Mastercard deepens crypto push with tool for preventing fraud

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Mas­ter­card cred­it cards

Rober­to Macha­do Noa/ LightRock­et via Get­ty Images

Mas­ter­card will on Tues­day debut a new piece of soft­ware that helps banks iden­ti­fy and cut off 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 cryp­to trans­ac­tions, as well as oth­er sources.

The ser­vice is pow­ered by Cipher­Trace, a blockchain secu­ri­ty start­up Mas­ter­card acquired last year. Based in Men­lo Park, Cal­i­for­nia, Cipher­Trace helps busi­ness­es and gov­ern­ment agen­cies inves­ti­gate illic­it trans­ac­tions involv­ing cryp­tocur­ren­cies. Its main rivals are New York firm Chainal­y­sis and Ellip­tic, which is based in London.

Mas­ter­card is launch­ing the ser­vice against a back­drop of grow­ing crime in the nascent dig­i­tal asset mar­ket. The amount of cryp­to enter­ing wal­lets with known crim­i­nal con­nec­tions surged to a record $14 bil­lion last year, accord­ing to data from blockchain ana­lyt­ics firm Chainal­y­sis. And 2022 has seen a spate of high-pro­file hacks and scams tar­get­ing cryp­to investors.

On the Cryp­to Secure plat­form, banks and oth­er card issuers are shown a dash­board with col­or-cod­ed rat­ings rep­re­sent­ing the risk of sus­pi­cious activ­i­ty, with sever­i­ty of risk rang­ing from red for “high” to green for “low.”

Cryp­to Secure does­n’t make a judg­ment call on whether to turn away a spe­cif­ic cryp­to mer­chant. That deci­sion is down to the card issuers themselves.

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.

Ajay Bhal­la

pres­i­dent of cyber and intel­li­gence, Mastercard

Mas­ter­card already uses sim­i­lar tech­nol­o­gy to pre­vent fraud in fiat cur­ren­cy trans­ac­tions. With Cryp­to Secure, it’s expand­ing such func­tion­al­i­ty to bit­coin and oth­er vir­tu­al currencies. 

Ajay Bhal­la, Mas­ter­card’s pres­i­dent of cyber and intel­li­gence busi­ness, said the move was about ensur­ing its part­ners can “stay com­pli­ant with the com­plex reg­u­la­to­ry landscape.”

“The whole dig­i­tal asset mar­ket is now a pret­ty large, 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 an impor­tant focus in cryp­to late­ly as more banks and pay­ment com­pa­nies enter the fray with their own ser­vices for trad­ing and stor­ing dig­i­tal assets. Last month, Nas­daq became the lat­est estab­lished finan­cial firm to join Wall Street’s embrace of cryp­to, launch­ing cus­tody ser­vices for insti­tu­tion­al clients.

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Mean­while, gov­ern­ments on either side of the Atlantic are look­ing to imple­ment fresh curbs on the cryp­to sec­tor, which so far been most­ly lack­ing in reg­u­la­tion. Last month, the Biden admin­is­tra­tion released its first-ever frame­work on reg­u­la­tion of the cryp­to indus­try in the U.S., while the Euro­pean Union has approved land­mark cryp­to laws of its own.

The pay­ments giant is dou­bling down on cryp­to at a time when prices of dig­i­tal cur­ren­cies are falling and vol­umes have dried up. The entire mar­ket has shed rough­ly $2 tril­lion in val­ue since the peak of a huge ral­ly in Novem­ber 2021. 

Bit­coin is now worth less than $20,000 a coin — a rough­ly 70% plunge from its near-$69,000 all-time high — and in recent weeks has strug­gled to climb mean­ing­ful­ly above that level.

Asked about the impact of the declines in cryp­to prices on Mas­ter­card’s dig­i­tal asset strat­e­gy, Bhal­la said the com­pa­ny was “focused on pro­vid­ing solu­tions to the stake­hold­ers for the long term.”

“These are mar­ket cycles, they will come and they will go,” he said. “I think you’ve got to take the longer view that this is a big mar­ket­place now and evolv­ing and is prob­a­bly going to be much, much big­ger in the future.”

Despite the slump in dig­i­tal token prices, crime in the indus­try has shown no signs of abat­ing. A par­tic­u­lar­ly pop­u­lar method of swin­dling cryp­to investors of their funds this year has been to exploit blockchain bridges, tools used to exchange assets from one cryp­to net­work to anoth­er. Around $1.4 bil­lion has been lost to breach­es on these cross-chain bridges since the start of 2022, accord­ing to Chainal­y­sis data.

Read more about tech and crypto from CNBC Pro

Against that back­drop, major finan­cial ser­vices firms and cryp­to plat­forms are invest­ing in ways of low­er­ing 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 — an issue 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 cryp­to crim­i­nals’ ill-got­ten gains. Com­pa­nies are employ­ing sophis­ti­cat­ed data sci­ence and machine learn­ing tech­niques to ana­lyze data on pub­lic blockchains. 

Mas­ter­card is also seek­ing to keep pace with its main rival Visa, which has made notable invest­ments of its own in the cryp­to are­na. In its first fis­cal quar­ter of 2022, Visa said it facil­i­tat­ed $2.5 bil­lion in trans­ac­tions from cards linked to an account at a cryp­to platform.

Last year, Visa launched a cryp­to advi­so­ry prac­tice to offer advice to clients on every­thing from rolling out cryp­to fea­tures to explor­ing non-fun­gi­ble tokens.

Mas­ter­card declined to dis­close the over­all 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 now runs into the “thou­sands.”

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