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Computer Security and Cryptography by Alan G. Konheim

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18.3 PROTECTING ATM TRANSACTIONS

In the 1960s, the banking industry considered offering certain electronic banking services to be performed at unattended banking terminals now referred to a automated teller machines (ATM). The advantages of ATMs to the industry were significant:

  • Customers would be able to perform certain banking transactions – deposits, withdrawals, account queries, account-to-account transfers – at any hour of the day.
  • The bank would save on the considerable cost of processing checks; ATM terminals do not require medical benefits, they can be discharged at will.
  • Electronic transactions would not require human supervision or intervention, permitting labor savings.

Two conflicting forces have influenced the design of electronic banking systems:

  • Profitability – the desire by the bank to improve their bottom line;2
  • Security – the fear that individuals might learn how to penetrate the system, for example, to empty the ATM of cash in a largely invisible manner.

The considerable experience of banks with credit card transactions pointed to certain risks, including the use of counterfeit, lost, or stolen banking cards.3

It was decided that a valid transaction would therefore require a customer to offer two bona fides in establishing a customer's identity:

  • The banking card recording the user primary account number (PAN) on the card's third stripe;
  • A separate identifying element.

Possession of an ATM card alone would not permit a customer to enter into a transaction. ...

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