Institutional interest in digital assets continues to grow rapidly, showing that cryptocurrencies, stablecoins, and non-perishable tokens (NFTs) are here to stay. At the same time, traditional financial institutions are beginning to properly understand the critical need to back digital assets. For example, although payments giants such as Mastercard and Visa currently offer crypto-backed credit and debit cards, these companies are also working to form partnerships with crypto institutions to provide better security and confidence to consumers who transact with digital currencies.
Highlighting the issue, Ajay Bhalla, Head of Internet and Intelligence at Mastercard, told Cointelegraph that Mastercard customers and other partners are looking for 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 will acquire CipherTrace, a blockchain analytics intelligence company that has developed cryptographic forensic capabilities for more than 900 cryptocurrencies.
According to Bhalla, once the deal with CipherTrace closes, which is expected to be by the end of this year, Mastercard will be able to develop more tools to identify, detect and prevent fraud and money laundering. Bahla said:
“We see the huge potential of digital assets, such as cryptocurrencies and NFTs, to transform our everyday experiences – from how we pay and get paid to how we buy products and services and how we invest. However, the promise of technological advancements and enhanced experiences is being met with a growing interest in the security of digital assets.”
Given the young and innovative nature of digital assets, financial institutions that already support crypto payments will have to properly accommodate the growth. Dave Jeffans, CEO of CipherTrace, told Cointelegraph that he believes every financial institution in the world will eventually have to monitor cryptocurrency transactions and take risks moving forward. As such, Jevans noted that Mastercard’s acquisition of CipherTrace is a good fit for both companies:
“CipherTrace has unique products, like Armada for example, that integrate intelligence around crypto and banking transactions. We can now go to market with MasterCard to bring our products to a broader audience on the banking side.”
Furthermore, Jevans stated that government involvement is an important element to consider, noting that Mastercard’s presence across the US, Europe and Asia will allow CipherTrace to work directly with regulators looking to develop central bank digital currencies (CBDC).
In fact, the need for tools provided by crypto-intelligence companies is greater than ever as countries race to develop crypto-related digital currencies. Recent data from Redfield & Wilton Strategies found that among 2,500 surveyors, 30% believe that CBDC “Britcoin” will be harmful to the UK. Specifically, the study revealed that 73% of participants would be “concerned about the risk of hacking and cyber attacks,” while the others were concerned about users’ privacy and government interference.
In order to allay these concerns, Jevans said that MasterCard has developed a test for CBD, which he hopes will advance CipherTrace further: “We can work together here, whether it’s on financial investigations or with regulators as development begins in central bank digital currencies. .”
A Mastercard spokesperson told Cointelegraph that the company is working with central banks in all of the regions where Mastercard operates:
“We are focused on strengthening public/private CBDC partnerships and working with fintechs to enable crypto card options for people who want to buy and send crypto (in partnership with Evolve Bank & Trust and Paxos Trust Company) and leverage our blockchain innovations and partnerships to innovate for the future of digital asset infrastructure.”
According to Jevans, Mastercard’s upcoming acquisition of CipherTrace ultimately illustrates the next logical step in bringing cryptocurrency to the world at large: “This is the maturity of cryptocurrency in the underlying financial payments infrastructure.” He said that all major payments companies will either have to acquire or partner with crypto intelligence firms to ensure the development of digital assets; Otherwise, there is a risk of failure.
Echo Jevans, Alex Tapscott, author The Financial Services Revolution: How Blockchain Is Transforming Money, Markets, and Banking, told Cointelegraph that Mastercard’s recent decision to acquire CipherTrace indicates that many incumbents see the acquisition as an appropriate way to build their capabilities in the industry:
I wouldn’t be surprised to see more deals like this in the future. Can current payment companies really stand on the sidelines while stablecoins and crypto assets continue to explode in value and become more widely used? Today, stablecoin values exceed $150 billion in circulation. At what point do Mastercard or Visa release their own cards? “
Tapscott believes that the major payment service providers have now just woken up from this opportunity, viewing it as a potential threat to their existing business. While Mastercard has been leading the way for digital asset growth through its partnerships with companies like Circle, Gemini, and BitPay, it now appears that other payment providers are doing the same.
For example, Visa announced in July that its crypto-enabled cards processed more than $1 billion in total spending during the first half of 2021. The payments giant said it was partnering with 50 crypto companies, along with crypto credit card programs to allow users to spend cryptocurrency It has millions of merchants all over the world.
Jevans also noted that major exchanges will also start acquiring or partnering with crypto companies. For example, Deutsche Boerse, the operator of the German stock exchange, recently acquired a majority stake in Crypto Finance AG, a Swiss digital asset company.
Jevans and Tapscott said that these acquisitions and partnerships are becoming the norm due to the fact that central bank coins, stablecoins, and NFTs are pouring into the traditional market. “I think as payment companies enter this market, we will see more security, privacy, and transaction security around NFTs and other securitized assets. Companies are no longer just thinking about payments, but the broader picture,” Jevans said.
Education is the key
While it has been noted that payment companies are partnering with or acquiring crypto companies to back up digital assets, Jevans mentioned that integration can be a challenge. Jevans noted that this is usually the case when crypto companies combine with central institutions: “Education will be needed on both sides here.”
However, Jevans said CipherTrace is ready to help Mastercard employees better understand how crypto and digital assets work, as well as how to integrate them into their business model. “This will be a challenge but also a huge opportunity for both companies,” Jevans said.