Work in progress

Glynn Davis provides a progress report on Zapp, the UK mobile payments startup formed by VocaLink

Since Zapp held a media launch event in early 2014 to highlight its new mobile payment solution, things have been rather quiet. But not for UK mobile payments in general because gate crashing the party has been Apple Pay. With an original launch date set for October 2015, the former’s day in the sun has so far failed to materialise and questions have been asked about its place now that Apple Pay has been blazing the mobile payments trail.

Although Peter Keenan, chief executive at Zapp, is still “loathe to give dates” for an eventual launch, he is keen to quash any rumours of problems and doubts about the impact it will make when it does finally hit the market. He suggests much work has been done since April 2014 that has eaten up time: “Since we announced the solution one year ago we have been working on it from a technology standpoint to see what’s needed and also from a business standpoint to see where the pain points are.”

He highlights the grocers’ requirement for multi-step payments whereby they take authorisation ahead of a customer building their shopping basket online but do not actually process the payment until the order is completed. Keenan admits to the build-out of this multi-step payment functionality taking a full nine months and that the creation of the infrastructure has been particularly complex – in contrast to the likes of Apple Pay and Samsung Pay, which he says simply sit on the existing infrastructures (‘rails’) of the card schemes.

Zapp is wholly independent of the card schemes (being a subsidiary of bank-owned VocaLink) and utilises the tried and trusted Faster Payments system that was created in 2007 for the banks to use for transferring money between themselves involving products like standing orders and direct debits. With this backdrop it has been able to secure the commitment of some major banking names including Barclays, Nationwide, HSBC, first direct and Santander with whom it continues to work as it moves towards launching.

According to Geoffrey Barraclough, principal at payments specialists Barraclough & Co., having such banks onboard is a major positive for the solution and they clearly recognise the upside of Zapp as a way to keep close to the end-customer. Unlike other solutions like Apple Pay that ensures Apple (and the card schemes) has a relationship with the customer, it will throw customers directly into the mobile app of their chosen bank when they tap on its customer-facing Pay by Bank symbol on retailers’ websites.

But this has its drawbacks, according to Barraclough, who says having the bank’s app at the heart of the offering is a contributor to the delays the company is now experiencing: “The mobile app is the future of the banks and so all the departments in the banks want access to it for their new developments. So there is a queue for it and a logjam of delays.”

Another potential issue with using the banks’ apps is that the customer experience when using Zapp will be determined by the quality of the individual app. “The user experience when hitting the Zapp button is down to the banking apps – whether they are good or bad!” This is an issue because the decision by customers to use mobile payments instead of cards, and also why they might select Zapp over Apple Pay, is all down to the quality of the user experience.

Keenan clearly recognises this and points to the fact Zapp avoids requiring PCI compliance – as no transaction data is shared between the company, the banks, and the merchants – which helps add to the “slickness” of the experience. At the event in April he highlighted that it takes 29 seconds to checkout using Visa whereas it is a much reduced 22 seconds for Zapp, which gives a time saving of 60 per cent. “There is no static payment data involved. We use tokens and engineer out the authorisation steps – we’ve taken out 50 per cent of them,” he explains.

Things have changed since then and we clearly now have Apple Pay on the scene with its “impressive user experience”, according to Barraclough. But all mobile transactions using the service have to be undertaken from within retailers’ apps on consumers’ mobile devices. In contrast Zapp can be used to make payments both within apps and on the mobile web. “This is a gap in the Apple Pay offer,” he says.

But what Apple Pay does have is the ability to be used in-store via its contactless capability, which is something Zapp intends to introduce at some point in the future. Barraclough suggests: “For it to be relevant it needs to work in-store but this is not a priority at the moment.”

Keenan for now is concentrating on preparing the business for its launch as an online payment solution. This involves working with retailers who he says are very keen to have Zapp in the marketplace as a competitor to the card schemes and Apple Pay, which he describes as “effectively a card scheme”. “Retailers want greater competition and what we have is unique. They like having more than one choice,” he says pointing to the fact that PoS in-store has been “sewn up” by the schemes and that there is now a desire for this not to happen with mobile payments as a result of new solutions simply overlaying themselves on the rails of the card schemes and grabbing all the market.

Lack of competition raises the contentious issue of charges being higher if fewer competitors are in the market, but Barraclough plays this down as he suggests that the new legislation in place on interchange fees would make it hard for the card schemes to charge merchants more for customers choosing to use solutions like Apple Pay.

Despite the potential upsides, there have been some issues raised around retailers losing interest in the solution as its launch has failed to materialise. Keenan disputes this pointing to the likes of Asda, Shop Direct, and Sainsbury’s that remain committed to being involved: “It’s going well with the merchants. They move at different speeds and so some will be offering Zapp at launch and others won’t. But we’re very close to launch.”

Barraclough agrees that there should be no issue with retailers jumping onboard – especially as the first batch will no doubt be enticed by the subsidies typically offered by payment solution providers to early adopters willing to put their name on launch press releases. “There is no downside for a merchant provided Zapp is tied to the payment gateways like Worldpay and Sage Pay. It’s simply an option that these providers will offer on their line up of payment solutions for retailers to sign-up to use,” says Barraclough, who adds that Zapp has done a good job signing up the major payment gateways to join its eco-system.

It therefore looks to have all the relevant parts in place but just needs to knit them together ahead of a launch. Only then will it become clear that there is a place for Zapp alongside the other mobile payment solutions that continue to battle it out in what remains a very competitive marketplace.

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