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Source: eCommerceDigest.com

Posted on April 4, 2005

Customer Concerns

      Ecommerce security issues are frequently aired in the press, and are certainly important. Customers are concerned that the item ordered won't materialize, or be as described. And (much worse) they worry about their social security number and credit card details being misappropriated. However rare, these things do happen, and customers need to be assured that all ecommerce security issues have been covered. Your guarantees and returns policies must be stated on the website, and they must be adhered to.

Security: Basic Principles

      Most ecommerce merchants leave the mechanics to their hosting company or IT staff, but it helps to understand the basic principles. Any system has to meet four requirements:

- privacy: information must be kept from unauthorized parties.
- integrity: message must not be altered or tampered with.
- authentication: sender and recipient must prove their identities to each other.
- non-repudiation: proof is needed that the message was indeed received.

      Privacy is handled by encryption. In PKI (public key infrastructure) a message is encrypted by a public key, and decrypted by a private key. The public key is widely distributed, but only the recipient has the private key. For authentication (proving the identity of the sender, since only the sender has the particular key) the encrypted message is encrypted again, but this time with a private key. Such procedures form the basis of RSA (used by banks and governments) and PGP (Pretty Good Privacy, used to encrypt emails).

      Unfortunately, PKI is not an efficient way of sending large amounts of information, and is often used only as a first step - to allow two parties to agree upon a key for symmetric secret key encryption. Here sender and recipient use keys that are generated for the particular message by a third body: a key distribution center. The keys are not identical, but each is shared with the key distribution center, which allows the message to be read. Then the symmetric keys are encrypted in the RSA manner, and rules set under various protocols. Naturally, the private keys have to be kept secret, and most security lapses indeed arise here.

Digital Signatures and Certificates

      Digital signatures meet the need for authentication and integrity. To vastly simplify matters (as throughout this page), a plain text message is run through a hash function and so given a value: the message digest. This digest, the hash function and the plain text encrypted with the recipient's public key is sent to the recipient. The recipient decodes the message with their private key, and runs the message through the supplied hash function to that the message digest value remains unchanged (message has not been tampered with). Very often, the message is also timestamped by a third party agency, which provides non-repudiation.

      What about authentication? How does a customer know that the website receiving sensitive information is not set up by some other party posing as the e-merchant? They check the digital certificate. This is a digital document issued by the CA (certification authority: Verisign, Thawte, etc.) that uniquely identifies the merchant. Digital certificates are sold for emails, e-merchants and web-servers.

Secure Socket Layers

      Information sent over the Internet commonly uses the set of rules called TCP/IP (Transmission Control Protocol / Internet Protocol). The information is broken into packets, numbered sequentially, and an error control attached. Individual packets are sent by different routes. TCP/IP reassembles them in order and resubmits any packet showing errors. SSL uses PKI and digital certificates to ensure privacy and authentication. The procedure is something like this: the client sends a message to the server, which replies with a digital certificate. Using PKI, server and client negotiate to create session keys, which are symmetrical secret keys specially created for that particular transmission. Once the session keys are agreed, communication continues with these session keys and the digital certificates.

PCI, SET, Firewalls and Kerberos

      Credit card details can be safely sent with SSL, but once stored on the server they are vulnerable to outsiders hacking into the server and accompanying network. A PCI (peripheral component interconnect: hardware) card is often added for protection, therefore, or another approach altogether is adopted: SET (Secure Electronic Transaction). Developed by Visa and Mastercard, SET uses PKI for privacy, and digital certificates to authenticate the three parties: merchant, customer and bank. More importantly, sensitive information is not seen by the merchant, and is not kept on the merchant's server.

      Firewalls (software or hardware) protect a server, a network and an individual PC from attack by viruses and hackers. Equally important is protection from malice or carelessness within the system, and many companies use the Kerberos protocol, which uses symmetric secret key cryptography to restrict access to authorized employees.


      Sensitive information has to be protected through at least three transactions: credit card details supplied by the customer, either to the merchant or payment gateway. Handled by the server's SSL and the merchant/server's digital certificates.

      - credit card details passed to the bank for processing. Handled by the complex security measures of the payment gateway.

      - order and customer details supplied to the merchant, either directly or from the payment gateway/credit card processing company. Handled by SSL, server security, digital certificates (and payment gateway sometimes).

Practical Consequences

      1. The merchant is always responsible for security of the Internet-connected PC where customer details are handled. Virus protection and a firewall are the minimum requirement. To be absolutely safe, store sensitive information and customer details on zip-disks, a physically separate PC or with a commercial file storage service. Always keep multiple back-ups of essential information, and ensure they are stored safely off-site.

      2. Where customers order by email, information should be encrypted with PGP or similar software. Or payment should be made by specially encrypted checks and ordering software.

      3. Where credit cards are taken online and processed later, it's the merchant's responsibility to check the security of the hosting company's webserver. Use a reputable company and demand detailed replies to your queries.

      4. Where credit cards are taken online and processed in real time, four situations arise:

      a) You use a service bureau. Sensitive information is handled entirely by the service bureau, which is responsible for its security. Other customer and order details are your responsibility as in (3) above.

      b) You possess an ecommerce merchant account but use the digital certificate supplied by the hosting company. A cheap option acceptable for smallish transactions with SMEs. Check out the hosting company, and the terms and conditions applying to the digital certificate.

      c) You possess an ecommerce merchant account and obtain your own digital certificate (costing some hundreds of dollars). Check out the hosting company, and enter into a dialogue with the certification authority: they will certainly probe your credentials.

      d) You possess a merchant account, and run the business from your own server. You need trained IT staff to maintain all aspects of security - firewalls, Kerberos, SSL, and a digital certificate for the server (costing thousands or tens of thousands of dollars).

      Security is a vexing, costly and complicated business, but a single lapse can be expensive in lost funds, records and reputation. Don't wait for disaster to strike, but stay proactive, employing a security expert where necessary.

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