Special report Cracking the nest egg Consumers are finally starting to bank online in big numbers, and hackers are taking notice.

"Acme-Hackme Bank" didn't have a chance: More than 20 flaws riddled its Web site, almost half of them considered "serious," opening the door for online thieves. This time, however, the fake bank site played the fall guy in a public relations event for auditors thrown by Web security company Sanctum at the swank Fairmont Hotel here.

Yet, the situation is pretty close to the mark for many online stores and financial institutions, said John George, a product specialist for the Santa Clara, Calif., company.

"I could go online right now and (use these techniques to) get a PC for a dollar," George said. "There are sites that have these problems right now."

Online financial institutions have been increasingly targeted. Even a small vulnerability in the computer systems of the banks' partners, such as companies providing Web hosting or bill payment services, might provide a door through which hackers could access customer accounts and transfer money to themselves. Such computer-related crimes are estimated to cost U.S. corporations and consumers as much as $11 billion per year, with financial institutions swallowing a growing portion.

Many e-commerce sites are protected by antivirus software, have firewalls in place and can detect overt intrusions, but Sanctum and other application security companies say they believe sites need to do more to head off the threat of several types of bugs that are compromising security.

Such bugs are created by the applications running on a company's servers: the shopping carts, the account management and the personalization features.

"Nimda and Code Red came through the application layer," said Peggy Weigle, Sanctum's CEO, naming the two Internet threats--in this case, worms--that caused the most damage in 2001.

Such threats use a variety of software programming flaws to sneak in. Cross-site scripting errors allow input from a site on one server--say in a user form or search box--to be sent as a command to another server, allowing a hacker to break in. Some e-commerce software puts important information--such as product IDs, prices or passwords--in the URL that is sent to the Web site, allowing a price to be lowered or an account to be stolen. And modifications to database commands can sometimes return private information to the digital burglar.

The problem, Weigle said, is that the developers who create e-commerce applications tend to leave security until the very end.

"The people that build the applications today... are geared toward making them easy-to-use and sticky," she said. "Security is not on the top of the list."

Sanctum creates a scanner for detecting such flaws, sort of an anti-virus scanner but for bugs. If a company doesn't have time to close all the holes, no problem; Sanctum has a solution for that as well: a firewall-like software package that blocks unauthorized access to the application.

The venture capital community sees promise in such products. So far, the company has raised nearly $54 million in four rounds of private funding, and counts eight of the top 10 U.S. financial institutions as clients.

Still, the allure of hacking left some auditors wanting, it seems.

After an initial rush at the beginning of the evening event, the auditors--in San Francisco for the North America Conference on Computer Audit, Control and Security--thinned out, a bit fatter on the food, but perhaps still lean on the need for application security.

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