Jenny Darmody spoke to Mastercard’s president and chief technology officer about what digital trust will look like when it comes to payments and finance in the future.
How will AI and quantum computing change the world of finance? Will we ever become a cashless society? What will become of traditional banks in the future? These are just some of the questions we may have about how our financial transactions will evolve amid the growth of so much emerging technology.
Money is one of the core elements of how our society functions and billions of transactions take place around the world every single day. The growth of fintech start-ups, automation, blockchain technology, challenger banks, payment apps and many more such advances have meant that the way we see and use money has completely transformed over the last two decades.
But there have been challenges too. An increasingly large cyberthreat landscape and an evolving regulatory landscape have made it more important for financial institutions and fintech companies to ensure their data is protected, while the ‘wild west’ of cryptocurrencies has blurred the lines between an exciting new frontier and a technologically advanced danger zone.
Building trust
Ed McLaughlin is the president and chief technology officer of Mastercard. He spoke to SiliconRepublic.com editor Jenny Darmody about navigating these waters and said that in order to move forward, building trust is key.
“From a human standpoint, knowing who you’re doing business with, do you trust them? It’s so profoundly important for us. And when you say digital trust, it’s really taking a base human emotion reaction, then asking how does it apply to this new realm? I don’t think there’s necessarily anything special about the digital side of it other than how do we express it there.”
The prospect sounds simple enough and, in many ways it is, in that the more trust that’s there, the easier transactions should be for end users. If the systems are all working properly and seamlessly, people put increasing trust in those systems.
We expect our salaries to arrive in our bank accounts as they have before, we expect our direct debits to be taken on the day they usually are. When we put that card up against that wireless payment machine, we expect the money to instantly leave our account and go to the shop. But that trust can be eroded.
“Data breaches cause great concern for people, and they feel like they’re helpless to it if they feel like their information is being misused. I think there’s going to be a much higher concern around that,” said McLaughlin.
“I also think there’s things around, not just the privacy, but strong digital identity, knowing who I am, knowing how I’m doing that. And there are certain areas we see this with privacy legislation where it hasn’t really been codified or decided socially. Of what does privacy really mean versus just obscurity? I think that uncertainty diminishes trust.”
The regulatory landscape
A key backbone to building trust is having strong regulations, in which Europe has often been a frontrunner. One clear example came last year in the form of MiCA, a landmark piece of legislation for governing and safeguarding the crypto industry. The legislation also creates new rules on consumer protection, market manipulation, financial crime and environmental safeguards.
With more than 200 different regulatory jurisdictions around the world and the growing role electronic and digital payments play in the economy, McLaughlin said good regulation is critical, but cautioned that it needs to be considered smartly, from what the end principle should be rather than start with limitations on the tech itself.
“I do worry sometimes that we think about regulating a practice rather than regulation by establishing the principle that allows people to constantly innovate and work to meet those principles better.
“Smart regulation establishes frameworks that are societally really important and that we all agree to. Then you allow all sorts of competition and innovation and particularly tech advancement to flourish within that,” he said.
“So, holding a principle that if you’re responsible for someone’s money, you have to run a secure system – absolutely. Now, everything we can do to make it more secure, makes much more sense. I was just over in the UK and one of the things that we were talking about is outcome-based regulation. So rather than specifically saying, ‘you need to validate with secure authentication or transaction this way’, the outcome is ‘we want the highest possible level of security and tell us how you’re attaining that’ is a much better approach.”
Generative AI
Generative AI captured the imagination of the masses seemingly overnight when ChatGPT was publicly released in November 2022. Since then, we have quickly seen the good, the bad and the ugly sides of what this technology can do.
But the reality is that AI and even generative AI is not a particularly new technology and has been worked on within several areas of tech for several years, not least in the fintech space.
For McLaughlin, he’s particularly excited about how it can be used to detect fraud. “We know what fraud is, right? Because we’re standing behind the transactions. We know when there’s been a problem. We have a massive dataset of really well-structured information that flows through the network,” he said.
“[Now], we’re using a generative technique, a recursive neural network if you’re playing at home. Basically, it’s a way to not just propagate, but iterate over the datasets to come to better predictions and conclusions.”
He said that this technique has led to what is usually a 20pc better fraud detection but in some cases could go as high as 300pc better fraud detection, along with an 80pc reduction in false positives. This is how the new techniques can improve work that companies such as Mastercard are already doing.
“While we can do great things with structured information, the ability now to work with unstructured information was that ChatGPT moment where suddenly it’s talking to me in a natural language, suddenly I can see images being created from text instructions, and that was kind of an ‘oh wow’ moment,” he said.
“We have all of the ways that our franchise works, all the ways our APIs are documented, all of this really complex information [and] the ability to synthesise that…that’s going to be fantastic.”
Quantum in finance
While generative AI is the arguably the most talked about tech right now, especially in the mainstream world, another emerging tech that will help to shape our future is quantum, which McLaughlin is really excited about. “Will it be tomorrow? No. Can it have a massive impact within your planning horizon? Absolutely. And that’s really cool,” he said.
“Getting back to the digital trust, thinking ahead to make sure we can secure our system and even before a retail or commercial attack might come, nation state actors – which will have desires potentially to disrupt – will have access to these things much earlier. So, you need to start thinking about that. So much of digital securities is based on solving hard problems that are hard for classical computing. And when you get into a quantum state, things like prime number factoring can be done much more easily.”
In the US, the Department of Commerce’s National Institute of Standards and Technology (NIST) has already been working on encryption tools that are designed to withstand the assault of a future quantum computer.
McLaughlin said with that in mind, Mastercard is ensuring that the encryption being used today is essentially ready to bring in and swap into other techniques.
“We also did a great thing on what’s called quantum key distribution, where you can actually use the quantum entanglement itself to move a one-time key securely. Think of your favourite spy novel where you have the one-time pad that is unbreakable because there’s no algorithm behind it and you can’t apply math to it because it’s a true random. We did a pilot using fibre where we were distributing random number keys using quantum entanglement between two centres,” he said.
“While we don’t have to do it today, the underlying systems that we invest in for our networks and modernisation are prepared to take that on within that planning horizon.”
Amid these complex quantum problems and generative AI advances, where does cash sit within the future of our financial world? McLaughlin said this isn’t a question of access but one of financial inclusion and he doesn’t see cash – or credit cards – going away any time soon.
“[It’s about] making sure you’re giving people what they need to live their lives in their context, in their neighbourhood. And so, when does it go away? When it’s not useful. When is that going to be? I have no idea. Because the only arbiter of what’s better or not, is the person you’re looking to serve as the end user for that. So you know, we’re talking about how do you build a world beyond plastic? I don’t know if we’ll ever be and that’s OK too.”
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