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Data-sniffing attack costs Heartland $12.6m

Credit card processor promises end-to-end encryption

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Electronic payments processor Heartland Payment Systems said Thursday it has allocated $12.6m to cover a security breach that exposed sensitive card holder data crossing its network.

More than half that amount involves a fine MasterCard has assessed banks that did business with Heartland, said company CEO Robert Carr, according to this conference-call transcript. The remainder covers legal costs and other expenses related to the breach, which was discovered in January.

Carr said the company plans to roll out a new security system designed to encrypt payment card transactions from their point of origin with merchants to their final destination with the card issuers. Currently, the vast majority of transactions transmit data that is sent in the clear, except for personal identification numbers.

The mechanism would go well beyond so-called PCI DSS, or payment card industry data security standards, which are mandated on merchants, processors, and banks that work with credit and debit cards. Heartland is still working with card companies such as Visa and MasterCard to see if they will be able to accept the encrypted data.

"We are in a cyber crimes arms race, and we need to stay ahead of the bad guys who never rest and do not call committee meetings to update their malicious tools and attack vectors," Carr said.

Heartland hopes to put the system in place by the third quarter, a time line that may be overly optimistic. That's because there are a lot of players in the payment card industry, and for the system to work, each will have to upgrade their equipment to deploy the new mechanism.

"For this to really be effective, the banks need to participate and so do Visa and MasterCard and American Express," said Avivah Litan, a security analyst with Gartner. Right now, a small number of processors offer end-to-end encryption, but none of them are among the top 10 players, she said.

The breach occurred when criminal hackers managed to sneak malware onto Heartland's network that sniffed card data that was stored there. The company has yet to provide basic details about the intrusion including how long it lasted, how the software was able to penetrate the company's defenses or how many cards were intercepted. At least 160 banks in the US, Canada, Guam, and elsewhere have been affected, the BankInfoSecurity.com news portal said in February.

Besides expenses in excess of $12m, the breach has been costly to Heartland in other ways. Among other things, it has distracted company employees and been used as a scare tactic by competitors, who tell Heartland customers they could be held liable if they continue to use the processor, Carr said. (The claims are false, he added).

It also likely played a role in Heartland being removed from Visa's list of processors that are in good standing with industry-mandated standards for data security. Heartland late last week was reinstated.

Given all the pain, it's understandable Heartland wants to put the breach behind. And that means moving to beyond PCI DSS, which many security experts say is insufficient to protect card data.

Heartland executives "don't want to wait until the industry figures this out," said Gartner's Litan. "They're pushing the industry into this encryption." ®

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