Mastercard partners with AI startup Feedzai to combat crypto fraud

Payments giant Mastercard has joined forces with AI startup Feedzai to fortify crypto defenses and strengthen its effort to combat fraud within cryptocurrency exchanges. The partnership aims to enhance Mastercard’s capabilities in preventing crypto-related fraud through Feedzai’s regulatory technology platform, which utilizes artificial intelligence to address money laundering and financial scams online.

According to an exclusive report from CNBC, the collaboration builds on Mastercard’s acquisition of CipherTrace, a U.S. blockchain sleuthing firm, in 2021. The partnership with Feedzai involves integrating the latter directly with Mastercard’s CipherTrace Armada platform. This platform monitors transactions from over 6,000 crypto exchanges for fraudulent activities, money laundering, and other suspicious behavior.

Feedzai’s integration with CipherTrace Armada allows for real-time alerts regarding potentially fraudulent crypto transactions. The partnership aims not only to enhance fraud detection for consumer protection but also to identify potential money laundering activities, including the use of mule accounts, the types of accounts fraudsters exploit to launder their ill-gotten funds.

“This will increase fraud detection by protecting unwary consumers, but will also detect potential money laundering activity and mule accounts,” Feedzai CEO and co-founder Nuno Sebastio told CNBC.

According to Feedzai CEO Nuno Sebastio, about 40% of scam transactions currently move directly from a bank account to a crypto exchange. The partnership also gives Mastercard access to Feedzai’s artificial intelligence capabilities, enabling the identification and blocking of suspicious transactions in a matter of nanoseconds while recognizing legitimate transactions.

The collaboration also underscores Mastercard’s commitment to addressing fraud and promoting secure transactions within the crypto space. The interconnectedness of digital finance and the increasing prevalence of crypto-related fraud underscore the need for robust solutions, with Mastercard aiming to distinguish between legitimate and illicit transactions through this partnership with Feedzai.

Feedzai’s RiskOps platform currently analyzes transactions totaling more than $1.7 trillion each year. With its co-headquarters situated in Coimbra, Portugal, and San Mateo, California, in Silicon Valley, the company boasts a substantial intellectual property portfolio, holding nearly 100 patents. Furthermore, it consistently secures an average of 10 patents annually, underscoring its commitment to safeguarding its technology.

“Numerous banks that believe they are preventing illegitimate cryptocurrency transactions are, in fact, only blocking transactions involving the widely recognized and regulated entities within the crypto space and omitting the rest,” Sebastio said.

Is crypto entering the mainstream?

The move reflects Mastercard’s efforts to legitimize cryptocurrency within mainstream financial frameworks, subjecting it to the same rules and compliance standards as traditional assets. The broader financial industry has shown increased interest in exploring crypto products and services, but concerns about regulations and the prevalence of fraud and scams have slowed widespread adoption.

In recent months, large financial institutions, including banks, have shown a growing interest in exploring cryptocurrency within their services. However, the deployment of crypto products as integral offerings has proven challenging. Banks remain cautious due to the lack of comprehensive regulations for digital assets and concerns about fraud and scams.

In the past year, global crypto-related losses surged by 79%, reaching $14 billion, according to data from blockchain analysis firm Chainalysis. This increase is nearly twice the losses reported in 2020. While major banks like JPMorgan, NatWest, and HSBC have restricted or blocked crypto transactions, the move has faced criticism, particularly from Coinbase CEO Brian Armstrong, who argued that it contradicts the UK’s ambition to become a global “Web3” hub.

Mastercard, with its extensive global network, serves as a vital tool for banking institutions in processing and monetizing payments. It competes with Visa, another payments giant, which also focuses on supporting card payments and various fintech services.

In the UK, banks have been cautious about associating with cryptocurrencies, leading to some larger lenders halting transactions with crypto exchanges on their networks, citing fraud risks.

Ajay Bhalla, President of Cyber and Intelligence Solutions for Mastercard, also told CNBC in an interview that the “interconnectedness of life today and increasing digital penetration of finance has brought risk as well as opportunity.”

“Our latest data shows fraud on transactions where people are buying crypto is 5 times higher than regular fiat transactions,” Bhalla said via email, adding that, with Mastercard’s new tie-up with Feedzai, financial institutions will “be able to tell good transactions from bad.”

Mastercard’s recent partnership with Feedzai aims to address these challenges by enhancing fraud detection and distinguishing between legitimate and fraudulent transactions. Bhalla emphasized that, based on their latest data, fraud in transactions involving crypto purchases is five times higher than in regular fiat transactions. The collaboration with Feedzai is expected to empower financial institutions to differentiate between good and bad transactions, contributing to a more secure financial landscape.

We covered Feedzai back in 2021. The company offers a cloud platform equipped with various features to manage financial risk, including account opening authentication, transaction monitoring, and anti-money laundering machine learning technology. The company’s successful fundraising efforts, surpassing $200 million in funding at a valuation exceeding $1 billion, have positioned it as a prominent member of the unicorn club.