It wasn't until Sunday that the mystery breach victim was revealed to be EnStage, a processor that's headquartered in Silicon Valley but outsources its processing to a site in India. And it's still not certain whether any merchant card data was actually stolen in the breach.
According to an indictment unsealed on Thursday, thieves gained access to EnStage's systems and raised the withdrawal limits on 12 specific MasterCard (NYSE:MA) prepaid debit-card account numbers issued by a bank in Oman. As a result, gangs in 24 countries were able to use ATM machines to loot the accounts of roughly $40 million during a 10-hour period on Feb. 19 and 20.
As usual, the indictment wasn't against the ringleaders of the international criminal operation—just eight New York residents who were part of a gang that helped convert the card numbers to cash at ATMs.
A $40 million haul is one very big cyberheist, and it appears to have had a very specific target: Oman's Bank of Muscat. According to the indictment, this kind of scheme is called an "unlimited operation" because thieves remove limits on how much can be withdrawn. It also requires highly coordinated gangs to cash out the numbers at ATMs. In this case, withdrawals appear to have begun worldwide at 3 p.m. New York time on Feb. 19 and continued until 1:26 a.m. the next morning.
And "worldwide" here means Japan, Canada, Germany, Romania, United Arab Emirates, Dominican Republic, Mexico, Italy, Spain, Belgium, France, United Kingdom, Latvia, Estonia, Thailand and Malaysia. That's not all 24 countries where debit-card numbers were cashed out, just the ones the U.S. attorney, the Secret Service and the Department of Homeland Security mentioned.
That's the level of criminal operation that card breaches have gotten to these days. Thieves no longer steal card numbers and then sell them off a few hundred or thousand at a time. They have enough "cashers" on the street to run thousands of ATM transactions an hour. Even more disturbing, they have the ability to break into processors and turn off withdrawal limits, so even a group as small as the eight New York cashers can steal $2.4 million overnight.
Fortunately, no individual bank accounts were compromised by the operation. At least that's what U.S. Attorney Loretta E. Lynch told a press conference on Thursday. How does she know that more debit-card numbers and PINs weren't stolen? Considering that none of the ringleaders were caught, none of the thieves who actually broke into the card processor's systems were caught, and they got really deep into the processor's systems, the fact that no other card numbers have been used for fraud yetdoesn't exactly inspire confidence that they won't be soon.
Certainly if a retailer was hit by this deep a breach, Visa (NYSE:V) and MasterCard would assume the worst.Certainly if a retailer was hit by this deep a breach, Visa (NYSE:V) and MasterCard would assume that every card number passing through the system had been compromised. Retailers are now starting to take that worst-case position too: When regional grocery chain Schnuck's was hit with a three-month breachthat involved malware sniffing the connection to its card processor, the retailer said as many as 2.4 million card numbers were compromised. They might not all have been stolen, but they were all at risk.
It's not clear what action the card brands might take against EnStage. However, another Indian processor who was breached in December by the same defendants, ElectraCard Systems, suggested in statements over the weekend that its PCI certification had been revoked after a $5 million theft. The EnStage breach resulted in a $40 million theft.
Although the thefts don't directly affect any retailers, the fact that it's difficult to get clear answers about the processors—or even their names, if we have to depend on prosecutors—makes it much harder to gauge the breaches' impact. For example, EnStage offers merchant acquirer services for prepaid debit cards. However, it apparently does this as an outsourcer for merchant acquirers that want to offload the handling of those cards to a third party. As a result, there's no easy way to tell how many retailers' processing might be in EnStage's hands.
Two things areclear from this breach scenario. One is that card processing is increasingly outside the control of merchants. You think you know who's doing the work, but that may not be the case if your processor has outsourced it to someone else. (Customers, of course, will still blame the retailer who handled the card if anything goes wrong. That's the only face a customer sees.)
That being the case—since you literally don't know who's in the processing chain—getting set up for the EMV liability shift as soon as possible seems like a reallygood idea. Without that shift, when there's a breach you'll be presumed guilty until you prove yourself innocent (and just because a processor's outsourcer had a breach doesn't mean you won't get a hard time from the card brands).
But with the shift, you'll start out with the presumption that it's somebody else's fault. As the processing business becomes increasingly a black box, where merchants have no idea whose systems card data may be passing through, shifting financial liability to someone else in the payments chain looks increasingly attractive.