Too many ATMs are exposed to fraudsters, warns Gartner

Missing the middle track

Fraudsters can get cash from ATMs because some banks fail to scan security codes in the magnetic stripes on cards, according to Gartner. Counterfeit cards are made when consumers, tricked by phishing, disclose account numbers and PINs.

According to the research firm, ATM fraud is on the rise, affecting an estimated three million US consumers in the year to May 2005, and generating losses of $2.75bn. The figures were based on a survey of 5,000 US adults.

Magnetic stripes on credit and debit cards tend to contain three 'tracks' of information. Track 1 holds up to 79 alphanumeric characters that usually encode the account number, customer name and card expiry date. Track 2 contains up to 40 numeric characters and is used to store certain encrypted security data. Track 3 holds up to 107 numeric characters but is rarely used.

Avivah Litan, vice president and research director at Gartner, explained that the security codes stored in Track 2 link the physical card to the customer's account number. But she warned that banks are neglecting this important security check.

"Surprisingly, perhaps as many as half of US-based financial institutions are not validating Track 2 security data while authorising ATM and PIN debit transactions," she said. "Most of these institutions are unaware that they, or the outsourced ATM transactions processor they rely on, should be doing so."

Ms Litan explained that criminals were targeting the customers of banks that are not validating the Track 2 data. "The hackers call these banks 'cashable,'” she said. “The prime candidates are banks with high cash withdrawal limits."

Gartner says the banks have the ability to stop these attacks by modifying their ATM host systems to check for security on a card's magnetic stripe. These data are unknown to bank customers and therefore cannot be phished, while thieves generally cannot duplicate the data unless they have insider knowledge of the bank's algorithms and security codes.

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