Is the Barnes & Noble Breach By The Same Gang That Hit Michaels, Aldi and Hancock Fabrics?

Barnes & Noble's announcement on Wednesday (Oct. 24) of PIN pad breaches in 63 stores sounds eerily like last year's breach at Michaels, the 2010 Aldi breach and the 2009 Hancock Fabrics breach. In each case, PIN pads were physically compromised, one per store, in dozens of stores clustered in specific geographic areas. The PIN pads were apparently tampered with during the spring and summer months, and tampering was limited to the countertop devices. How likely is all this to be coincidental? Not very.

According to a Barnes & Noble statement, PIN-pad tampering was found in September at 63 of the chain's 689 regular stores, but not in any of the college bookstores that make up half the chain. Since then, B&N has removed all PIN pads from stores, requiring customers to hand over a payment card that the cashier then swipes. The chain's E-Commerce site and mobile apps were not affected.

"The criminals planted bugs in the tampered PIN pad devices, allowing for the capture of credit-card and PIN numbers," the chain's statement said. "Barnes & Noble disconnected all PIN pads from its stores nationwide by close of business September 14, and customers can securely shop with credit cards through the company's cash registers."

The chain didn't say, but a helpful B&N associate told us, that debit-card customers' cards would be run through the system as credit cards. That means a higher interchange rate. But this is presumably a temporary situation, and all-new PIN pads will be installed shortly.

The 63 affected stores were clustered along the New York City-to-Boston corridor, as well as near Miami, Chicago, San Francisco, Los Angeles and Pittsburgh.

The chain is being very tight-lipped about other details of the breach, citing the ongoing FBI investigation. It even got a letter from the U.S. Attorney's office in New York, giving the chain what it hopes will be a get-out-of-jail-free card when states with breach-notification laws, such as California, come asking why affected customers weren't notified.

Because of the details blackout, we don't know how up-to-date the PIN pads were, exactly how they were compromised, how the breach was detected or when the breach is believed to have begun. But we do know that the tampering was physical, only involved PIN pads and didn't affect the stores' POS software. This wasn't a network attack or a virus, and the fact that the stores were so widespread means it is unlikely that associates were involved.

It really does sound like this summer's sequel to Michaels, Aldi and Hancock.It really does sound like this summer's sequel to Michaels, Aldi and Hancock. That would also explain why B&N has pulled all of its PIN pads: Last year, Michaels replaced all of its PIN pads after its breach, so the bar has been raised.

And if it really is the same criminal gang (or a copycat gang that's learning from its predecessor), we can expect the crooks to sort the stolen card numbers by BIN, so patterns will be harder to track, in addition to farming out the work of using counterfeit cards to get cash from ATM machines—probably to street gangs.

These thieves have it down to a business. It seems likely that they're selecting chains based on whether the PIN pads are an older model, how well-secured PIN pads are in the stores, how often POS lanes are unattended, whether there are Loss Prevention personnel on the floor, and how quickly a PIN pad can be disconnected and a tampered PIN pad swapped in.

Then they're hitting between 50 and 100 of the chain's stores—fewer than a dozen in each locale—and apparently no other chains are being hit at the same time.

That suggests there are measures chains can take to make themselves less attractive targets. One is to screw down each PIN pad (or, alternatively, keep them off the counter until a customer actually needs one), so quick pad swaps are impossible. (Failing that, you might want to carefully examine all your PIN pads once the holiday season is over for any signs of tampering. The swaps seem to have begun in the spring, but you never know.)

Another measure is to upgrade PIN pads to models that lose their encryption if tampered with, and to closely monitor network activity logs to spot when any pad is disconnected. As QSA and StorefrontBacktalk PCI Columnist Walter Conway pointed out two years ago about the Aldi breach, "There should be huge red flags in the logs if anyone disconnects a terminal. That should immediately trigger an alert."

But it's the visible signs of better PIN-pad security that are most likely to ward off this group of thieves. They appear to be picking one big target per year, and they're probably going after the softest target they can find. The harder you make it for them, the less attractive you'll be. And you don't have to be the most secure chain in the world to avoid being hit by this gang—you just have to avoid being the most attractive.

As for Barnes & Noble, no matter how secure the bookseller thought it was (and how clean a bill of health it has from its own QSAs), we can now expect Visa and MasterCard to yank the chain's PCI compliance. We can also expect a few class-action lawsuits to surface soon.

And if the rest of the industry is really lucky, everyone will have until next spring to avoid being chosen as the PIN-pad gang's Chain Of The Year for 2013.