Transaction authentication number

A TAN, is used by some online banking services as a form of single use passwords to authorize financial transactions. TANs are a second layer of security above and beyond the traditional single-password authentication.

An outline of how TANs function:

1. The bank creates a set of unique TANs for the user. Typically, there are 50 TANs printed on a list, each 8 characters long, which is enough to last half a year for a normal user.
2. The user picks up the list from the nearest bank branch. The user must typically identify him/herself through presenting a passport, an ID card or similar document.
3. A few days later, the user receives a 5 digit password by mail to the user's home address. The user is requested to memorise the password, destroy the notice and keep the TAN list in a safe place near the PC.
4. To log on to his/her account, the user must enter user name and password. This may give access to account information but the ability to process transactions is disabled.
5. To perform a transaction, the user enters the request and "signs" the transaction by entering an unused TAN. The bank verifies the TAN submitted against the list of TANs they issued to the user. If it is a match, the transaction is processed. If it is not a match, the transaction is rejected.
6. The TAN has now been consumed and will not be recognized for any further transactions.
7. If the TAN list is compromised, the user may cancel it by notifying the bank.

In the Netherlands customers of the Postbank can get the TAN codes sent by SMS. The advantage is that users only get a TAN code when they are initiating a (real) transaction. Several banks use TAN codes sent by SMS in Hungary and South Africa.

TANs are believed to provide additional security because they act as a form of two-factor authentication. Should the physical document containing the TANs be stolen, it will be of little use without the password; conversely, if the login data are obtained, no transactions can be performed without a valid TAN.

In South Africa, where SMS-delivered TAN codes are common, a new attack has appeared: SIM Swap Fraud". A common attack vector is for the attacker to impersonate the victim, and obtain a replacement SIM card for the victim's phone from the mobile network operator. The victim's user name and password are obtained by other means (such as keylogging or phishing). In-between obtaining the cloned/replacement SIM and the victim noticing their phone no longer works, the attacker can transfer/extract the victim's funds from their accounts.

Should the client system become compromised by some form of malware that enables a malicious user to obtain both the login data and a TAN number (in some systems, a TAN is usable for some minutes after the initial insertion), the possibility of an unauthorized transaction is high. It should be noticed that the remaining TANs remain uncompromised and can be used safely, even though action should be taken by the user as soon as possible.

Key-lock TAN query

Since a single TAN can be compromised, some banks require a TAN both for the log in and to authorize a set of transactions. For additional security, these have to be non-sequantial and retrieved by using a security challenge. There have been cases of fraud where two consecutive TAN's have been phished from a user. To protect against this, each TAN is associated with a "lock number" and randomly selected from a list. The bank server randomly selects a lock number as a challenge; the user then enters the corresponding TAN from the list. Since the order of the TAN's is randomly selected, an attacker can't acquire two consecutive TAN's. Also, because a TAN is associated with a lock number, the attacker can't just randomly select a position on the list — the only thing an attacker can do to steal a TAN is to guess lock numbers. In practice, the attacker should coax the user to write down the whole list of lock numbers and corresponding TAN's, which is clearly implausible.

Overall security

When the system itself is difficult to compromise, the weakest link is physical security. If the attacker can gain access to the password and the key-lock card, then the entire system is compromised.

Recent research has shown that slightly over half of all identity theft is committed by an insider, often a family member. An insider would, of course, have greater access and opportunity to gain simultaneous access to both the TAN list and to the user's password. While an improvement over simple single-password methods, it is important to keep in mind that a system's security strength depends on multiple factors.