Vital Payments Security Method at Heart of Gemalto Hack Investigation

February 20, 2015

The apparent hack of Gemalto by U.S. and U.K. spies casts doubt over several security measures vital to the payments industry as it embraces chip cards and adopts digital payments.

Gemalto, a Dutch company that manufactures SIM cards and EMV chips, is investigating a report that the National Security Agency and its U.K. counterpart hacked into the company’s network and stole keys used to encrypt conversations, messages and data traffic. The hack took place five years ago, according to the report, published Thursday by The Intercept and based on documents provided by the former NSA staffer Edward Snowden.

The incident sends a message to the banking and payments industries that “all of this stuff can be hacked,” said Julie Conroy, research director and fraud expert with Aite Group in Boston.

Keys like those allegedly stolen from Gemalto are used in “point to point encryption,” the practice of encrypting customer data from the point of interaction (for example, when a card is swiped) until it reaches a secure environment. A form of key management is used in tokenization, which replaces sensitive information with tokens when the data is “at rest.” The payments industry is developingstandards for point-to-point encryption, which security providers are positioning as vital to protecting EMV transactions.

The loss of an encryption key would harm any company trying to protect data.

In payments, providers supply a public (or asymmetric) encryption key or a shared (or symmetric) key. Those keys encrypt the personal account number at the terminal or PIN pad to protect data as it moves through a network. Encryption keys are generally stored in a hardware security module or through cloud-based software vaults.

It appears from the report that hackers compromised the entire Gemalto network, accessing numerous data encryption keys that go beyond telecommunications, said Greg Coogan, president and CEO of West Bay Partners, an information technology consulting company.

Payment companies would have some protections in the case of a Gemalto hack, according to Coogan. The incident “doesn’t really [directly] address tokenization and EMV and the types of standards expected out of the people who provide those services,” he said. For example, Visa and MasterCard security protocols make it clear that a merchant or financial institution “would never get e-mail access to tokens,” Coogan said, referring to the report’s suggestion that hackers stole vital information from e-mails or shipments of SIM cards from Amsterdam-based Gemalto.

The Gemalto event likely won’t trigger the same type of fear that resulted from the breach at RSA Security in 2011, Conroy said.

In early 2011, hackers broke into the EMC Corp.’s RSA Security system to steal 40 million SecurID tokens commonly used for online banking and other systems. The RSA breach led to security updates, since criminals proved they could obtain passcode tokens and keys to creating unauthorized cards or stealing passwords. RSA Security replaced the 40 million stolen tokens.

Major breaches at security specialists like RSA indicate that nothing is truly safe “if there is a sufficient amount of monetary, corporate espionage or state secret incentive” to pursue it, Conroy said.

Constant network monitoring and multiple layers of security remain the most important defensive measures for any retailer or business protecting payment or other sensitive data, Conroy said.

Gemalto did not respond to direct inquiries. In a statement to media outlets, it noted that, according to the report, the company was not a lone target and that the breach was part of an “attempt to try and cast the widest net possible to reach as many mobile phones as possible to monitor mobile communications without mobile network operators and users consent.”

Gemalto said it cannot verify the findings at this time, though it was taking the report seriously. The company also reminded its clients that it has dealt with other breach attempts and is “especially vigilant against malicious hackers.”

“A key difference in the Gemalto case, depending on one’s point of view, is that theoretically these were the good guys trying to access information,” Conroy said. “But people view privacy differently in different countries.”

Coogan agreed, but wondered if data in the hands of “guys in the white hats” can reach others with different intentions.

“We are hoping they were doing this for a reason in an attempt to keep us safe,” Coogan said. “But that doesn’t preclude [someone] from causing chaos with information about EMV chips or other data.”