Mastercard moves to protect 'risky and frisky' crypto transactions
Expands into a sector so toxic many won't touch it
Supposedly ingenious schemes to revolutionize the finance industry with crypto are not hard to find – nor are their failures. And scarcely a day passes on which a cryptocurrency venture's infosec is not found wanting. That sad situation is causing financial institutions sufficient pain that Mastercard thinks the time is ripe for a service that helps lenders to understand if their customers' crypto purchases are dangerous.
MasterCard has named its effort Crypto Secure and says it "allows [card issuers] to better assess the risk profile of crypto exchanges or other providers."
Card issuers are nearly always banks, and laws around the world mean issuers are often on the hook for fraudulent transactions made with credit cards.
The service therefore helps card issuers to:
- Accurately identify the crypto exchanges;
- Measure transaction approvals and declines;
- Understand, at a portfolio level, their exposure to crypto risk through a single score;
- Access a benchmark rating for comparison to a peer group of financial institutions.
The Register asked Mastercard if it has ever offered a service of this sort for any other class of asset or merchant. The company didn't offer a direct answer, saying only that it is a "first-of-its kind technology which is offered globally … to help card issuers stay compliant with the complex regulatory landscape of the digital assets sector [and] better assess the risk profile of crypto exchanges or other providers."
Independent payments expert Brad Kelly, managing director of Australian company Payment Services, said he's never seen a similar sector-specific service offered by a card scheme.
Kelly told The Register that crypto exchanges are currently rated as similar risks to purveyors of gambling and prostitution – sectors known as "risky and frisky" in the payments industry.
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Both sectors struggle to attract "acquirers" – the intermediaries that connect merchants to card issuers – because the risk of payments going bad is so high. Which is why Mastercard is helping issuers to identify which crypto exchanges are real and/or trustworthy!
Kelly therefore feels that Mastercard's move is designed to reduce risk for issuers but also give some comfort to acquirers. As such it's designed to protect Mastercard from two threats.
One is the increasing volumes of crypto payments that reduce demand for credit cards. Credit card providers like Mastercard and Visa make their money from transaction fees, and therefore want as many transactions as possible to be conducted on their platforms. Taking steps to encourage issuers to allow transactions with crypto exchanges might not affect the number of crypto transactions, but may mean more Mastercards are used to make them.
The other threat is rival card dealer Visa's recent crypto maneuvers. Kelly noted that Mastercard recently decided to emphasize buy-now-pay-later transactions – its tech will power Apple's forthcoming offering in the field – while Visa has invested more in cryptocurrency transaction processing. Crypto Secure thereby enables Mastercard to address the threat of Visa dominating the crypto market and transactions in virtual assets.
All of which leaves both of the major card providers clearing the way for cardholders to acquire crypto assets – even as authorities around the world increasingly warn they're a terribly risky investment and clamp down on their use by criminals, terrorists, ransomware scum, and pariah nations like North Korea. ®