Academic journal article ABA Banking Journal , Vol. 97, No. 6
Identity theft is a fear or a curse on nearly everybody's tips these days. ABABJ re-examined the issue in this department in April. And, it was the nation's top consumer complaint in 2004--for the fifth year in a row--according to the Federal Trade Commission. Identity theft was 39% of all the 635,000 consumer complaints filed with them Last year. In a year-earlier report, FTC said that identity fraud (a category of which theft is a subset) was even more prevalent: fraudsters used the personal credit information of about 3.3 million U.S. consumers to open new bank, credit card, or utility accounts or to commit other crimes. Criminals stole credit or funds from the card or banking accounts of another 6.6 million consumers, according to a New York Times story.
Lexical note: phishing is an example of identity theft but not necessarily of identity fraud. A phisher hooks an identity and tries to use it fraudulently. If the stolen identity is arrested by another authentication measure, then no fraud occurred.
The FTC stats are enough to make any conscientious banker sit up and take notice--which is exactly what happened. In doing so, bankers developed countermeasures to protect their sensitive financial information.
Now comes Bruce Schneier, a founding father of digital cryptography and now chief technical officer of Counterpane Internet Security, to say that those identity-fraud countermeasures may be "too Little, too Late," as he warns in the title of a recent technical journal article. Why so? Because those measures are based on "two-factor authentication"--a password plus an identity-related physical "token" such as a key chain or a calculator-size device in which you dip a chip-card. Tokens may embed additional authentication measures, as the magnetic stripe does on an ATM card. This strategy, he writes, is not going to make online accounts secure from fraudulent transactions. "It solves the security problems we had ten years ago, not the security problems we have today."
A new breed of attacks
And why is that? "Back then, the threats were all passive: eavesdropping and offline password guessing. Today, the threats are more active." Schneier cites two types. In the Man-in-the-middle strategy, the attacker puts up a fake bank website and entices a user to it. The user enters his password, and the attacker uses it to access the bank's real website. Done correctly, the user never realizes that she isn't at the bank website. The attacker can steal some money and run, and/or pass along the user's transactions with her own. In another sophisticated new-age attack, the fraudster gets a Trojan hijacker routine installed on a victim's computer. When the user Logs into her bank's website, the Trojan rides along, through the access barriers, and into any of the victim's accounts. In both cases, the fraudster doesn't care how high the access barriers are because he is riding safely under the flag of the legitimate user. Two-factor systems may work for local log-in and within some corporate networks, but not for remote authentication over the internet, Schneier writes, and he concludes:
"I predict that banks and other financial institutions will spend millions of dollars outfitting their users with two-factor authentication tokens. Early adopters of this technology may very well experience a significant drop in fraud for a while as attackers move to easier targets, but in the end there will be [only] a negligible drop in the amount of fraud and identity theft."
Today's shaky foundation
The Aite Group--a new research firm offering "actionable strategic advice" on technology, business and regulatory issues in the financial services industry--confirms all of Schneier's points in a comprehensive 49-page report, ID Verification--in search of a new paradigm.
The financial industry's identity crisis begins with reliance on weak identity documents--Social Security Numbers, drivers' licenses, birth certificates, student and tourist visas, and the Like. …