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MasterCard, Visa warn of possible security breach

(Reuters) – MasterCard Inc and Visa Inc have notified U.S. banks of a potential security

breach, the latest in a string of incidents that have put the personal information of millions of credit card holders at

risk.

A MasterCard logo is seen on a

door outside a restaurant in New York in this February 3, 2010 file photo. MasterCard Inc is investigating a potential

security breach related to a third-party vendor and has alerted banks and law enforcement officials, the company said on

March 30, 2012. The credit-card processor said the issue involves a company based in the U.S. and is also being reviewed by

an independent data-security organization. REUTERS/Shannon Stapleton/Files

The companies, which are the two largest global credit card processors, said the issue stemmed from a

third-party vendor and not their own internal systems.

Discover Financial Services said it is also monitoring accounts

for suspicious activity and will reissue cards “as appropriate.”

Following news of the breach, shares of Atlanta-based

Global Payments Inc, which acts as a credit-checking middleman between merchants and card processors, were halted after

dropping more than 9.1 percent. A representative did not immediately return a request for comment.

MasterCard said it

notified law enforcement officials and has hired an independent data-security organization to review the possible breach. A

U.S. Secret Service spokesman said the agency was investigating, but declined to give any specifics about the

breach.

“MasterCard is concerned whenever there is any possibility that cardholders could be inconvenienced and we

continue to both monitor this event and take steps to safeguard account information,” the company said in a statement. “If

cardholders have any concerns about their individual accounts, they should contact their issuing financial

institution.”

Visa said it provided banks with affected customers’ account numbers and emphasized that customers are

not responsible for fraudulent purchases.

The companies’ statements came after the blog Krebs on Security reported

that MasterCard and Visa have been alerting banks across the U.S. about a “massive” breach that may affect more than 10

million cardholders. The report said accounts were compromised between January 21, 2012 and February 25,

2012.

JPMorgan Chase & Co said has been notified of the breach and is monitoring affected customers’

accounts.

Representatives of other big debit- and credit-card issuers, including Bank of America Corp and Citigroup

Inc, as well as card processor American Express Co, either declined to comment on the matter or did not immediately respond

to inquiries.

Thousands of U.S. banks that issue credit and debit cards receive daily alerts regarding breaches

through a system referred to as CAMS, said Thomas McCrohan, an analyst with Janney Capital Markets.

PROCESSING

PIPELINE

Once a person swipes a card to pay, the transaction is sent through a chain of processing.

The account

number, expiration date and possibly the card holder’s name is sent from the point of payment to a processor which then

connects to Visa or MasterCard. Information is then sent to the card issuer — a bank — which ultimately authorizes the

transaction.

The actual transfer of money occurs later.

The information that was likely collected illegally is

called Track 1 and Track 2 data. A person improperly using the information can transfer the account number and expiration

date to a magnetic stripe on a card and then try and use the card on a web site such as eBay Inc.

Those transactions

are aggregated and sent to a server, said Avivah Litan, security analyst at Gartner Research, but “it has a lot of hops along

the way” before the card information reaches a processor.

The illegal use of the data could be stymied if an online

merchant asks for the three or four digits printed on a card known as the “CVV code.”

Processing companies, which

perform millions of authorizations each day, are also supposed to encrypt card information. But a breach could occur if

someone gains access to the system and identifies a gap in the encryption.

“The systems can all be made tighter, but

if they’re too tight no transactions would ever be approved,” said Edward Lawrence, a director at Auriemma Consulting Group,

a payment systems consultant. “You still have to allow commerce to occur.”

The Visa-Mastercard breach is the first

major instance this year of consumer information put at risk by technological flaws or hacking, but there are plenty of

examples of massive data breaches in recent years, affecting banks, retailers, technology companies and payment

processors.

Last June, Citigroup said computer hackers breached the bank’s network and accessed data of about 200,000

card holders in North America.

Sony also reported several recent attacks, including one last year in which hackers

accessed the personal information on 77 million PlayStation Network and Qriocity accounts.

Google Inc suffered a major

attack on its Gmail accounts in 2011 that it said appeared to originate in China, and companies including TJX Companies Inc and Heartland Payment Systems

Inc have also had their systems compromised.

“The fact that there has been another breach at a credit card processor

shouldn’t come as a great surprise,” said Geoff Webb of data-protection company Credant Technologies. “Credit card thieves

are constantly looking for opportunities to identify and attack sites where there is a weakness in

security.”

(Reporting by Lauren Tara LaCapra, Carrick Mollenkamp and Jed Horowitz in New York, Joseph Menn in San

Francisco, Ben Berkowitz in

Boston, and Rick Rothacker

in Charlotte, North Carolina; writing by Lauren Tara LaCapra; editing by Gerald E. McCormick and Andre Grenon)

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