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This article is by staff writer April Dykman.

Historically, personal development has been a big part of Get Rich Slowly. Back in 2012, founder J.D. wrote, “I’m a firm believer in personal development. Self-improvement is part of living a rich life. In fact, when I started this blog … the self-improvement category was one of the first I implemented.”

But not so long ago, I’d never read a self-help or personal development book. In fact, I avoided that section of the bookstore — it was all too woo-woo and mushy for me. Then I got hooked on yoga, and I read a lot of woo-woo titles, like “Living the Mindful Life” and “Yoga and the Quest for the True Self.” Gross, right?! (But I loved them both.)

Fast forward to today, and I’ve read a lot of personal development books, even non-yoga ones. I’ve paid for several online business courses that also tackled issues like how to stop feeling guilty and how to stand tall and own your pricing.

I estimate that I’ve paid thousands of dollars for self development at this point. And it’s hard to quantify the results, but I did reach my goal of quitting my day job. I’m more aware of the stories I tell myself that hold me back. I’m more likely to pause before I react. I’m far from perfect, but I am happier with each passing year.

So today I want to share the latest self development book I’ve read, “The Happiness of Pursuit.” Written by Chris Guillebeau, the founder of The Art of Nonconformity and author of “The $100 Startup,” this book is about finding a quest that brings purpose to your life.

The gist of it

In case you aren’t familiar with Chris’s quest, he set out to visit every country in the world by the age of 35, a goal he reached last year. During his quest, he met a lot of people with their own quests — some travel-based, but many that were not. What the quests had in common, though, was that each of them were enriching the person’s life in some way.

So Chris wrote “The Happiness of Pursuit” as a study of these quests, drawing on hundreds of interviews that reveal people’s motivations, how they dealt with roadblocks, how they funded the quest, how they handled logistics, and more.

Section one: Beginnings

The first part of the book is made up of five chapters about the beginning of a quest. First, Chris defines what a quest is:

  • It has a clear goal and a specific end point.

  • It presents a clear challenge — not easy, but not impossible.

  • A quest always seems to require sacrifice of some kind, even if it’s not immediately apparent.

  • It’s often driven by a calling or a sense of purpose.

  • It requires a series of small steps toward the bigger goal.

According to the book, one way many people found their calling is by paying attention to the crazy ideas they couldn’t stop thinking about. For instance, Sandi Wheaton had always wanted to travel Route 66 and take photos of the trip. When she was laid off of her job at General Motors, she wasn’t very excited about finding another job. So she decided to be serious about her crazy idea, and she took the plunge. After her trip, her photography landed on the cover of an art magazine, and she started receiving offers for speaking engagements. Eventually, it led to a new career in the travel industry.

Chris says that many quests begin like Sandi’s — from a sense of discontent. “Add action to that discontent,” he writes. “Find a way to do something about the uncertainty you feel.”

This section of the book also includes a chapter called “Defining Moments” that discusses the moment people decided to take on a quest. In most cases, it came from an emotional awareness of mortality (i.e. “I know I will someday die”) versus an intellectual awareness of mortality (i.e. “I know that no one lives forever.”)

“This new awareness may come in response to an external event, such as the death or sudden illness of a friend, or from confronting a serious health problem,” writes Chris. “Other times, there’s a stirring of the soul that increases in tempo until it’s impossible to ignore. Whatever it is, the more we’re emotionally aware of our own mortality, the more we feel compelled to live with a sense of purpose.”

Section two: Journey

The second section of the book covers topics like how to believe in yourself, what to do if you’re risk-averse, creating structure for your quest, accounting for time and cost, examples of how people funded their quests, and dealing with monotony and misadventures.

But my favorite part from this section is the story about Sasha Martin, a young mother who used to travel the world, but was now stationary in Tulsa, Oklahoma. Travel was pretty much out at the moment — she and her husband had a six-month-old baby and they lacked the funds.

“The big idea she settled on was to embrace culture through cuisine,” writes Chris. “Stovetop Travel was Sasha’s project to introduce meals from around the world into her home kitchen. If it sounds simple, understand that it was no ‘buy a wok and learn to make stir-fry’ weeklong task … Sasha chose to cook an entire meal from each country’s cuisine every week, following the alphabet in A-Z fashion for a total of 195 weeks.”

Each week consisted of researching, consulting friends around the world who started following her journey, and creating a complete meal — at least one main course and generous number of starters and side dishes. She would even play music from the country of the week.

“Missing the travel experiences of her youth, she hoped to rekindle a sense of foreign connection by dicing peppers and baking pastries,” writes Chris. “Meanwhile, [her daughter's] first solid food was Afghan chicken. By three years old, [her daughter] was equally comfortable using silverware or chopsticks.”

A few years into the project, Sasha’s quest is being replicated by other families, and she’s given talks at schools and in other forums.

Section three: Destination

The final section is about what happens after a quest: the ways it can change you, how to explain your big quest to others, and possible next steps after completing something so big.

“Quests do not always tie up well,” writes Chris. “Sometimes the ending is glorious, and sometimes it’s bittersweet. Either way, take some time to process all you’ve been through. When you’re ready, choose a new adventure.”

There also are three appendices, including the big takeaways from the book, a chart that details the quests featured in the book, and ideas for quests that don’t require relocating to another country or completing 100 marathons. (Just typing “100 marathons” makes my knees hurt.)

My take

For the last year, I’ve been in a huge rut. I’ve questioned the purpose of pretty much everything. And it all stemmed from the emotional awareness of mortality that Chris talks about in his book — which was a result, exactly as he says, of the sudden death of a friend. So, all that is to say that I might not be the most unbiased book reviewer. Fair warning.

But I felt inspired by “The Happiness of Pursuit.” Even if you can’t (or have zero desire) to travel to every country in the world, there’s a lot of great stuff in the book for shaking up your routine and trying something different.

As for what I’ll do with it? I like the idea of a cooking-related quest or something around sustainable living — I’m not exactly sure yet.

But what about you, readers? Have you ever taken on a quest? Do you have a crazy idea you can’t stop thinking about?

This article is about Books, Self-Improvement

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This article is by staff writer Lisa Aberle.

A few months ago, I shared about my health insurance alternative. As a recap, I belong to a healthcare sharing ministry (HSM) called Christian Healthcare Ministries (CHM), just one of several ministries that are ACA-approved alternatives to health insurance. What we belong to is not health insurance; therefore, we don’t pay a premium (although we pay a “gift” each month or what amounts to a deductible, except it’s called a “personal responsibilty”). We chose this option because neither my husband nor I have access to an employer-sponsored plan. The most important consideration for us was cost, followed by coverage options. We opted for the most expensive level, which means that we have a $500 personal responsibility for each medical event that each of our family members experience on an annual basis.

We made some changes, though

At the time of the previous article, I was the only member of my family to belong, and I paid $150 per month. Now our entire family of five belongs for $450 per month. Even if our family size were to double, that is the maximum monthly contribution we’d have to make.

This amount covered me up to $125,000 per event; but, as some readers pointed out, medical bills can exceed that in the blink of an eye. Because of that, we felt that becoming part of our ministry’s extra program would be valuable. For an extra $75 per quarter (and an annual fee of $40), we have no reimbursement cap per diagnosis.

The process

Shortly after becoming a member, I had the opportunity to try out this way of paying medical bills when I learned that I was pregnant. I called the HSM right away to let them know and ask for instructions. As instructed, I called my doctor’s office and the hospital where I planned to deliver to get an estimate of delivery charges. These documents were submitted to our HSM right away.

Throughout my pregnancy, as I received bills, I called each provider and asked for a discount. Most often, the discount was 20 percent. The greatest discount I received was 25 percent, and some places didn’t offer discounts at all. But I learned not to take the first answer. One place in particular told me they did not offer discounts. When I called back and asked specifically for a 25 percent discount with an offer to pay the entire balance that day, I got what I asked for.

Once I received bills and itemized statements, I sent them to the HSM, although not always in a timely manner (but I’ll explain why in a little bit). Usually, I was reimbursed within 60 days of submitting my bills, although the HSM says they will usually reimburse within 60 to 90 days. However, several months before my due date, I got a check from the HSM with instructions to pay my OB’s charges in full and $1,000 to the hospital as prepayment for the delivery charges.

Up to that point, my pregnancy had gone smoothly. Then I was diagnosed with gestational diabetes, resulting in weekly fetal monitoring. I was induced, had a C-section, and my son developed jaundice. All these things resulted in expenses that were higher than the original estimates.

What I like (and don’t like) about it

I like paying only $450 per month, to be sure. I also like how the personal responsibility is handled. You are responsible for the first $500; but if you secure a discount, you are responsible only for the total minus the discount. So, as long as the remainder of my medical bills are reimbursed, I have paid $400 out of pocket for delivering a baby because I got a 20 percent discount on my first $500. The price is right.

I also liked being able to pay my OB early, as well as to start paying on the hospital bill.

But I encountered a few difficulties as well. I am not a very organized person; so keeping track of all my bills, asking for discounts and itemized statements, and knowing which bills had and hadn’t been reimbursed was tricky for me. By the end, I had created a system that made it more manageable, but it still caused me headaches.

I also wish I would have submitted some bills more quickly. I was having a $255.20 test every week; and since it was only (haha) $255.20 a week, I paid the bill and collected each itemized statement. After all, I didn’t want to be sending off a letter every week. Wasn’t it better to batch them? Well, as you know, $255.20 a week is over $1000 a month, not exactly pocket change. That caused us to feel quite pinched. And snail mail? By the end, I was emailing them. Duh, Lisa.

In addition to sending bills in more quickly, I also wish I would have utilized the providers’ payment plans, just to give me some breathing room until the reimbursements came in.

But using the payment plans weren’t my favorite thing either, and I didn’t use them until I had to. Therefore, our savings accounts were dwindling. I felt — I am not sure — maybe irresponsible that I didn’t pay each bill in full as I received it. My hospital bill was over $13,000, and while I could have taken money from our emergency fund to pay it, I didn’t want to risk it. Our total bills were over $30,000, so if I had started this with that in mind, I think I would have planned better.

However, every single provider was very helpful as I explained our circumstances. And setting up the payment plans was simple; I just felt stressed about it. I think that doing this requires some savings — if you don’t want to be completely stressed out, that is.

So, yay or nay?

As of today, I just have around $4,000 yet to be reimbursed. I am feeling relieved as I paid off three bills and have just a couple more to go. Working with the HSM was definitely a pleasure because they were so kind and helpful.

If I were able to get health insurance for my family with a small deductible, I might consider going back to conventional health coverage. However, now that I have had some experience, I know how to make it easier next time. So for as long as possible, our family will probably be paying for our eligible medical expenses in this way.

Have you had experience with an alternative to Obamacare? How did you manage your medical bills and getting reimbursed?


Some reader stories contain general advice; others are examples of how a GRS reader achieved financial success or failure. These stories feature folks with all levels of financial maturity and income. Want to submit your own reader story?

Mark Ferguson has been a Realtor since 2001 after graduating from the University of Colorado with a business finance degree. He runs a real estate team of 10 that sells over 200 homes a year, fix and flips 10 to 15 homes a year and owns 11 rental properties. Mark also runs www.investfourmore.com, a blog that discusses Mark’s fix and flips, rental properties, becoming a real estate agent and everything real estate related.

Many television shows portray fix and flipping as a very profitable business that can easily be done in your spare time. Sure there are usually a few contractor problems, but in the end the house sells for a lot of money and the owners make a killing. In reality, you can make money fix and flipping homes, but it takes a lot of hard work and a lot of flipping to make a lot of money. It is also very easy to lose a lot of money if you do not account for all the costs or overestimate the value of your flip.

I have been a Realtor since 2001, and I have fix and flipped close to 100 homes over the last 10 years. I have 10 fix and flips going right now, and I can tell you it is not easy managing one fix and flip let alone 10! It takes a lot of money to fund fix and flips, more time than you think to sell a flip, a lot of experience to deal with repairs and contractors, and expenses are almost always more than you figure.

If you buy houses cheap enough with enough of a margin for error, you can make good money fix and flipping homes — but don’t expect to be a millionaire after a year or two in the business.

Are the television shows accurate in their portrayal of the flipping business?

Most fix and flip television shows love to show the before and after pictures of a flip with the initial purchase price and the selling price at the end. There are a couple of shows that portray the expenses accurately, but most leave out many of the costs that flippers encounter. In the fix and flip business, many investors use the 70 percent rule to determine if they can make a good profit when they flip a home.

The 70 percent rule states the purchase price should be 70 percent of the after-repaired-value (ARV) minus the cost of any repairs. For example, if a house will be worth $150,000 after it is repaired and it needs $30,000 in repairs, the 70 percent rule states an investor should pay $75,000 for that house.  Buying a house that will be worth $150,000 for $75,000 seems like a home run, but it is really just an average deal because there are so many costs associated with flipping.

What costs are involved in fix and flipping homes?

The obvious costs involved in flipping are the purchase price of a home and the repair costs. In our example, there appears to be $45,000 in profit once you include the selling price and the repairs but there are many more expenses that many beginners do not consider.

  • Financing costs: Most people do not have $75,000 plus the costs of repairs and carrying costs to buy a flip. It is more expensive to finance a flip because banks make their money off interest paid on loans. The shorter time you hold a loan, the less money a bank will make. Most large banks will not finance flips, but some local lenders will. Hard-money lenders will fund flips, but they are very expensive, charging 12 to 16 percent interest rates plus 2 to 4 percent of the loan amount for origination fees. A hard-money lender is a not a bank but a company that takes money from investors at a given interest rate. The hard-money lender then lends that money to fix and flippers at a much higher interest rate.
  • Carrying costs: When you own a house, you have to pay for the lawn care, heating, insurance, taxes, HOA and more while you own the home.
  • Purchasing costs: Besides the loan origination costs, there are some other costs to consider when buying a flip. A home inspection will run $300 to $800. Some lenders will require an appraisal, which is $400 to $600. There will be a closing fee, recording fees, tax certificates and much more.
  • Selling costs: When you sell your house, you will most likely have to pay a real estate agent to sell the flip and possibly cover closing costs for a buyer. The real estate commission and closing costs can add up to be 10 percent of the sale price.
  • Miscellaneous costs: Depending on where and how you buy your property, it may have a tenant or the previous owner may still be living in it. You could have eviction costs or costs to pay the occupants to leave.

Here is an example of what the total costs would look like on a typical fix and flip I buy and sell. I have a great lender who charges me 5.25 percent interest rate and 1.5 percent origination, but they only lend on 75 percent of the purchase price. My loan costs are much lower than most flippers’.

Purchase price: $75,000

Loan amount: $56,250

Costs:

Loan costs: $2,500

Carrying costs: $1,600

  1. a. Insurance: $400
  2. b. Lawn maintenance: $300
  3. c. Taxes : $400
  4. d. Utilities: $500

Buying costs: $1,000 (I usually do not do an inspection or have an appraisal)

Repairs: $30,000

Selling costs: $7,000 (Since I am a Realtor, I only pay the buyer’s agent commission. I list the house myself and do not have to pay a listing agent.)

Miscellaneous: $5,000

Total costs: $47,100

If I sold the house for $150,000, my profit would be $27,900. That is a decent profit, but I want to make at least $25,000 on each flip because of the risk involved and the money I put into them. On this flip, I would need at least $50,000 of my own cash for the down payment, carrying costs and repairs. Beginning flippers could easily spend three times as much for financing costs and another $4,500 to pay a listing agent. That cuts the profit to under $20,000 for a house that sells for twice as much as it was purchased for. The next time you watch a fix and flip show, see how many of these costs they actually tell you about!

Will you make more money fix and flipping more expensive homes?

It is true that the profit potential goes up when you flip more expensive homes. However, there are many more risks involved when flipping expensive houses.

  • The repairs will be much more expensive because buyers will demand higher quality.
  • It takes longer to sell more expensive houses and your carrying costs will be higher.
  • The carrying costs will be higher due to HOAs, more maintenance needed, higher taxes, etc.
  • You will need more cash because down payments, carrying costs and repairs will be higher.
  • All your money is in one house instead of multiple homes, increasing the risk if something goes wrong.

The biggest problem with flipping more expensive homes is that the difference between the buy price and sell price is massive. Using the 70 percent rule, a house with a $500,000 ARV would have to be bought for $300,000, if it needed $50,000 in work ($500,000*.7-$50,000=$300,000). It is very hard to find a deal that has such a large difference between the ARV and the purchase price because an owner-occupant buyer would be willing to pay much more for the house. The owner-occupant can pay $400,000, put $50,000 into the house and still have a great deal. In the more expensive market, it is much more likely owner-occupants will have the cash to put into homes.

How long does it take to fix and flip a house?

From start to finish, my goal is to have a flip for four months from the time I buy it to the time I sell it. I almost never hit that number because there are so many unknowns. The biggest delay I have is finding good contractors, especially when I have 10 properties at once. It takes me a couple of weeks to get a contractor started on the work, about a month for the work to be done, about three weeks for the home to be on the market before a contract is accepted and yet another month for the escrow/closing process — if everything goes perfectly.

Unfortunately, it often takes longer for the contractor to make repairs. We inevitably see a few things the contractor missed and they have to go back to the home to take care of those items. Then we have to line up cleaners and get the home listed. Sometimes it takes three weeks to get a good offer; sometimes it’s just one week, but it could just as easily be two months. In addition, the escrow process can vary from one month to sometimes two months. Now that I have so many houses and not enough contractors, I am looking at almost nine-month turn times on some of my properties.

Is all the hassle worth it when fix and flipping homes?

After looking at all the costs and everything that has to be accounted for, it may seem a bit intimidating to flip a home. Especially when you consider we have not even talked about how to find a fix and flip that can be bought cheap enough to make money. Just like anything in life, it takes time to learn what you are doing and feel comfortable. I still am learning new techniques to find properties and finding better ways to fix and flip homes.

After you learn the business, it can be a lot of fun. I still get excited whenever I get a new deal under contract, almost as excited as when I sell one for a nice profit. Over the last two years, I have averaged about a $35,000 profit on each of my fix and flips. I completed 10 flips last year and should complete (buy, fix, sell) over 10 this year. On most flips, I make around $30,000 in profit; but once in a while, I will make more, like this property that I made over $50,000. In the last 13 years of fix and flipping homes, I have made over $100,000 twice on a single flip. My success has not come from making a huge profit on one or two flips a year, but on consistently making modest profits on multiple homes. There is much less risk flipping many lower priced homes than flipping one expensive home.

The best part about this business is that I do not flip full time. I run a real estate team of 10 and my primary job is running that team and selling houses. Once you set yourself up correctly with the right contractors, the right financing, enough of your own money and experience, the business does most of the work itself. It is not easy to get to that point and it takes a lot of time and reinvesting money back into the business.

How do you find a great deal to fix and flip?

Finding a great deal is the key to making money in the fix and flip business. I used to buy 90 percent of my fix and flips at the public trustee foreclosure sale. These houses were sold in as-is condition for cash, and many times the inside of the house could not be viewed or homes were occupied. When I bought a home at the trustee sale, I had no inspection period and no way to back out once the property was purchased. In the last two years, the competition at the trustee sale has increased and I have not purchased any homes from that sale in over a year. In fact, I do not even go to the sale anymore because people are paying close to the amount you could buy a house for on the MLS. When I buy on the MLS, I get to have an inspection done, I can use a loan to buy the property, and I don’t have to deal with any occupants.

Almost all of my deals are bought on the MLS now. There are a few tricks to getting a great deal, but it is not easy with rising prices and competition.

  • Act fast: I make offers within hours of homes being listed.
  • Become an agent: One of the reasons I can act so fast is that I write the offer, set up a showing and I do not have to wait on an agent.
  • Look for properties that need work: The more problems a property has, the more potential profit there is. Make sure you know how to fix the problems and how much it will cost!
  • Look for properties that have been on the market over 90 days. The sellers are more likely to accept low offers on these homes. If they are grossly overpriced, I do not even bother.
  • Make offers on homes that come back on the market quickly. I can set up MLS alerts to tell me when a house in a certain price point comes on the market or comes back on the market after a contract falls apart. Many times the great deals that need work have contracts that fall apart because buyers don’t realize how much work is needed until their inspection.

There are other ways to get great deals such as direct marketing to sellers who do not have their properties for sale or finding wholesalers who sell cheap properties to investors.

What should you avoid if you decide to start flipping homes?

If you have decided you want to give flipping a try, here are some tips to keep you from losing too much money on your first try.

  • Only do the repairs yourself if you know what you are doing and have time to complete them. Many flippers try to save money by doing the work themselves. They don’t realize how long it takes to make repairs, especially in their spare time. It ends up taking months to fix the property    and the extra time will eats up the money you thought you saved by doing the work yourself. To make the situation even worse, the work won’t be as good as if a professional did it.
  • Do not overestimate the value of a home or rely on values to increase to make money. Many markets have increasing prices, but that doesn’t mean they will keep increasing. A lot of flippers went bankrupt during the housing crisis because they assumed the market would keep going up.  When prices stopped increasing and then decreased, they lost everything. I kept flipping right on through the housing crisis because I based values on the current market and left myself room for adjustment.
  • Do not overprice a home when you list it. To make money flipping, you have to sell quickly and keep your money moving from property to property. If you have a house sitting on the market that won’t sell, it is most likely overpriced. I have found that the sweet spot for a house to be on the market is three weeks and then I usually get an offer. If I don’t get an acceptable offer after 30 days, I lower the price 5 to 10 percent, depending on the activity.
  • Don’t try to sell a house yourself unless you are an agent. If you sell a house for sale by owner, you lose market exposure by not being in MLS. Ninety percent of buyers use a real estate agent to represent them and those agents look on MLS to find properties for their buyers. If you use a limited service company that puts the home on MLS, you still have to pay for the buyer’s agent. You are saving very little money and the buyer has representation while you do not. Who will get the better deal?
  • Always assume your repairs will be more expensive than you think and the flip will take longer than you think. Even if you get a bid for all the work before hand, things always pop up that you didn’t see or you couldn’t have known about.

My worst flipping experience

There is a lot of information in this article and I didn’t even come close to covering every topic involving flipping houses. I hope it gives you an overview of what it is like and what it takes to flip houses.  It is not about hitting a homerun on every flip, but hitting a lot of singles over and over again. I have lost money on flips before, sometimes because of things I have no control over. Since I had many flips going at once, losing money on one flip did not destroy my business – but this was the worst experience.

A couple of years ago, I bought a flip at the trustee sale. I saw the interior of the home through the windows but never got inside the house before I bought it. It was a good deal on a newer house, with little work needed and I thought I would make some easy money. After I bought the house and got the locks changed, we found a brand new BMW in the garage. I knew something very odd was going on, so we tracked down the previous owners in California (I am in Northern Colorado). They claimed the bank had foreclosed wrongly and they were going to get the house for free. They ended up filing a lawsuit against the bank a week later and we had a house we could not sell because it was involved in litigation.

The previous owners had been convinced they would get the house for free by a legal aid. We offered them $5,000 to drop the case and they would not even think of it, because they knew they would get the house for free. Long story short, the lawsuit was frivolous and thrown out by a judge as soon as he saw the case. The problem was that it took the court almost a year to look at the case even after we had hired lawyers and paid them almost $10,000 to speed up the process. After carrying costs and lawyers fees, I lost about $15,000 on that house. There was no way to know that would happen, but sometimes that’s how it works when buying houses at the foreclosure sale. That is why I prefer to have multiple low-value houses at the same time, instead of one expensive house. I was still making money and turning other properties while that house was tied up. If all my money was tied up in one house that I could not sell for a year, I could have been in serious trouble.

Conclusion

I have been in the fix and flipping business for a long time and it has been very good to me. It is not easy to get started, to find great deals, find great contractors or to get all the money needed to flip. It is not impossible either, but it does take a lot of planning and education to get started. If you want to ask any questions in the comments, I’ll try to respond as quickly as possible.

Reminder: This is a story from one of your fellow readers. Please be nice. It can be scary to put your story out in public for the first time. Remember that this guest author isn’t a paid or professional writer and is just learning about money like you are. Unduly nasty comments on readers stories will be removed.


This article is by staff writer William Cowie.

Most banks (especially the larger ones) have been regarded as pretty safe, for all intents and purposes, since the middle of the previous century. But since banks started maintaining our balances in secure data centers at various locations (instead of holding our savings in safes and vaults in their local branches), a bank’s records of what is yours and mine become increasingly visible to people within the banks, but also to some on the outside that have malicious intent.

In the never-ending game of cat and mouse, each time a bank improved their security measures, bank robbers improved their methods to attack those centrally located files. At first, stealing money in the electronic age became an exercise in simply transferring the money in your account to their account. Call it “Phase I of electronic banks and robbers,” but those initial efforts were only focused on getting inside the banks’ now-electronic vaults … where the “money” is.

The advent of electronic identity theft

Then thieves discovered another vault: our identity information. Instead of making a massive frontal attack on a bank in an attempt to get at the bank’s customer accounts, they began to launch a million stealthy small attacks, using a million individuals’ account credentials, on a few thousand banks, spread over time. It required a few more computer clicks, but the result was the same.

Identity theft replaced outright bank theft as the number one financial crime, in large part because criminals perfected the art of identity theft before institutions could respond. When they did, their response looked a bit like the proverbial herd of wild animals: A separation existed between the diligent and strong banks, on the one hand, and the others who lag.

Passive and active online security strategies

The strongest banks developed a two-pronged attack to identity theft. Their first line of attack was passive identification protocols, like passwords and PINs. These are geared to verify it’s you making the request, not some unauthorized rogue. The advantages are: It’s simple and unique for every customer. Banks store those PINs and passwords separately from our account information, even on different networks with separate encryption to make it harder for thieves to extract the codes and be able to use them to impersonate you.

To circumvent any deficiencies with passive protocols, banks added departments devoted to active online security. These experts analyze your buying patterns and react to anything out of the ordinary by reaching out to you to confirm any transaction that doesn’t fit your pattern. My bank called me two weeks ago to ask if I was buying gas in Mexico. I wasn’t, and their alert limited their damage to one purchase and mine to waiting four days for a new card. The downside of active online security is it’s expensive and still not foolproof.

New online security measures are being developed around biometrics

As banks sought a simpler solution that would also be more affordable and criminal-proof, it pointed to a passive system as opposed to high-staff, active systems. The area showing the most promise in this regard is what’s called biometric identification. “Biometric,” in this instance, refers to identifiers based on one or more unique parts or surfaces of the human body.

Fingerprints are well known as an accurate means of identifying an individual, because, as we all know, no two people have identical fingerprints. The same applies to other body parts, such as the iris of an eye. Something else that’s unique to every person is the vein patterns inside our fingers. Hitachi developed a scanner which shines light through a person’s finger and digitizes the unique pattern of veins inside the finger.

The benefit of the vein scanner is that nobody can capture fingerprints from a glass or counter, or capture an iris pattern from a photograph. Your vein pattern is impossible to capture, other than by a scanner.

The downside of biometric identifiers is they all still get translated to zeroes and ones in a computer file — and, if that file resides on a central computer, it’s vulnerable to being copied and used by cyber thieves.

However, two recent developments may constitute a breakthrough in online bank security by addressing this vulnerability in a unique way.

Barclays Bank, the 300-year-old bank headquartered in Britain, is again starting to raise the bar for online security. Their latest online banking innovation, using a finger vein scanner, is being offered for a fee to their British corporate clients with desktop devices so that they can identify authorized users by scanning the unique vein patterns inside their fingers.

image: Barclays
image: Barclays

But the interesting and unique breakthrough in the Barclays application is that the personal biometric identification information stays in the scanner, not in the bank’s central computer. That means hackers can’t get access to their depositors’ codes like they could with passwords or PINs, because the information is simply not at the bank — it resides on their client’s desk. The scanner generates a code with each transaction, which the bank checks. It doesn’t matter if a crook gets hold of the verification code: The crook would still need both the finger pattern and the scanner’s unique translation code for that pattern before they could impersonate a patron and access their banking records.

These scanners are still expensive. It makes sense, therefore, for Barclays to test the new technology with its larger corporate clients first, since they move enormous sums around and can easily justify the expense as a necessity to protect their capital.

If this works, it’s reasonable to expect other tech companies, and banks, to develop this technology to the point that everybody can afford to have a personal vein scanner, or some other biometric device, in their home to protect against identity theft.

Apple Pay was part of the new Apple iPhone 6 product launch. Using a fingerprint sensor, their latest smartphone lets you make retail purchases by simply tapping your phone to a payment terminal on the retailer’s counter. The tap allows the retailer to deduct the correct amount from your bank account, but without the retailer knowing anything about you: no personal information ever gets transferred.

What retailers don’t have can’t be stolen. To quote Apple: “With Apple Pay, instead of using your actual credit and debit card numbers when you add your card, a unique Device Account Number is assigned, encrypted and securely stored in the Secure Element, a dedicated chip in iPhone… These numbers are never stored on Apple servers. And when you make a purchase, the Device Account Number alongside a transaction-specific dynamic security code is used to process your payment. So your actual credit or debit card numbers are never shared by Apple with merchants or transmitted with payment.”

Several major financial institutions — like American Express, Bank of America, Capital One, JP Morgan Chase, Citibank, and Wells Fargo — are already on board with Apple Pay, and Apple says several others, notably Barclaycard, Navy Federal Credit Union, PNC Bank, USAA and US Bank are in process.

What both the Barclays Bank and Apple Pay technology-driven security initiatives have in common is embracing biometric identifiers, and moving that identification data out of centralized locations, and into a user’s equipment.

Decentralized identification information is difficult to hack, on two levels:

  • It’s a moving target because, in both cases, the biometric data generates dynamic codes. That’s like setting up a new password for every transaction: even if you deciphered one, it’s useless for any other transaction.
  • The cost/benefit ratio for cyber attackers increases exponentially, because the potential gain for a successful hack goes from hundreds of millions of dollars to hundreds of dollars. In other words, crime stops paying.

Time will tell how these developments play out, but I find it encouraging that practical, joint measures are being taken by banks and hardware manufacturers to further strengthen online security. How does your bank protect your information? Do you think biometrics will keep your accounts safe?


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