Toby Weir-Jones, Vice President of Product Development, Managed Security Solutions Group, BT Global Services
Most internet users give little thought to security issues beyond asking their teenaged neighbor if it’s safe to send pictures of Fluffy to their kids at college. Despite untold billions spent on awareness campaigns for the home user and at work, seemingly endless patches to Internet Explorer and Firefox, and any number of other reparative measures, we still have the same basic problems today that we had 10 years ago: users make mistakes that appear to have no real consequences, but in fact can be massively troublesome, and even potentially expensive.
John Pescatore, VP and Research Fellow for Gartner Research, was recently interviewed by Tom Field at BankInfoSecurity.com, in which he gave his opinion on the pressing security issues of the day. Among his various suggestions, the most intriguing is the notion that internet activities should be insured and, more importantly, that users should have some kind of incentive structure in order to become insurable.
Cyber Monday is just the beginning of the online seasonal frenzy that will run its course over the next few weeks. Your family, your colleagues and your staff are all likely to buy something online. Some of them will start by looking for coupon codes, or responding to apparent promotions received by email. And a smaller subset will end up going to the wrong sites, picking up some kind of nasty malware, and generally having a rotten time when their machine gets taken over, or they enter the credit card information into the wrong place. Who is really responsible for the costs of cleanup and recovery under those conditions?
Right now we pay for clean-up, but very indirectly, because the losses are generally borne by the banks that issue the credit cards. Sometimes, after a failed PCI audit, the merchants might be penalized, or suffer a chargeback if they didn’t validate a transaction correctly. Those costs – plus administrative overhead and markup – do eventually come back to the consumer in the form of fees, higher prices, or reduced availability of purchasing options. But since we don’t see them on the “Checkout” page, it’s as if they don’t really exist.
And this is the root of the issue. As users we perceive that everything we do online is free unless we consciously choose to accept to pay for it ourselves. But we also feel entitled to push all remaining costs (for development, or delivery, or risk management) back to the supplier, manufacturer, or their proxies. The status quo is so powerful that any one provider who tries to change it will see their customer base evaporate overnight, shifting to a competitor who could withstand the expense an extra day.
The system, for all its efficiencies, has introduced costs which wiggle their way into all the little nooks and crannies brought about by automation and complexity. “But if I buy it online, it has to be cheaper!” you cry. But what constitutes “it”? Yes, you’ve removed retail space and all those expenses, and your order fulfillment is doubtless more efficient, but you’ve also introduced multiple new opportunities for risk, fraud, and expense, none of which you, as a consumer, are currently willing to pay for.
There is evidence, however, that the balance is beginning to shift. Some credit card issuers are already charging a premium if you make a purchase in a country foreign to your billing address – this is nominally a hedge against the increased risk of fraud, and it has the added benefit of being a massive profit center to off-set other costs incurred in the domestic market.
Pescatore’s notion that the users need to demonstrate some form of insurability requires at least two steps: the user goes through the motions and then the underwriter bestows its blessing. This will fail as long as a single-step option, i.e., the status quo, is available. Think of Pescatore’s suggestion as PCI for retail consumers, but with much sharper teeth. There will be huge outcries against such a scheme, but as consumers we must accept that our choice to use e-commerce vendors introduces additional costs into the system. We can pinpoint where those costs originate quite accurately, based on the nature of the abuse, and it is those locations which should bear the costs (if they are legitimately responsible) or be able to pass them along the supply chain (if they are not). While I am rarely a defender of banks, the current regulations limiting consumer liability to $50, simply because a credit card in their name was involved, are far too simplistic.
One way to make such a model more palatable is to pool the risk. Lots of cards track purchases and accrue credits to a cash-back credit account, so we know the mechanics are easy enough. Instead of charging consumers outright (thereby increasing transaction costs each time they make a purchase), collect fees on certain higher-risk transactions, pool the premiums, and then disburse those funds on a quarterly or annual basis to cover loss from any transaction using that issuer’s cards. Don’t allow the banks simply to treat this as a fresh revenue stream; require any fees collected to be used first to offset incentive and IT conversion costs, second, to cover losses for otherwise-compliant merchants, and only third, to go to the bank’s bottom line.
In the meantime, modify the merchant fee structure to offer immediate penalties and incentives for compliance with next-gen PCI. Create a new PCI demarcation for IT shops that can help smaller merchants modify their web sites to use more robust processor engines. Help the smaller merchants by making it more attractive for them to run their credit card processing through larger, more established e-commerce providers, and create a market for those providers to buy books of business (via a combined cap cost and annuity) from the small and fringe processors.
Finally, make the increased cost of all this visible to the consumer. Pescatore wants a dashboard to tell a CEO if his network is safe, but a consumer needs to know that his purchase price is paying for more than just the item and the “free” super-saver shipping. Smart merchants and credit card issuers can leverage their compliance with such programs as a stronger value proposition to attract consumers, and more active participants in the risk-pooling model will help distribute accountability while amortizing recovery costs.