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Hello readers, and hope you’re having a great start to the week!

I don’t often plug book reviews, but I recently finished Brett Scott’s Cloudmoney and would highly recommend it. The idea that access to cash is a right and a political act probably sounds odd in age of ever more frictionless payments — but Scott makes a convincing argument for notes and coins.

In the UK, the government is looking at how to protect the access to cash — but arguably the bigger question is protecting the ability to use the stuff. We’ll all be familiar with shops which only accept contactless payments, but that now extends to other key spaces like parking lots.

In other news, I spoke to Adobe about their efforts in augmented reality shopping, Klarna faces more valuation woes and I interview Gadi Mazor, chief executive of Israeli cyber security firm Biocatch.

Adobe bets on augmented reality shopping

Ask most people what Adobe does, and “metaverse shopping” will probably not come top of their list.

But the company’s announcement last month that it is building tools for augmented reality retail reflects the tech industry’s broader bet on the future of shopping, and the blurring line with financial services.

Talk of metaverse shopping usually revolves around highfalutin visions for virtual reality worlds, in which consumers will spend virtual currency to buy clothing which might be purely digital or mirror real world items.

Retailers from Forever 21 to Nike already have storefronts in virtual worlds. Dedicated companies are already selling or renting “virtual real estate” for companies eager to take the first step — although given that many price their services in volatile crypto assets their cost may vary significantly on a daily basis.

Scott Belsky, Adobe’s chief product officer, has a less science-fiction vision for the metaverse, a term which has been used to describe practically anything vaguely digital and which he admits is thrown around too much.

“Obviously virtual is getting better and better, I just think there’s a limit to how long you can be within it before you begin to feel it,” he says. “You could wear augmented reality all day — it would feel natural to you.”

Adobe’s new AR and 3D shopping tool would allow customers to scan products with their mobile phone, bringing up information such as product details and price comparisons from a merchant’s database.

“There could also be customers’ purchasing history if available, and the app can utilise the information for personalised recommendations,” added Stefano Corazza, Adobe’s vice-president of Creative Product.

For Belsky, the next step for augmented reality lies in headsets. After the dubious launch of Google’s Glass, Apple’s efforts in the “mixed reality” space — combining augmented and virtual reality — have galvanised interest.

“When you go into a restaurant, you’ll be able to swipe through every dish in front of you,” he predicts. “When you go shopping, you’ll want to see every angle of a product, and how a couch and chair might fit in a room.”

Adobe is not alone in betting that AR might be part of the in-person shopping experience of the future — in April, Snapchat announced new tools to make it easier for companies to create AR products for users to try on.

Ajay Bhalla, Mastercard’s president of cyber and intelligence, told the FT in May that the company was examining how the technology could be used for retail. And PayPal filed a patent for AR shopping in 2016.

Corazza also sees benefits for ecommerce. He cites research from Deloitte Digital that consumers are 11 times more likely to make purchases of products they view in AR and 30 per cent less likely to return it.

“It’s really up to the big companies making the hardware to get us there,” said Belsky, “[but] any new medium will fall completely flat unless it’s richly filled with interactive, animated engaging content.”

Adobe’s bet also reflects a broader drive by tech companies to enter and dominate key roles in financial services. At the start of June, Apple announced it would be entering the buy now, pay later space, offering loans directly to consumers rather than relying on banking partners.

“At the moment we are pursuing partnerships in this space rather than offering direct payment infrastructure,” said Corazza, citing a partnership with PayPal.

Nevertheless, for banking incumbents and fintechs alike, the tech sector’s attempts to build a future of payments where they can connect consumers and retailers is more than an idle threat.

(Siddharth Venkataramakrishnan)

Fintech Fascination

Klarna in talks for fresh funding at fraction of valuation The pastel pink buy now, pay later pioneer is not having a great 2022, reports James Fontanella-Khan, Ortenca Aliaj and Arash Massoudi — it is looking to raise money at a valuation of $6.5bn, down by almost $40bn, according to people with direct knowledge of the matter.

Australia’s second neobank collapses Volt, one of four challenger banks set up after a 2018 inquiry into misconduct in the banking sector, has become the second bank in Australia’s history to return deposits and surrender its licence. The news follows the collapse of fellow neobank Xinja and the acquisition of another start up, 86 400, by one of the existing Big Four players in the banking sector, writes James Fernyhough.

US bank stress tests stack up well against crypto A decade and a half on from the start of the financial crisis, the Federal Reserve’s latest results of its stress testing on big banks compares well to the “crypto winter”, writes Lex, as digital assets companies and prices face a rout.

Quick-fire Q&A

I recently spoke to Gadi Mazor, chief executive of Israeli cyber security firm Biocatch. Founded in 2010, Biocatch analyses user behaviour in order to help detect cases of fraud and cyber crime. It has raised $215mn from investors including Barclays, HSBC and Bain Capital Tech Opportunities.

What are some of the trends you’re seeing when it comes to fraud in the UK?
Basically, the high level trend is that the fraud follows the technological level of the banks — and fraud in the UK can be highly advanced because the protections in the industry are the most advanced. What we’re seeing in general is that it has moved more and more towards attacking the end user which is the most vulnerable link. Malware can struggle to penetrate bank defences — attempts to gain remote access are detected, for example — so you need to fool the customer. And we’ve seen that over the past two years, literally every month there was a new scam, ranging from pets to parcels. If it was in a branch and a victim came in and was being manipulated by someone, the teller would know that in no time; online, if they’re attacked and everything else remains the same, the only way to figure out is anomalous behaviour.

What are some examples of “anomalous behaviour”?
If you’re asked to type in a postcode, and if it’s not yours, you’ll normally type it in two chunks because it’s coming from short-term memory. If it’s your own, you’ll type it quicker. Similarly, if you paste information in when you are doing an account onboarding process, you’re unlikely to know your name. We can also look at things like the speed of movement — for every year of age, two milliseconds of mouse clicks are lost, so we can see in cases of fake card applications when a younger user is applying. It might just be someone’s son or daughter, but it could be someone taking over. And when people make mistakes, genuine users tend to wipe the whole thing clean; with fraudsters, they just go and change a single-digit.

How is the cost of living crisis affecting fraud?
We’re not seeing this as an issue in the UK alone. The fact is that the pandemic, both psychologically and financially, has put people in a difficult position. After two years of living through this crazy time, people feel like compensating for that with spending, and a lot of the new fintech players that they have turned to offer services like buy now, pay later. But not all of those companies have the defences against cyber attacks which traditional banks have developed over the past few years.

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