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Commentary



THE (SECURITY) COST OF TOO MUCH DATA PRIVACY

The online fraud prevention industry has taken the brunt of increased privacy
actions.
Ayan Halder
Principal Product Manager, Arkose Labs
May 05, 2023
Source: Brain light via Alamy Stock Photo
PDF


Recently, Meta agreed to pay $725 million to settle the privacy suit over the
Cambridge Analytica scandal, which became famous over alleged voter profiling
and targeting during the 2016 US presidential election. The discussions on
privacy and the illegal use of personal data have evolved so much since 2016
that Apple and Google have been moving toward more privacy-centric solutions.
Apple's Safari blocks third-party cookies by default, and Google's Chrome will
follow suit starting in late 2024. Several privacy-focused Internet browsers,
such as Mozilla's Firefox and Brave, block fingerprinting users by default to
preserve consumers' online privacy. However, there's a (security) cost to too
much data privacy, and the online fraud prevention industry has taken the brunt
of increased privacy actions.



Online fraud has been in the news for a while and is responsible for various
nefarious activities ranging from stolen identities to swinging elections.
Identity theft alone resulted in more than $6 billion in financial losses for US
consumers in 2021.

An online login looks easy. While logging in to an online account, a consumer
enters their username, password, and, occasionally, a one-time passcode
delivered to their mobile phone or email address. But a complex web of first-
and third-party algorithms and humans work in the background to keep that login
secure and free from fraudulent attacks. They analyze every incoming request and
work to predict the probability of malicious intent — maybe someone is trying to
take over a legitimate user's account or is planning to use a stolen credit card
for e-commerce transactions.

Online fraud prevention companies depend on the same data sets that companies
like Apple and Google harvest, but use them for very different purposes. Take
browser cookies, for example. Marketing companies use a cross-site tracking
technology that leverages cookies to follow a consumer's footprint across the
Internet. This invasive technology is so concerning that the European Union's
General Data Protection Regulation (GDPR) mandated businesses to seek explicit
permission from consumers while using anything but strictly necessary cookies
related to the general functioning of a website. Apple and Google have either
moved on or are planning to do so with cross-site tracking cookies. But this
move prevents online fraud prevention services that rely on third-party cookies
to validate the consumer's entitlement to an online account from providing such
a service creating a gap in account security.




THE PROBLEM WITH BROAD-BRUSH REGULATION

One of the perils of a broadly defined regulation such as GDPR and the
California Consumer Privacy Act (CCPA) is that it's left to interpretation. And
the most significant misalignment within the industry is what constitutes
"selling of personal data." If proven that a business was selling personal data
without explicit consumer consent, the possible penalties are so grave that
companies have shied away from one of the ancient concepts of fraud prevention —
a consortium. A consortium is a model where members of the system contribute
information about known fraudulent consumers so other members can use it. Fraud
prevention services use third-party cookies for a similar concept to prevent
fraudsters from attacking their customers.



This misalignment puts businesses at a disadvantage against online fraudsters
who work together and contribute toward their own consortium, while legitimate
companies, due to the nervousness around compliance with various laws, tend to
act alone.



Because of the negative sentiments about cookies, marketing companies are moving
away from them. While some have adopted privacy-friendly techniques such as the
Unified ID 2.0, the vast majority rely on a stateless online fingerprint — a
unique identifier generated based on browser, network, and device
characteristics for which consumers don't need to provide explicit permissions.
Studies show that such identifiers may not rival a cookie but are helpful in the
short to medium term.

To counter such privacy-invasive techniques, browsers such as Mozilla's Firefox,
Brave, and Tor have implemented default fingerprint alteration techniques that
prevent the device and browser from being properly fingerprinted. Online
fraudsters know this and heavily leverage these unique features of such browsers
to evade fraud prevention systems.

Given the effectiveness of the fingerprint alteration techniques used by some
browsers, fraud prevention systems fail to distinguish between a good user and a
fraudster, even when it knows abuse is underway. This triggers a brute-force
attempt by the fraud mitigation systems to stop the attack, resulting in good
users getting caught up in the mix. And when that happens, good users experience
unnecessary friction that they're not happy about.


WHAT'S GOOD? WHAT'S BAD?

Not being able to distinguish between good and bad users is a limitation that
has even more significant consequences when businesses set up their systems to
reject transactions. Improper classification leads to loss of revenue, either
from restricting good transactions that were classified suspicious or by not
being able to stop fraudsters, leading to a chargeback.

Businesses have crossed so many ethical boundaries using privacy-invading
techniques for profit that consumers rarely acknowledge, or even know, how it
affects their online safety when they tap Ask App Not to Track on their iPhones.

Nevertheless, this can be avoided. GDPR and CCPA (updated to the California
Privacy Rights Act, or CPRA, in January 2023) were a blessing to the prevention
of abuse of rampant privacy-invading technologies by advertising companies. The
same laws, however, need to acknowledge the other side of the coin. GDPR and
CPRA need to make exclusions for fraud and abuse prevention companies when it
comes to using personal data, and not be so strict that these companies shy away
from using the data. As structured today, these privacy regulations actually
give fraudsters an advantage. Ethical use of these techniques should be
promoted, and strict enforcement of such clauses is necessary to prevent misuse.
Ultimately, regulations that protect privacy by sacrificing online identity and
financial security are only half effective.

EndpointPrivacy
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