Since its inception, cryptocurrencies have been touted as an alternative to traditional fiat currencies. By extension, many also consider them a way to move beyond legacy banking. These types of proclamations have naturally made many financial organizations wary of crypto and what it might mean for the industry.
If you add the instability of crypto prices into the mix, it’s easy to see why banks avoid crypto as much for regulatory and compliance issues as for its potential effects on banking.
Mastercard aims to solve many of the crypto challenges banks face with the announcement of its Crypto Source program.
What Is Crypto Source?
On October 17th, Mastercard announced its partnership with a crypto trading platform named Paxos. Together, the two organizations will launch the Crypto Source program. Designed to help traditional financial institutions with crypto trading, the program ensures banks can follow compliance rules. Just as importantly, it also allows banks to verify transactions, monitor the identities of those making trades, and combat money laundering issues.
The move comes hot on the heels of Mastercard’s Crypto Secure program, which the organization announced earlier in October. That program should help card issuers assess crypto trades for risk.
When talking about the two services, Mastercard’s chief digital officer says, “There’s a lot of consumers out there who are really interested in this and intrigued by crypto but would feel a lot more confident if those services were offered by their financial institutions.” This statement signals Mastercard’s intent with its programs. They aim to make crypto accessible to everyday people. To do so, they must make it feasible for the traditional banks people already know to offer crypto trading services. Crypto Source and Crypto Secure combine to allow financial institutions to provide security services to their customers.
Why Has Mastercard Launched Crypto Source?
In its 2022 Mastercard New Payments Index report, Mastercard found that 29% of the people it surveyed already hold some form of cryptocurrency as an investment. Tellingly, it also found that 65% of people would prefer to work with a trusted financial institution when using crypto-related services.
Thus, there was a gap in the market.
Mastercard found that many people had an interest in cryptocurrencies. However, a lack of technical knowledge combined with the negative reputation of crypto in some circles made them hesitant to invest. By launching Crypto Source, Mastercard equips the banks that people already trust with the ability to handle compliance and regulatory issues related to crypto trades. Customers can feel more confident entering an emerging currency market and financial institutions benefit from being able to offer more products and services.
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The Components of Mastercard’s New Crypto Services
Mastercard’s collection of crypto offerings includes several elements designed to make trading in cryptocurrencies easier.
Technology and Support
Banks and their customers often struggle with the mechanics of buying, selling, and holding crypto assets. With Crypto Source, Mastercard equips financial institutions with the tools they need to simplify trading. It also offers ongoing support to ensure users can leverage this technology effectively.
Crypto Spend and Cash Out
Investing in cryptocurrency can lead to substantial returns. But many struggle to cash out at appropriate times or to spend their cryptocurrency once it’s matured in value. Mastercard simplifies this process too by offering open banking, crypto cards, and cross-border financial services.
This makes it easier for banks to process their customers’ crypto transactions and trades. Plus Crypto Source offers additional functionality to allow banks to create crypto-related loyalty solutions and issue digital receipts.
There are plenty of horror stories about cryptocurrency fraud. Security is a key issue, which is likely why Mastercard revealed its Crypto Secure program separately to Crypto Source. With Crypto Secure, banks have the ability to track the identities of people making trades and monitor their transactions. The program also offers analytics and a suite of cybersecurity solutions, such as biometrics, to make trading safer.
Mastercard’s programs aren’t one-size-fits-all solutions. The company understands that every financial institution has unique challenges, which is why it incorporates program management into its crypto offering. This management includes the design, development, and implementation of crypto solutions. Additionally, Mastercard offers continued support following implementation, as well as optimization and consultancy services that allow banks to offer crypto services at scale.
The Partnership With Paxos
Mastercard created its partnership with the Paxos Trust Company in 2021 when the two organizations collaborated on creating cryptocurrency cards. The launch of Crypto Source sees Mastercard expand its partnership with the blockchain infrastructure platform.
In practice, Paxos will likely use its platform to handle crypto asset trades, in addition to providing the tech banks need to oversee those traders. Mastercard will leverage its existing technology to integrate Paxos’s platform into the interfaces banks currently use. The goal is to create a seamless experience that makes crypto trading as simple for customers as other types of investing.
What This Means for the Future of Crypto
While traditional financial institutions have shown hesitancy in offering crypto services to customers, this doesn’t mean they’ve avoided crypto altogether. Goldman Sachs, JPMorgan, and Morgan Stanley all have cryptocurrency divisions, even if those divisions aren’t offering public-facing services.
Mastercard’s Crypto Source partnership model aims to make crypto services viable for banks. In doing so, it may create substantial competition for existing crypto exchanges, such as Coinbase. Those who are not already well-versed in the crypto world may gravitate more toward the trusted names involved in Crypto Source, potentially leading to an evolution in how crypto trades get carried out.