Bruce Schneier summarised a series of articles about banking security . He mentioned the fact that banks don’t seem to care about small losses and would rather just deal with the problem (presumably by increasing their fees to account for losses).
There are some other interesting bits in the article, for example banks are planning a strategy of securing transactions with an infected computer ! Now there are some possible solutions to this, for example if the bank issued a hardware device that allowed the customer to enter the account number, amount to transfer, destination account, and PIN number and then produced a cryptographically secure hash (based in part on a rolling code) that the user could type in.
The only way that you are going to do anything securely with an infected host is if everything is offloaded into an external device. In which case why not just do the Internet banking on the external device? It’s not difficult to make a hardware device that is small enough to carry everywhere, has a display, an input device, net access, and which is reasonably difficult to crack externally. Consider for example a typical mobile phone which has more RAM, CPU power, and storage than a low-end machine that was used for web browsing in 1996. Mobile phones have a good history of not being hacked remotely and are difficult for the owner to “unlock”. A locked-down mobile phone would be a good platform for Internet banking, it has wireless net access in most places (and with a Java application on the phone it could do banking by encrypted SMS). Being locked down to prevent the user from reconfiguring the software (or installing new software) will solve most of the security problems that plague Windows.
If when signing up for a new phone contract I was offered the possibility of getting a phone with secure banking software installed for a small extra fee then I would be very interested. Of course we would want some external auditing of the software development to make sure that it’s not like some of the stupid ideas that banks have implemented. Here is a classic example of banking stupidity . They display a selected word and picture for the user when they login to try and prevent phishing (of course a proxy or a key-logger on the local machine will defeat that). They also ask for an extra password (of the simple challenge phrase variety) if you use a different IP address, of course as the typical broadband user doesn’t know when their IP address changes they wouldn’t know if their data was being proxied and dial-up users will enter it every time. A google search for “internet banking” picture password turns up a bunch of banks that implement such ideas.