Mobile payments are heating up and companies are taking ruthless steps to knock down competitors. Today, VeriFone is claiming that Square’s mobile payments processor contains a serious security threat to credit cardholders and businesses.
In an “open letter,” VeriFone CEO Doug Bergeron warns consumers and the industry of a serious security threat with Square’s card reader and calls on Square to recall its devices (we’ve pasted the letter below). Bergeron claims that anyone can “skim” or steal personal information off of a credit card’s magnetic strip using the Square card reader with a hacked app and to illustrate the vulnerability, VeriFone wrote a test app that can “skim” to prove their assertions.
VeriFone says the flaw is in Square’s hardware, which the company says lacks the ability to encrypt credit card data. It’s unclear if VeriFone’s claims have grounds, but it is a serious move on VeriFone’s part to call out a competitor publicly. VeriFone offers its PayWare Mobile app and hardware to allow iPhone users to easily accept credit card payments. Clearly, Square is a threat to VeriFone’s product, so its intentions aren’t so pure when exposing this potential issue.
Credit card fraud is not new, of course. Criminals steal credit card numbers all the time, both online and offline. Consumers are not liable for fraudulent charges, the credit card companies are. But if Square becomes a magnet for fraud, the credit card companies won’t be happy with that.
We’ve contacted Square and are awaiting a formal response.
An Open Letter to the Industry and Consumers
Today is a wake-up call to consumers and the payments industry. Last year, a start-up named Square introduced a credit card reader for smartphones with the goal of making it very easy for anyone to accept credit cards through a mobile device. Seems like a great idea, but there is a serious security flaw that Square has overlooked that places consumers in dire risk.
In less than an hour, any reasonably skilled programmer can write an application that will “skim” – or steal – a consumer’s financial and personal information right off the card utilizing an easily obtained Square card reader. How do we know? We did it. Tested on sample Square card readers with our own personal credit cards, we wrote an application in less than an hour that did exactly this.
Let me explain how easy it is to exploit the vulnerability.
A criminal signs up with Square, obtains the dongle for free and creates a fake Square app on his smartphone. Insert the dongle into the audio jack of a smartphone or iPad, and you’ve got a mobile skimming device that fits in your pocket and that can be used to illegally collect personal and financial data from the magnetic stripe of a payment card. It’s shockingly simple.
The issue is that Square’s hardware is poorly constructed and lacks all ability to encrypt consumers’ data, creating a window for criminals to turn the device into a skimming machine in a matter of minutes.
There are hundreds of thousands of these unsecure devices already floating out there and more are given away for free every day. And because anyone can get their hands on these Square readers, anyone can masquerade as a legitimate business or vendor and swipe your payment card. Your card data is then instantly and illegally captured in the smartphone, un-encrypted – and voila, you’re a fraud victim.
Consumers who hand over their plastic to merchants using Square devices are unwittingly putting themselves in danger.
Don’t take our word for it. See for yourself at www.sq-skim.com where you can download the sample skimming application and view a video of this type of fraud in action.
Today we are handing a copy of the application over to Visa, MasterCard, Discover, American Express, and JP Morgan Chase (Square’s credit card processor), and we invite their comments.
Consumer trust is what’s really at stake. If the industry allows Square and other similar attempts to short-circuit security best practices, it will seriously jeopardize the integrity and security of the payment infrastructure and financial systems developed over the last three decades.
Secure payment systems, like those provided by VeriFone and other credible providers which adhere to the highest level of security practices, are critical in protecting consumers, merchants and banks. Without this protection, all commerce – conducted with plastic or mobile devices – is a catalyst for massive personal and institutional financial loss.
There is great promise in the future of mobile payments and our innovations will help drive the industry forward. It is our hope that both consumers and merchants will take it upon themselves to become educated on the security risks involved with some of these experimental payment acceptance methods, like Square, and make informed decisions to protect themselves and their customers.
We take security very seriously. Securing payment transactions is what we do, and yes – calling attention to and protecting against these types of security threats to consumers, merchants and banks is our responsibility.
We call on Square to do the responsible thing and recall these card skimming devices from the market.
Doug Bergeron
CEO, VeriFone