not sufficient. Unfortunately as a security consultant I can tell you how difficult it is to convince customers to go above and beyond “compliance.”

    5. In large breaches, often insider fraud is involved. Organized crime have been known to specifically plant or recruit skilled individuals within financial institutions. Insider fraud can be very difficult to detect.

  2. Tom

    That reminds me that an other underestimated malicious “malware” (but outside the credit card machine) is executive staff of banks handling confidental credit card data. Here in Indonesia you can buy a faked credit card at the black market for as little as US$50. That tells a lot about how amazingly easy it is to get credit card data. Often involved in these kind of business are bankers with access to sensitive data. I run business in Indonesia and have several credit card machines in use, quite often well-off people approach me to “work together” in processing faked cards and sharing the profit. So much about credit card safety in developing countries.


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