Mastercard digs deeper into crypto push with fraud prevention tool
Mastercard credit cards
Roberto Machado Noa/LightRocket via Getty Images
Mastercard will launch new software on Tuesday that helps banks identify and cut transactions from fraud-prone crypto exchanges, the company told CNBC exclusively.
Called Crypto Secure, the system uses “sophisticated” artificial intelligence algorithms to determine the risk of crime associated with crypto exchanges on the Mastercard payment network. The system relies on data from the blockchain, a public record of cryptographic transactions, as well as other sources.
The service is powered by CipherTrace, a blockchain security startup acquired by Mastercard last year. Based in Menlo Park, California, CipherTrace helps businesses and government agencies investigate illicit transactions involving cryptocurrencies. Its main competitors are New York-based Chainalysis and London-based Elliptic.
Mastercard is launching the service amid rising crime in the nascent digital asset market. The amount of crypto entering wallets with known criminal ties hit a record $14 billion last year, according to data from blockchain analytics firm Chainalysis. And 2022 has seen a series of high profile hacks and scams targeting crypto investors.
On the Crypto Secure platform, banks and other card issuers see a dashboard with color-coded ratings representing the risk of suspicious activity, with risk severity ranging from red for “high” to green for “low”. “.
Crypto Secure does not judge whether to turn down a particular crypto merchant. This decision is up to the card issuers themselves.
Mastercard already uses similar technology to prevent fraud in fiat currency transactions. With Crypto Secure, it extends these features to bitcoin and other virtual currencies.
Ajay Bhalla, president of cyber and intelligence businesses at Mastercard, said the move was to ensure its partners can “stay compliant with the complex regulatory landscape.”
“The whole digital asset market is now quite a large and substantial market,” he told CNBC in an exclusive interview ahead of the product launch.
“The idea is that the kind of trust we provide for digital commerce transactions, we want to be able to provide the same kind of trust to digital asset transactions for consumers, banks and merchants.”
Compliance has become a big focus in crypto lately, as more and more banks and payment companies are entering the fray with their own services for trading and storing digital assets. Nasdaq last month became the latest established financial firm to join Wall Street’s embrace of crypto, launching custody services for institutional clients.
Meanwhile, governments on both sides of the Atlantic are looking to put in place new restrictions on the crypto industry, which until now has mostly lacked regulation. Last month, the Biden administration released its first-ever framework on regulating the crypto industry in the United States, while the European Union approved its own landmark crypto laws.
The payments giant is doubling down on crypto efforts at a time when digital currency prices are plummeting and volumes are drying up. The entire market has lost around $2 trillion in value since peaking in a huge rally in November 2021.
Bitcoin is now worth less than $20,000 a coin – a roughly 70% drop from its all-time high of nearly $69,000 – and in recent weeks has struggled to climb significantly above this level.
Asked about the impact of falling crypto prices on Mastercard’s digital asset strategy, Bhalla said the company is “focused on providing solutions to long-term stakeholders.”
“These are market cycles, they will come and they will go,” he said. “I think you have to consider longer term that it’s a big market now and it’s changing and it’s probably going to be much, much bigger in the future.”
Despite falling digital token prices, crime in the industry has shown no signs of slowing down. A particularly popular method of defrauding crypto investors of their funds this year has been to exploit blockchain bridges, tools used to exchange assets from one crypto network to another. About $1.4 billion has been lost to breaches on these cross-chain bridges since the start of 2022, according to data from Chainalysis.
Against this backdrop, major financial services firms and crypto platforms are investing in ways to reduce the risk of ill-gotten gains being transferred through their systems. Cryptocurrencies are often criticized for their use in money laundering and other forms of illicit activity – a problem that stems in part from the pseudonymous nature of participants on blockchain networks.
But the development of new software tools has made it easier to trace the ill-gotten gains of cybercriminals. Companies use sophisticated data science and machine learning techniques to analyze data on public blockchains.
Mastercard is also looking to keep pace with its main rival Visa, which itself has made notable investments in crypto. In its first fiscal quarter of 2022, Visa said it facilitated $2.5 billion in transactions from cards linked to an account on a crypto platform.
Last year, Visa launched a crypto advisory practice to offer advice to clients on everything from deploying crypto features to mining non-fungible tokens.
Mastercard declined to disclose the aggregate dollar value of fiat-to-crypto volumes from its network of 2,400 crypto exchanges. However, Bhalla said the number of transactions the credit card giant facilitates per minute is now in the “thousands”.