Archives for : Merchant

    DUKPT Overview and Transaction notes


    I was asked on another post relating to DUKPT to provide some backgound. Given I have lots of material on the subject, I thought I would create this thread. Link


    I will come back at some stage and expand on this when I get time.

    Transaction Process narrative:

    The diagram describes a mobile terminal/ATM is described using the a AS2805 (‘2805’) message type and 3DES DUKPT and dual direction auth SSL from the terminal to the aquirer (transaction switch).

    A good explanation of DUKPT can also be found at Wikipedia.


    Diagram of the flow


    DUKPT transaction flow - terminal to bank

    DUKPT transaction flow - terminal to bank


    Background notes:

    • The terminal or ATM firstly encrypts the user entered pin (may be a unique DUKPT key or static, depending on the design and banks involved) prior to incorporating it into the AS 2805 transaction message.
    • the message is then encrypted again using the DUKPT key which has been established through the merchant logon process within the aquirer Host Security Module (HSM) i.e. the user entered pin is encrypted separately and encapsulated within the DUKPT encrypted 2805 message to provide full message encryption.
    • In the diagram a separate dual authenticating SSL session is also used between the terminal/ATM and the aquirers infrastructure. This allowing the transaction including the pin to traverse the external Wired/GPRS/LAN within 2 primary independent layers of encryption, with a 3rd protecting the PIN.
    • When the transaction enters the aquirer environment the message encapsulation layer provided by SSL is removed.  This leaving the DUKPT’ed 2805 message which also encapsulates the separately encrypted PIN.
    • This encrypted message is passed to the aquirer switch engine through to the aquirer’s HSM for decryption of the 2805 message excluding the user entered pin.
    • This is when transactional information necessary for aquirer’s merchant reporting (truncated card number, transaction amount, transaction type, etc.) and fraud management data is collected.
    • The aquirer switch then passes the encrypted PIN to the aquirer HSM requesting that the PIN be decrypted using the aquirer’s PIN encryption and translated to the next banks (Bank 1)  PIN Encryption Key (Pin translation only occurs within the aquirer HSM) This is then sent back to the aquirer Switch engine as the Bank 1 encrypted PIN.
    • The aquirer switch engine then send the decrypted 2805 message with the newly encrypted PIN back to aquirer HSM to be encrypted with the Bank 1 MAC key.
    • The resultant Bank 1 key encrypted message is then sent to Bank 1 for processing and/or passing to the card issuer (using a similar process as described above).
    • When the result is received back from the issuing bank it is encrypted with the Bank 1 MAC key (the pin will not be present in the result message).
    • This is then decrypted by the aquirer HSM, the transaction fate result stored into the aquirer merchant reporting system and the transaction fate re-encrypted with the original aquirer DUKPT key (should be different per terminal/merchant instance) and the result sent back to the terminal through the original established SSL encrypted terminal connection.

    The aquirer may terminate the the SSL connection on a hardware device such as a CISCO Content Service Switch (CSS), or equivalent instead of the design described in the diagram which terminates onto a SSL session server/gateway (Possibly including a Certificate Authority) or on the aquirer transaction switch.

    When PIN blocks are received by the aquirer processing centre, the PIN encryption is translated from the terminal key to the Local Master Key (LMK) by the Host Security Modules (HSM).

    When the message is sent on the upstream bank interchange link to the issuer or gateway , the aquirer HSM translates the encrypted PIN block from the LMK to the Zone Master Key (ZMK) of the aquirer interchange link. The PIN block is always encrypted using DEA3 (3DES) whenever outside of the Terminal or ATM.

    HSM-8000-User Guide V2.2

    EFT Syetms and Device Considerations

    EFT devices and systems differ depending on hardware vendor, country and bank / payment aggregator.
    Below is a list of things you may like to consider. This list is off the top of my head so it is probably not complete.

    Looking at the products and relationships us usually a good start.

    Things to consider:

    • Card skimming methods
    • Some EFT POS devices restrict the connection of a skimmer
    • Review levels of associated fraud
    • Review devices and EFT methods
    • Review terminal identification (merchant and customer)
    • Manual processing. (internal and external)
    • eCommerce products
    • PC based software
    • Dedicated server services (Nobil, etc.)
    • Web based engine (Custom objects, Web pop-ups, etc)
    • Authorisation / identification methods (Merchant and customer)
    • TCPIP session hijacking / session spoofing
    • Direct Debit as well as Credit Cards.
    • Swift (methods and controls)
    • Telegraphic transfer (methods and controls)
    • Payment aggregator relationships (eg. Payment Tech, manual processing, cheque scanning, etc.)
    • Internet banking facilities (attack / penetration,  Certificate registration / management, ISP SLA’s, etc.)
    • Implementation of Smart Card and / or alternative customer recognition devices.
    • Outsourcing and associated risks / service level agreements
    • Payment processing
    • Payment clearance
    • Payment switching
    • Reporting (segregation of merchant / customers / aggregators / partners / local / international)
    • Fraud detection and reporting
    • 3rd party acquiring risks
    • Single merchant ID many businesses
    • Allows moneys to be laundered if the payment aggregator does not place appropriate controls on the merchant.
    • Encryption used
    • Internet / trusted partner / inter-bank / extranet
    • Private and / or public certificates
    • Single use certificates
    • Client side certificates
    • Remittance advice processes and controls.
    • EFT disaster recovery and manual fall back procedures (associated security and reconciliation risks)
    • Trusted partner relationships, SLA’s, liabilities and risks.
    • EFT regulatory / legal requirements (inter-bank and government)
    • Refund processing / authorisation. (policies, procedures, controls, etc.)
    • CVV, CVV-2 / CVC-2 processing and management. (
    • Fraud detection mechanism (neural networks, inter-bank / department customer checks, etc)
    • Supported card schemes (AMEX/Visa/Mastercard/Discover/etc )
    • Review EFT floor limits (corporate and SME merchants)
    • Review the ability to withhold merchant settlement until the presence of fraud has been determined.
    • Review customer identification details. Such as (This varies around the world depending on local regulations / privacy laws)
    • Review real-time and batched processing methods and controls (sequence numbers, access to raw data, etc.)
    • Review processing with and without expiry dates. (exception controls and policies)
    • Review exception / fraud reports.
    • Review payment store and forward policies and procedures.
    • Review Pre-Auth and Completion controls.
    • Token based payment (eCash, etc)
    • Merchant reconciliation, reporting methods and controls (paper, Internet, email, PDF, Fax, etc.) and associated security.
    • Real time gross settlement policies, procedures and controls. (IT and amounts)
    • Card issuing policies and procedures. (customer ID checks, etc)
    • Banking infrastructure (ingress / egress) controls and security. (Web, partner, payment switches, outsourced infrastructure, monitoring / reporting.)
    • Use of Internet technologies for inter-bank transfers and remote equipment.
    • Physical security and controls of devices, ATM,s, line encryptors, etc.

    Technology is always being challenged

    I read a very interesting paper created by the University of Massachusetts, RSA Laboratories and Innealta, Inc.<<

    This paper primarily relates to the compromise of contact less payment technologies (RFID) if the RFID and/or reader have not been implemented correctly or the solution provider has used an inappropriate type of RFID and discusses the challenges around Chip and Pin with respect to financial transactions e.g. EMV standards and compliance.

    Additionally, the paper describes a RFID relay method which is being discussed within many forums around the world and we have now begun to see equipment being produced for the RFID skimmers/clonners to use for malicious means.

    The overarching point of this paper is to use an appropriate RFID & Chip solutions which supports the security/privacy of the user and purpose of the transaction (financial or non financial)<<

    The paper can be found at

    In modern payment RFID & Chip solutions, newer devices can be used which possess a high degree of processing power and are therefore able to execute strong cryptographic methods (such as digital signatures) to protect the identification and payment information whilst the transaction is occurring.

    These systems often utilise bidirectional authentication between the RFID/Chip scanner and the RFID tag/Chip prior to performing the transaction. These methods and cryptographic algorithms are accepted and proven to work within the traditional payment markets.

    As mentioned in the paper, some solution store static digitally signed and/or encrypted data which is provided to the RFID/Chip reader when queried, but this data never changes from one transaction to another. This may allow a malicious individual to capture and re-inject the data into the reader at a later stage. The alternative to storing static digitally signed and/or encrypted data is to negotiate a key exchange at the time of the transaction in which the card/value information is encrypted and subsequently transmitted. With this method the transmitted data
    changes on every transaction and therefore even if a malicious individual was to capture the encrypted transaction data from one transaction, this would not be accepted by the reader if re-injected at a later stage.

    Although this is the case today, older RFID/Chip solutions often use technologies which are not appropriate for financial transactions and therefore may be compromised easily and in some cases without the knowledge of the card holder, merchant or acquirer.

    I find this interesting how some of these less secure solution have been approved for use by acquiring banks and the card schemes around the world (if they were told) in recent years, where it has been seen that these solutions have utilised techniques or deployment methods which can be compromised. These technologies and techniques would never be approved within the Point of Sale (PoS) or traditional banking markets.

    It can only be assumed that the need to get product to market quickly at the expense of proper testing, understanding and with due consideration to industry lessons learnt has succeeded again.