Adapt or die: Payments giants partner with crypto firms to ensure security

Mastercard’s upcoming acquisition of CipherTrace demonstrates the need for payments giants to partner with crypto firms to enable digital asset innovation.

Institutional interest for digital assets continues to grow rapidly, demonstrating that cryptocurrencies, stablecoins and nonfungible tokens (NFT) are here to stay. At the same time, traditional financial institutions are beginning to understand the dire need to properly support digital assets. For example, although payments giants such as Mastercard and Visa currently offer crypto-enabled credit and debit cards, these companies are also forming partnerships with crypto organizations to enable better security and trust for consumers transacting with digital currencies. 

Shedding light on the matter, Ajay Bhalla, president of cyber and intelligence at Mastercard, told Cointelegraph that Mastercard’s customers and other partners are seeking solutions to ensure that the crypto economy is instilled with the same peace of mind that consumers experience with traditional payment methods. In order to provide this, the payments giant recently announced that it was going to acquire CipherTrace, a blockchain analytics intelligence firm that has developed crypto forensic capabilities for over 900 cryptocurrencies.

According to Bhalla, once the deal with CipherTrace closes, which is expected by the end of this year, Mastercard will be capable of developing more tools to identify, detect, and prevent fraud and money laundering. Bhalla said:

“We see tremendous potential for digital assets, like cryptocurrencies and NFTs, to change our everyday experiences — from the way we pay and get paid to how we purchase products and services and how we invest. However, the promise of technological advancement and enhanced experiences is met with a rising concern of digital asset security.”

Monitoring transactions

Given the young yet innovative nature of digital assets, financial institutions that already support crypto payments will have to properly accommodate for growth. Dave Jevans, CEO of CipherTrace, told Cointelegraph he believes that every financial institution in the world will eventually have to monitor cryptocurrency transactions and risk moving forward. As such, Jevans noted that Mastercard’s acquisition of CipherTrace is a natural fit for both companies:

“CipherTrace has unique products, like ‘Armada’ for example, which integrates intelligence around crypto and banking transactions. We can now go to market together with Mastercard to bring our products to a broader audience on the banking side.”

Moreover, Jevans mentioned that government involvement is an important element to consider, pointing out that Mastercard’s presence throughout the United States, Europe and Asia will allow CipherTrace to work directly with regulators looking to develop central bank digital currencies (CBDC)

Indeed, the need for tools provided by crypto intelligence firms has become greater than ever as countries race to develop respective CBDCs. Recent data from Redfield & Wilton Strategies found that out of 2,500 surveyors, 30% believe that a “Britcoin” CBDC would be harmful to the United Kingdom. Specifically, the study revealed that 73% of the participants would be “concerned about the threat of hacks and cyberattacks,” while others were worried about users’ privacy and government intervention.

In order to alleviate such concerns, Jevans said that Mastercard has developed a CBDC testbed, which he hopes CipherTrace will further advance: “We can work together here, whether it be on financial investigations or with regulators when they start development in CBDCs.”

A Mastercard spokesperson further told Cointelegraph that the company is working with central banks in all regions where Mastercard operates:

“We are focused on fostering public/private CBDC partnerships work with fintechs to enable crypto card options to people who want to buy and send crypto (in partnership with Evolve Bank & Trust and Paxos Trust Company) and tap our blockchain innovation and partnerships to innovate for the future of digital asset infrastructure.”

Next steps

According to Jevans, Mastercard’s upcoming acquisition of CipherTrace ultimately demonstrates the next logical step in bringing cryptocurrency to the entire world: “This is the maturation of crypto into core financial payments infrastructure.” He said that all major payments companies will have to either acquire or partner with crypto intelligence firms to ensure digital asset development; otherwise, there is a risk for failure.

Echoing Jevans, Alex Tapscott, author of Financial Services Revolution: How Blockchain is Transforming Money, Markets, and Banking, told Cointelegraph that the recent decision by Mastercard to acquire CipherTrace suggests that many incumbents see acquisitions as an expedient way to build their capability in this industry:

“I would not be surprised to see more deals like this in the future. Can incumbent payment companies really stand on the sidelines while stablecoins and crypto assets continue to explode in value and become more and more widely used? Today, stablecoin values exceed $150 billion in circulation. At what point does Mastercard or Visa launch their own?”

Tapscott believes that leading payments providers are just now waking up to this opportunity, viewing it as a potential threat to their existing businesses. While Mastercard has been leading the way for digital asset growth through its partnerships with companies such as Circle, Gemini and BitPay, other payments providers now appear to be doing the same.

For example, in July Visa announced that its crypto-enabled cards processed over $1 billion in total spending during the first half of 2021. The payments giant said that it was partnering with 50 crypto companies, along with crypto credit card programs to allow users to spend digital currencies at millions of merchants across the globe.

Jevans also noted that major stock exchanges will also begin to acquire or partner with crypto firms. For instance, Deutsche Boerse, the German stock exchange operator, recently acquired a majority stake in Crypto Finance AG, a Swiss digital asset firm.

Both Jevans and Tapscott said that these acquisitions and partnerships are becoming the norm due to the fact that CBDCs, stablecoins and NFTs are flooding into traditional markets. “I think that as payment companies step into this market, we’ll see more security, privacy and transactional security around NFTs and other securitized assets. Companies are not just thinking about payments anymore but rather the broader picture,” said Jevans.

Education is key

While it’s notable that payment companies are partnering or acquiring crypto companies to support digital assets, Jevans mentioned that integration can be a challenge. Jevans noted that this tends to be the case when you bring together crypto companies with centralized organizations: “Education on both sides will be needed here.”

However, Jevans said that CipherTrace is prepared to help Mastercard employees better understand how crypto and digital assets work, along with how these will integrate into their business model. “This will be a challenge but also a massive opportunity for both companies,” said Jevans.