Mastercard moves to protect 'risky and frisky' crypto transactions

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 …

[DS999]

Crypto payments aren't cheaper than card payments

If crypto did all the things that the law requires card payments to do like (in the US at least) zero liability for fraud, and the fraud prevention they therefore feel compelled to do to limit that potential liability, police PCI compliance of vendors, and on and on, it would cost a lot more.

If the cost of actual transactions was basically free like card transactions are to Mastercard and Visa then the only difference would be the profit they make. If the profit is so high why have other card networks that take less profit not popped up? It can only be a combination of high barriers to entry (all the compliance, regulation, fraud prevention etc. a new entrant would have to set up) and whatever monopolistic barriers are set up by the current incumbents.

Crypto doesn't magically make all that stuff go away. Sure, they can operate today without any regulation, but long before they become a noticeable drain on Mastercard and Visa's bottom line they would be forced to comply with all the same regulations and the "decentralized" thing cryptobros claim to love so much would be a thing of the past.

[Marty McFly]

Crypto does compete with credit cards, it replaces them

Transacting in crypto currency is more like doing business in cash than it is like using credit cards. Yes, the stake of value is transferred electronically and the network charges a fee for validating the transaction. But it does not require a corporate intermediary like Mastercard / Visa.

That is the payment card industry's biggest fear - they won't be needed anymore.

[druck]

Re: Crypto does compete with credit cards, it replaces them

Transacting in crypto currency is more like doing business in cash in a dark alley with a know criminal than it is like using credit cards.

FTFY

[Anonymous Coward]

Re: Crypto does compete with credit cards, it replaces them

Nah, it's just FOMO. At this point, there's still not credible scenario where cryptocurrencies will replace either cash or cards. Too slow, too expensive, no scaling, and did anybody mention the absolutely awful energy cost?

[DS999]

Re: Crypto does compete with credit cards, it replaces them

I wonder if anyone has calculated the energy cost if all card transactions worldwide became bitcoin transactions. Is there enough electricity generated in the entire world for that?

Yeah yeah I know, mumble mumble lightning network mumble mumble ether mumble mumble proof of stake mumble mumble

[Anonymous Coward]

Re: Crypto payments aren't cheaper than card payments

One, they don't need to do some of those things, and "zero liability" isn't required for an EFT network. That is the single biggest cost center for the big card networks.

Two, Visa and MC operate as a predatory duopoly, so any competitive third entrant will wreck their ability to control the market.

As a result both are desperate to strangle the crypto exchanges in the crib, or insert themselves in the middle somewhere. I wouldn't trust either of them as far as I can throw them, but they may be able to muscle in on the space by offering to make those transactions more credit card like.

Outside of Darkweb drug souks, actual merchant transactions are still a small part of the Crypto economy. If they are to survive, that small market will have to grow up a bit, but Visa and MC can see that even amongst pirates, pushers, and pimps, the technology provides a secure and reasonably efficient way to execute transactions. What they are worried about is the inevetable push into their core markets from transaction networks that currently own the grey and black markets, and are doing fine there. Once the trading apps onboarded crypto wallets that could send and receive outside transactions linked to networks that can close a transaction in less than 45 mins, they became vulnerable.

I know lots of small biz owners that are quite bitter about the slice of revenue and "merchant fees" the card networks charge. They would be fine looking someone in the eye till their transaction clears before handing them a sandwich.

[DS999]

Re: Crypto payments aren't cheaper than card payments

"zero liability" isn't required for an EFT network

Yes it is, at least for any that wants to obtain more than niche acceptance. Consumers simply won't use a network where if a hacker can leave them on the hook for a bunch of debt they didn't run up. If cryptobros think they can operate something without such protections, good luck capturing more than 1-2% of the payment market.

[Sherrie Ludwig]

Re: Crypto payments aren't cheaper than card payments

Two, Visa and MC operate as a predatory duopoly, so any competitive third entrant will wreck their ability to control the market.

(Cough) American Express and Discover card wish to have a word. Point taken, but AmEx existed before either of the above as a charge card, rather than a credit card, until they realized all the lovely interest they were missing, and Discover started well after, but they are both doing well.

[DS999]

Re: Crypto payments aren't cheaper than card payments

Is Diner's Club still a thing? I know they intentionally limited their market which is probably why I haven't heard of them for a long time and they probably no longer exist, but if so they weren't ended by predatory monopolies but by their own stupidity forgoing the 99% of transactions that happen outside restaurants! AFAIK they predated even American Express so they could have been today's goliath if they had been smarter and realized people will want to charge things other than just meals.

There used to be (in the US at least) tons of branded cards good only in one place, like gas cards that worked only at Exxon stations or charge cards that were only good at one department store chain. I think all those faded out for the same reason of intentionally limiting their own market (plus what good is a JcPenney card when the whole franchise goes bankrupt)

When I was a kid I think my mom had at least a dozen cards, because of all the branded store cards and gas cards, along with Amex and Mastercharge as it was then called. I imagine most of those branded cards were subsumed into Visa/MC, sort of like how Apple has a card that's a Goldman Sachs Mastercard, Amazon has a Visa, etc. You get better rewards when buying from those places (3% with the Apple Card, 5% with the Amazon) but they can be used anywhere with lesser rewards like other cards.

[Howard Sway]

helps lenders to understand if their customers' crypto purchases are dangerous

This looks foolish to me. As it is now well known that the entire crypto world is a huge mess of dangerous risk, rating a crypto as "not dangerous" could leave Mastercard with big liability problems when one of them inevitably crashes.

What I don't understand is why boardrooms of huge companies like this still consider it worth getting involved when they know it's all bullshit, just so they don't miss out on temporarily profiting from a worthless scheme. They should have learnt the lesson from sub-prime mortgages, but obviously what they really learnt was "if it all goes horribly wrong we'll get bailed out again because we're so essential". This is why regulation is necessary and regulators should be stopping this sort of thing from happening, but even people at that level seem to be so dazzled by the free magic money that they can't see the obvious stupidity of it.

[Stu J]

Re: helps lenders to understand if their customers' crypto purchases are dangerous

I could provide a service to do that, free of charge.

Is this crypto exchange dodgy?

Yes.

Should I approve this transaction?

No.

Easy!

[heyrick]

Re: helps lenders to understand if their customers' crypto purchases are dangerous

"why boardrooms of huge companies like this still consider it worth getting involved"

Seduced by the stories of getting in early and making a killing.

The thing is, one needs to get in early, make the killing, then get the hell out before the whole thing blows up.

So for every story of coining it with crypto, there are orders of magnitude more about people who invested everything and now face ruin because the stories didn't come true. There was an old guy in the This Is Money offshoot of the Daily Mail who wanted his bank to be responsible for the small fortune he lost making payments into a crypto scheme, because they didn't warn him of the risk, or something like that. Even more astonishingly, when the journo got involved they eventually agreed to pony up about half of the money lost.

[Anonymous Coward]

Like it or not, the math adds up.

Now that the modern networks have moved of world burning proof-of-work consensus, they are a viable alternative to the credit card networks. Set aide the noise of NFTs, and pump and dump "tokens". If a merchant and a customer want to execute a transaction, they can do so faster and for less money using something like Avalanche than with the existing merchant banks and credit networks.

Web 3 is mostly bullshit, but the underlying math is sound. So for the networks that are still traceable, a customer that deposits clean funds in a clean wallet and makes a purchase from a merchant is more clear and traceable then on on the existing merchant networks. It is more secure, and in most cases the fees charged are a fraction of those on the credit card networks. As a customer you can't force a chargeback, but you couldn't do that with cash, and people didn't have any trouble with that for the last few thousand years. That's why the credit card companies are starting to sweat.

Sadly, the second biggest problem right now are all the crypto-bros that aren't interested in making modest and stable amounts of money off transaction fees. They are only interested in speculation, rugpulls, and pump and dump scams. Not exactly brand ambassadors.

[Ian Johnston]

Re: Like it or not, the math adds up.

It may well be possible and desirable to have faster and cheaper systems than exist at the moment. It is not obvious why this should involve an intermediate stage of highly volatile unregulated securities.

[Plest]

Here's a clue....

STOP GETTING INVOLVED WITH CRYPTO!

Holy cow! How many more spotty faced little sods do we have to see on Inst-cack, snogging some bimbo while sitting on the bonnet of a Lambo stating they all know the secret to making millions with crypto, but they just need few gullible...sorry "savvy investors" to pump money in their latest scam, sorry "crypto investment opportunity"?!

[Bump in the night]

Hope springs eternal

Well for those who are still wet behind the ears, you would best head the old rock and rollers from the school of hard knocks --

You can't roller skate to heaven. You can't come across the astral bridge until you pay the toll. And all you back room schemers, small trip dreamers better find something new to say. Cause you're the same old story It's the same old crime and you got some heavy dues to pay.

[Ian Johnston]

a service that helps lenders to understand if their customers' crypto purchases are dangerous.

They will also offer services that help lenders understand whether the Pope is a Catholic and whether bears shit in the woods.