Treasury Department Approval : Codercard System OKd for Banks
After five years of research, development and testing, Codercard said Wednesday that it has received final government approval to start marketing a computer security device to banks and other financial institutions that transfer funds electronically.
Certification by the Treasury Department is a major milestone for the Newport Beach company, which has spent more than $5 million developing a number of computer security products and has yet to earn a profit, said Willis D. Marsing, the firm’s president.
The Codercard device, called the Argus, is the first of its kind to be federally certified, he said.
The device ensures that coded messages sent from one computer are received intact by another and that no one can interfere with the message during its transmission. The process is called message authentication.
Messages in need of such protection include letters of credit, securities transactions and foreign exchange contracts.
High-Tech Thieves
High-tech thieves steal $3 billion to $5 billion a year by invading computer memory banks, and the theft of electronic information is getting easier, according to a recent report in Business Week magazine.
In its effort to make computer information more secure, Codercard developed a plastic computer access card with an embedded microprocessor. In the Argus system, the card uses proprietary formulas that allow access to the computer and encode the messages.
The system is designed to satisfy Treasury Department directives requiring that anyone engaged in electronic fund transfers have such message authentication by the end of next year.
“We are now in an excellent position to play a major role in supplying this large market,” Marsing said.
The firm has already been talking with bankers as part of its effort to market its products. Sales for the fiscal year, ending next June 30, should reach $4 million to $5 million, Marsing said.
“We’re talking to the feds now,” he said. “We expect Treasury to buy, and we think eventually we’ll get the Federal Reserve, but they tend to be behind everybody else.”
Payment Transactions
The only way the Federal Reserve Board could use such message authentication devices now is for payment transactions between its district bank in New York and the Treasury Department, according to Buffy Miller, a vice president for the Federal Reserve Bank of San Francisco.
Because messages are transmitted almost instantly, she said, she questioned whether a system is needed to “ensure that nobody looked at the message along the way.”
Codercard recently received its first major contract, a $4.8-million order last month from its Australian distributor for the Argus and other computer security products.
Also last month, Codercard and AT & T entered into a licensing agreement that will allow the computer security firm to design a new type of “smart card”: a credit card with a microchip embedded in the plastic to provide greater protection against fraudulent use.
The Argus system can be used for internal electronic transmissions, especially at large banks, Marsing said. He expects that bankers will be able to serve clients quicker and more efficiently because the security device will allow more computer transactions.
It Foils Hackers
With the device, workers using personal computers can “encrypt” their messages to foil any computer “hackers” who manage to break into the system.
Formulas used to scramble the messages have to be sent to those on the receiving end so they can decode the messages. Codercard is in the final stages of getting Treasury Department approval for an automated key management system that creates, communicates and destroys the formulas needed to decode messages.
Because Argus meets government specifications, it will be compatible with devices produced by other companies. But with the market to itself for now, Codercard hopes to sell Argus to a sizable share of government agencies, banks and brokerage houses before others join the competition.
Two other companies, Jones-Futurex in San Diego County and Analytics Communications Systems in Reston, Va., have partial government certification on security devices to authenticate messages.
Marsing said the Argus system is priced at about $500, much less than the $2,000 to $4,000 banks have had to spend on older security systems.
