What is transaction security?
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Published: 15 April 2024
Contributors: Josh Schneider, Ian Smalley

What is transaction security?

Transaction security, also known as payment security, refers to a category of practices, protocols, tools and other security measures used during and after business transactions to protect sensitive information and ensure the safe and secure transfer of customer data.

While online transactions pose unique challenges for transaction security, they are critical for both online and offline businesses in building consumer trust, mitigating fraud and maintaining regulatory compliance.  

Coinciding with the accelerated rise of e-commerce and online transactions, transaction security has become a major concern for any business that handles payments and the transfer of valuable assets, such as financial institutions, cryptocurrency exchanges and retailers. Other use cases include online gaming marketplaces, alternative payment methods like ApplePay and Venmo and any service responsible for processing sensitive legal documents (such as online tax filing services or various official government offices).

To prevent financial losses resulting from fraudulent transactions and provide a trustworthy user experience for customers and clients sharing their personal data, common transaction security measures include advanced modern data encryption, multi-factor authentication (MFA) and digital signatures. These security protocols mitigate the risk of payment fraud and customer data theft resulting from a security breach, for which many businesses might be legally liable, depending on their jurisdiction. 

While most transaction security measures are put in place during the transaction itself, transaction security also extends to internal business policies that govern the treatment of any sensitive transaction data stored by an organization or business, such as credit card numbers and account numbers. For cybersecurity professionals invested in database security, transaction security means not only monitoring online transactions in real-time for suspicious activity and unauthorized transactions but also proactively identifying and mitigating any internal security vulnerabilities. Modern transaction security system service providers often incorporate a customizable notification functionality and other automation to facilitate secured transactions at scale. 

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Transaction security threats

Threats to transaction security often intersect or contribute to broader cybersecurity threats. The following is a brief list of some of the most prevalent transaction security threats. 

Phishing

Phishing scams, in which cybercriminals use fraudulent messages to manipulate targets into revealing sensitive information, pose a threat to both customers and businesses. Phishing scams often target consumers in an attempt to directly steal their credit card information for use in fraudulent transactions. They can also target businesses in an attempt to steal customer payment information in bulk.

Card-not-present fraud

While in-person transactions typically require a physical credit card, transactions made online or over the phone often require only a credit card number. This loophole can open up online or telephone-based transactions to card-not-present fraud, in which fraudsters use stolen numbers to make fraudulent transactions. While a customer may still retain their physical credit card, they may be totally unaware that their card details have been stolen. 

Account takeover fraud

Another risk posed by phishing is account takeover fraud. Fraudsters may use phishing or other means to seize unauthorized access to a consumer’s banking or online shopping account and proceed to make unauthorized purchases.  

Business email compromise (BEC) scams

BEC scams are also a common consequence of successful phishing schemes. When a cybercriminal gains access to a compromised business email account, they might impersonate an authorized employee or vendor and attempt to request a fraudulent wire transfer. 

Synthetic identity fraud (SIF)

Yet another risk resulting from successful phishing attacks, SIF is a type of fraud in which scammers use a combination of real, stolen personally identifiable information (PII) to create fabricated identities for various fraudulent activities, such as payment default schemes in which a scammer purchases a product on credit or layaway with no intention of making future payments.

Man-in-the-middle attacks (MITM)

A well-known form of cyberattack, during a MITM attack, a hacker will surreptitiously position themselves between two parties who believe they have a private connection. The attacker may attempt to manipulate their transferred data or simply eavesdrop to steal any private payment information that may be shared. 

Types of transaction security

With the continued advancement of new technologies, as well as the constantly evolving attack strategies of cybercriminals, experts are constantly working to improve transaction security through all available vectors. The following are a few of the most common methods for bolstering transaction security: 

Encryption

The backbone of data privacy, businesses and customers rely on data encryption to protect sensitive information during and after transactions. Commonly used encryption standards like Secure Sockets Layer (SSL) and Transport Layer Security (TLS) are frequently used during online transactions to prevent unauthorized access, tampering and theft. 

Tokenization

Tokenization is a process that replaces sensitive customer data, like credit card numbers, with unique tokens that can neither be used to make fraudulent transactions nor reverse engineer the original payment information. These tokens are then used to reference the original payment information, which is stored in a secure token vault. Tokenization both reduces the risk associated with data breaches and simplifies regulatory compliance since the tokens themselves are useless even if they fall into the wrong hands. 

Authentication

As a foundational form of transaction security, authentication practices long predate the internet age. Whereas in the past a merchant might request a form of photo identification before accepting a personal check, modern digital authentication measures have increased in sophistication. Single-factor authentication (SFA) requires one form of identification, such as a password or a pin; two-factor authentication (2FA) requires additional forms of identification, such as a one-time passcode sent to a registered device or email. Other standard authentication methods include requiring a card verification value (CVV) for credit card payments and biometric authentication (such as facial recognition or fingerprint scanning).

Secure payment gateways

Secure payment gateways are a crucial part in establishing strong transaction security and building and maintaining customer trust. These gateways enable transaction processing between the customer, business and payment processor or acquiring bank. Secure payment gateways often combine various transaction security techniques, including encryption, tokenization and authentication, to ensure data security. 

Payment Card Industry Data Security Standard (PCI DSS)

The Payment Card Industry Data Security Standard (PCI DSS) (link resides outside ibm.com) is a set of transaction security standards developed by the Payment Card Industry Security Standard Council (PCI SSC), a global forum of payments industry stakeholders.

Developed to drive the adoption of data security standards and resources for safe payments worldwide, PCI DSS compliance helps businesses meet regulations requirements while keeping customer data safe. 

To meet PCI DSS compliance, businesses must do the following:

  • Build and maintain a secure network and systems: Install and maintain a firewall configuration to protect cardholder data. Avoid using vendor-supplied defaults for system passwords and other security parameters.
  • Protect cardholder data: Encrypt transmission of cardholder data across open, public networks. 
  • Maintain a vulnerability management program: Develop and maintain secure systems and applications and protect all systems against malware with regularly updated anti-virus software or programs.
  • Implement strong access control measures: Identify and authenticate access to system components. Restrict physical access to cardholder data and restrict internal access to cardholder data by business-based, need-to-know requirements 
  • Regularly monitor and test networks: Track and monitor all access to network resources and cardholder data with regular testing for security systems and processes. 
  • Maintain an information security policy: Maintain a policy that addresses information security for all personnel.
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