Smart Card Alliance: End-To-End Encryption Won't Stop Credit-Card Fraud

The Smart Card Alliance has taken a stand against pure end-to-end encryption as a way to protect credit-card transactions, publishing a position paper this week calling instead for contactless chip cards with dynamic cryptograms.

Merchants and payment processors are under pressure to make changes in how customer card data is protected in the wake of major data breaches over the past two years, such as that of Heartland Payment Systems, which have exposed millions of customer credit and debit cards. The electronic payment industry is considering the adoption of a new ANSI standard, and Heartland is pushing for it to embrace end-to-end encryption of cardholder data.

"End-to-end encryption is designed to protect static data. As long as the transaction data is static, this is another way of combating fraud," says Randy Vanderhoof, executive director of the Smart Card Alliance. But when card data is being entered into a point-of-sale system (POS), for instance, it's still at risk, he says.

"It's like putting a steel door on a grass hut," he says. "Fraudsters will find other ways to get at that static data before it gets there, with things like skimming [the card data] as it's entered into the point of sale system, or cloning cards that are lost or stolen."

The alliance, whose members include Bank of America, MasterCard, Visa, HID Global Corporation, and the State Department, argues in its position paper that contactless chip cards with dynamic cryptograms for each transaction are a better solution than end-to-end encryption.

And if the industry does decide to adopt end-to-end encryption, the alliance recommends the standard allow for "globally-interoperable secure payment transactions using chip card technology in the future," the paper says.

The Smart Card Alliance's Vanderhoof says his organization's proposal is different from pure chip and PIN technology. "We're not advocating that the U.S. needs to go all the way to a full chip and PIN implementation, but chips with dynamic data like contactless payment cards that are on the market today," he says.

He says the proposal basically builds on existing "express" payment card programs from Visa, MasterCard, and American Express that provide more convenient and faster payment than traditional cards. These express cards use contactless card technology.

"The U.S. could see a significant change in fraud by introducing more dynamic data versus magnetic stripe data," Vanderhoof says.

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