By Ray Birch
RANCHO CUCAMONGA, Calif.—A new technology is being tested to battle counterfeit cards at the point of sale–it detects fake cards by how they are encoded.
Analysts say that the solution may have some promising benefits, but only time will tell if it is adopted by retailers.
Much of the fraud involving counterfeit credit, ATM debit and retail gift cards relies on the ability of thieves to use cheap, widely available hardware to encode stolen data onto any card's magnetic stripe. But new research suggests retailers and ATM operators could reliably detect counterfeit cards using a simple technology that flags cards that appear to have been altered by such tools, Krebs on Security reported.
Researchers at the University of Florida found that account data encoded on legitimate cards is invariably written using quality-controlled, automated facilities that tend to imprint the information in uniform, consistent patterns. Cloned cards, however, usually are created by hand with inexpensive encoding machines, and as a result feature far more variance or "jitter" in the placement of digital bits on the card's stripe, Krebs on Security explained.
What Researchers Found
A team of five University of Florida researchers partnered with Walmart to test their technology that can be easily and cheaply incorporated into point-of-sale systems at retail store cash registers. According to the researchers, the Walmart trial demonstrated the technology distinguished legitimate gift cards from clones with up to 99.3% accuracy.
Sources who spoke with CUToday.info believe most retailers are taking a wait-and-see approach with the new counterfeit card detection tech for several reasons. Reports indicate, too, that the solution could slow fallback fraud, where crooks damage the chip on a card to force the terminal to fall back to mag stripe, where the phony data reside.
John Buzzard, fraud specialist at CO-OP Financial Services, said that the new technology arrives at a time in which great strides are being made in preventing POS fraud.
“Chip cards and tokenization have really slowed down criminals, as the latest fraud data show,” said Buzzard.
Dramatic Impact
Data from Visa and Mastercard reveal that chip cards have made a dramatic impact on POS fraud, and as a result, crooks are moving to other avenues to make money, such as online and ATM skimming, which CUToday.info has extensively reported.
“But this technology that is being tested by the University of Florida is interesting,” said Buzzard. “They have had a good success rate in testing this solution. So I’d say we are at a wait-and-see moment here.”
Buzzard suggested that Walmart supporting the new fraud detection tech adds legitimacy to the solution. Yet, if the software were to be used by retailers on POS machines, he believes the focus will be on gift cards, since most do not carry chips due to the extra cost.
“This is something that Walmart is interested in,” said Buzzard. “But they are looking at the technology specifically to detect phony Walmart gift cards,” he said.
Self-Serve Fraud
Buzzard added that phony gift cards are an increasing problem for retailers, due in part to the self-checkout lanes—which Walmart relies on extensively.
Brian Scott
“At these lanes it’s easy to get a phony gift card accepted. It’s swipe and go, with no signature. You have one person overseeing maybe 25 self-checkout terminals. On a busy Saturday evening that does not go very far,” he said. “Crooks like to use fake gift cards at the self-checkout lanes.”
With 99.3%, researchers acknowledged there will be a small number of false positives. However, retailers the University of Florida team spoke with said the solution provides value.
Retailers told researchers that if they can simply flag the suspicious transaction and make a note of the person presenting the cloned card, that would be a win for them. Often, putting someone on notice that loss prevention is watching is enough to make them stop at that store, retailers said.
One Word of Caution
But at least one person indicated that if the new fraud detection solution were to catch on, it would have to do so quickly, as criminals are not slow at developing ways to thwart new fraud tools.
“While I think it’s interesting technology that could have some promise, it seems like a short-term measure rather than a long-term solution,” said Brian Scott, SVP of sales and solutions consulting at PSCU.