Mastercard Fights Fraud With AI Tool but CBDC Future Uncertain

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Mastercard introduces a new tool that uses artificial intelligence (AI) to detect unauthorized flows through bank accounts, even as shiny new real-time payments systems threaten its dominance.

The new “Consumer Fraud Risk solution” will roll out to nine banks in the UK to detect scam funds’ movement through so-called “mule” accounts.

Mastercard trained the AI tool through data gleaned from joint investigations with UK banks into the movement of stolen funds. The model assimilated account names, payment values, and parties at both ends of fraudulent transfers.

Initially available in the UK, the new Mastercard service will be available to Lloyds Bank, Halifax, Bank of Scotland, NatWest, Monzo, and TSB customers.

Financial services, including those in traditional finance and blockchain, face growing threats caused and solved by AI.

In TradFi, Mastercard’s AI tools have stopped over $35 billion in losses in the last year.

In DeFi, Google’s Bard and ChatGPT AI assistants can generate or manipulate smart contract code to steal funds. Services ripe for attack include smart contracts that bridge tokens between blockchains. Other loopholes can be more subtle and are often identified only after an exploit.

Cybersecurity firm uses AI to spot loopholes in smart contracts in decentralized finance applications, while rival studies on-chain transaction patterns with AI to identify unusual behavior.

Can Mastercard Fit Into Wholesale Settlement Future?

New private blockchain networks may change the roles of traditional payment providers like Mastercard and Visa. In the last year, several banks and governments have launched or trialed wholesale settlement services to improve business banking.

Transaction Costs Are Higher in Card-Dependent Regions | Source: Bank for International Settlements

Yesterday, DBS Singapore confirmed a new service to allow clients to settle merchant accounts in China’s central bank digital currency, the e-CNY. Meanwhile, JPMorgan allows dollar and euro-based client-merchant settlements through its JPM Coin over a private network.

Today, the New York Fed announced a successful trial of a dollar-based wholesale settlement system called a “regulated liability network.”

Launched last year, the project tested domestic and international dollar settlements’ programmability, privacy, and interoperability in partnership with large banks, including Citigroup BNY Mellon, HSBC, and Wells Fargo. Mastercard also took part, suggesting it is not waiting to get left behind in the race for more efficient networks. However, its role in the future of real-time retail payments is less certain.

The US Federal Reserve will roll out its new FedNow system this month. The Bank of England recently tested a Real-Time settlement system it intends to roll out to commercial banks next year.

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