The recent blockchain patents of Mastercard: what's in it for the banks?

The latest mastercard blockchain patent could be the most ambitious to date and, in theory, could help banks better protect themselves from fraudulent transactions that occur in traditional payments.

The card network has recently been 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 safety for consumers and traders.

Mastercard requests reflect some of the patents filed by Bank of America, Barclays and TD Bank over the past two years, focusing on how fund transfers and data security would benefit blockchain technology.

"We need to improve the storage and processing of transactions using blockchain currencies," wrote Mastercard in his patent application.

"The use of traditional payment networks and payment system technologies in combination with blockchain currencies can provide consumers and merchants with the benefits of decentralized blockchain while maintaining the security of account information and providing effective 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 stores.

Consequently, exactly because Mastercard is interested in blockchain technology is not clear, but has mentioned in it at least two patent applications the need for better protection against fraud and theft for both consumers and traders.

In theory, such a system could help banks better monitor transactions, as well as traditional methods such as Know Your Customer regulations.

"By linking the blockchain transaction with the fiat transaction, I think it gives banks better visibility of who is making the transaction and where the money comes from," said Gabriel Wang, a capital market and fintech analyst for Aite Group.

Mastercard has filed more patents related to the blockchain in the last two years.

In October, the company obtained a patent for a way to "partition a blockchain", which would allow more types and sizes of transactions to be stored. Another summer patent showed how Mastercard could accelerate cryptocurrency payments. In particular, bitcoin is known for approvals of relatively slow transactions, which can take up to 10 minutes.

The combination of the summer patent and the most recent archive shows that Mastercard provides clues to its blockchain technology plans.

"Assuming this is not an offensive patent and that Mastercard is not using it to stifle innovation, which is a great if, and ultimately, plan to do it, this would be a huge step forward," said David Siemer , the CEO of Genesis Holdings, specializing in early stage investments and strategic consulting for the crypto industry.

"The Holy Grail of Crypto would be to allow millions of users to make transactions with Crypto and Mastercard provides this access ramp," he added. "Users could slowly approach the cryptocurrency and Mastercard could legitimize cryptography in a way that no one else could."

Siemer and Wang believe that Mastercard's blockchain patents are more than mere fumes, especially for the last one. "Will they really do that? I think the answer is yes," Wang said. "I do not think they are filing a patent just for filing a patent."

But such a technology is at least two years away, added Siemer.

"It would be smart for Mastercard to pursue this because it would give them a competitive advantage and would provide [crypto] users a reason to use Mastercard on Visa and American Express, "he said." There are a lot of scrambled fanatics and I only see that growing trend. "

Siemer and Wang do not agree on how Mastercard's potential plan would affect the traditional banking sector. Siemer said that this system could theoretically raise traditional banks, while Wang sees it more as a supplement.

The patent is another in a long line of traditional financial institutions that continue to spit at a high rate. BofA had a surprising 43 patents from the end of 2017, according to an analysis by Envision IP.

At the start of this year, Barclays filed a pair of patents related to transfers of funds and data security. One patent showed how the blockchain could be used to store sensitive customer information related to KYC requirements. The second patent illustrated how to use distributed ledger technology to facilitate cryptocurrency transactions. BofA filed similar patents for such use cases.

The interest of banks in the blockchain is somewhat ironic, considering the number of crypto purchases with their card products. At the beginning of this year, several major banks have banned the use of credit cards for cryptic purchases after major currencies have fallen in value.

Those institutions are worried that crypto buyers will not pay their credit card bill if their purchases of coins were valued at a lower price than originally purchased before an accident.

It remains to be seen if anything ever comes from bank patents. Some industry observers claim that they are nothing but an advertising stunt.

But Wang said blockchain payment-related projects like MasterCard are more likely to succeed.

"The first successful case with blockchain was with bitcoin, which is used to show a payment transfer," he said. "The payment industry is a national measure for blockchain".