Mastercard MA has announced an acquisition to strengthen its cybersecurity and threat prevention capabilities. The company is acquiring Recorded Future, the world’s largest threat intelligence company. It makes sense that Mastercard would spend $2.65 billion on a company with deep roots in the payments industry.
Preventing fraud is more important than ever
Knowing that Mastercard does everything in its power to protect its customers’ funds is essential to maintaining the trust it has built over the years. Maintaining this trust is also important for Mastercard to remain the payment method of choice for merchants. One of the primary ways that Mastercard generates revenue is by collecting fees from merchants when transactions occur in their stores.
When fraudulent purchases are made using someone’s card, banks often reimburse consumers, which means money comes out of the merchant’s wallet, mostly in the form of fees and chargebacks.
By minimizing the threat of fraud that harms retailers, MasterCard can maintain its position as one of the two major leaders in the payments space, the other being Visa V.
Having a strong position in this area is especially important at a time when fraud and cybercrime are on the rise: it is estimated that the cost of cybercrime will exceed $8 trillion per year in 2023. Based on Gross Domestic Product (GDP) data, this represents approximately 30% of the value of the US economy and almost double the GDP of Germany.
Mastercard is already working with Recorded Future to develop technology that will alert banks when cards may have been fraudulently used. Since introducing the technology last year, the company says it has doubled its rate of identifying fraudulent cards. Analysts at William Blair see the partnership as “strengthening Mastercard’s competitive advantage.”
Recorded Future brings growth opportunities to Mastercard
The acquisition will not only help the company better compete with retailers, but it will also bring in significant revenue: The company generates about $300 million in revenue from subscriptions to its threat intelligence platform. The business will likely fall into Mastercard’s Value-Added Services and Solutions division, which is expected to account for 37% of total revenue in 2023.
While $300 million is a fraction of Mastercard’s 2023 revenue of $25.1 billion, it would be a step toward significant growth for the business. The company’s massive reach would help it bring its products to a wider range of customers. Plus, the increased intelligence Recorded Future brings would make Mastercard’s cybersecurity offerings more attractive.
Mastercard’s acquisition and commitment to investing in AI are strong competitive moves
Both Visa and Mastercard are investing to strengthen their threat prevention, but Visa is leveraging internal investments and strategic partnerships rather than acquisitions. The company has reportedly invested “$10 billion in technology, including $500 million in AI and data infrastructure to prevent fraud.”
However, the Recorded Future acquisition will likely work to Mastercard’s advantage, as the company has a particular focus on AI. According to the FBI, criminals are increasingly using AI to commit cybercrimes. To thwart these increasingly sophisticated threats, businesses need to implement increasingly sophisticated protections. To stay ahead of the curve, Mastercard will need to invest heavily in AI.
Visa recognizes this, too. The company is reportedly in advanced talks to acquire a fraud prevention company that leverages AI and machine learning. The company is called Featurespace, and its clients include financial institutions like HSBC. At first glance, Featurespace may be better suited to fraud prevention than Recorded Future, as the company tends to focus on this issue with financial institutions specifically.
But Recorded Future’s broad focus could open up opportunities for Mastercard that it wouldn’t have known about if it had acquired a company that focused on a specific industry. This may be a case of “you get what you pay for.” Featurespace’s acquisition price was reported to be around $925 million, far less than Mastercard’s $2.65 billion investment.
This isn’t Mastercard’s only acquisition using AI to ward off threats: in 2023, it also acquired Baffin Bay Networks, although that acquisition is considered quite small compared to the Recorded Future deal.
Currently, Mastercard has 23 buy ratings, 5 hold ratings, and no sell ratings on Wall Street.
The article “Mastercard: Investing in AI and Cybersecurity to Beat Visa” first appeared on MarketBeat.
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