Mastercard’s latest blockchain patent might be its most ambitious to date and, in theory, could help banks better protect themselves against fraudulent transactions that occur in traditional payments.
The card network was recently awarded a patent for the “fractional reserve management of blockchain assets” that would combine the use of traditional payment networks and payment systems technologies with blockchain-based currencies to provide better security for consumers and merchants.
Mastercard’s claims somewhat mirror patents Bank of America, Barclays and TD Bank have filed in the past two years that focus on how funds transfers and data security would benefit blockchain technology.
“There is a need to improve on the storage and processing of transactions that utilize blockchain currencies,” Mastercard wrote in its patent application.
“The use of traditional payment networks and payment systems technologies in combination with blockchain currencies may provide consumers and merchants the benefits of the decentralized blockchain while still maintaining security of account information and provide a strong defense against fraud and theft."
In a statement provided to American Banker, Mastercard would not go beyond its application, saying it does not speak publicly about what it files.
As a result, exactly why Mastercard is interested in blockchain technology is unclear, but it has mentioned in it at least two patent applications the need for better protections against fraud and theft for both consumers and merchants.
In theory, such a system could help banks better track transactions, in addition to traditional methods such as Know Your Customer regulations.
“By linking the blockchain transaction with the fiat transaction, I think it gives the banks much better visibility into who’s making the transaction, and where the money is coming from,” said Gabriel Wang, a capital markets and fintech analyst for Aite Group.
Mastercard has filed multiple blockchain-related patents over the past two years.
In October, the company was awarded a patent for a way to “partition a blockchain,” which would make it possible to store multiple transaction types and formats. Another patent from over the summer showed how Mastercard could speed up cryptocurrency payments. Bitcoin in particular is known for relatively slow transaction approvals, which can take as long as 10 minutes.
The combination of the summer patent and the most recent filing shows Mastercard’s give clues to its plans for blockchain-related technology.
“Assuming this isn't a straight offensive patent and that Mastercard is not using it to stifle innovation, which is a big if, and ultimately, they do plan on rolling this out, this would be a massive step forward,” said David Siemer, the CEO of Genesis Holdings, which specializes in early-stage investment and strategy consulting for the crypto industry.
“The holy grail of crypto would be to enable millions of users to transact with crypto, and Mastercard provides this on-ramp,” he added. “Users could slowly edge into cryptocurrency and Mastercard could legitimize crypto in a way that no one else could.”
Siemer and Wang believe Mastercard’s blockchain patents are more than just smoke, particularly as it relates to the latest one. “Are they actually going to do it? I think the answer is yes,” said Wang. “I don’t think they’re filing a patent just for the sake of filing a patent.”
But such a technology is at least two years away, Siemer added.
“It would be smart for Mastercard to actually pursue this because it would give them a competitive advantage and provide [crypto] users a reason to use Mastercard over Visa and American Express,” he said. “There are a lot of crypto fanatics and I only see that trend growing.”
Siemer and Wang disagree on how Mastercard’s potential plan would affect traditional banking. Siemer said this system could theoretically upend traditional banking, while Wang sees it more as a supplement.
The patent is another in a long line of those traditional financial institutions continue to spit out at a high rate. BofA had an astounding 43 patents as of the end of 2017, according to an analysis from Envision IP.
Earlier this year, Barclays filed a pair of patents related to funds transfers and data security. One patent showed how blockchain could be used to store sensitive customer information related to KYC requirements. The second patent illustrated how distributed ledger technology could be used to facilitate cryptocurrency transactions. BofA has filed similar patents for such use cases.
Banks’ interest in blockchain is somewhat ironic, considering how many view crypto purchases with their card products. Earlier this year, several major banks banned the use of credit cards for crypto purchases after the major coins nosedived in value.
Those institutions are worried crypto buyers wouldn’t pay their credit card bill if their coin purchases were valued at a lesser price than originally purchased before a crash.
Whether anything ever comes from the bank patents remains to be seen. Some industry observers argue they’re nothing more than a publicity stunt.
But Wang said that payments-related blockchain projects like MasterCard’s have a better chance of success.
“The first successful blockchain use case was with bitcoin, which is used to show a transfer of payment,” he said. “The payments industry is a national fit for blockchain.”
