Zapp – a crazy idea that will probably work

Early risers will have heard Peter Keenan on the Today programme yesterday pitching Zapp – the new payment venture from Vocalink. Payment start-ups are everywhere right now but it takes boundless self-confidence to take on Visa head-on. Zapp has plenty of challenges but will very probably succeed.

You can read the detail about how it works on the Zapp website.

Essentially, it’s a new debit scheme in which the transaction is directed straight from the merchant to your current account and you approve the payment in your banking app. No need for Visa, Mastercard, 15 digit card numbers, CVV, 3D secure etc.

What’s better about Zapp?

The mobile payment experience is the best I’ve yet seen. You’ll see a Zapp button on at the checkout next to the Visa, Mastercard and Paypal ones. You hit the Zapp button, your banking app opens and you approve the transaction.
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The bill payment experience is also pretty good. The gas bill arrives, you scan the QR code on the bottom and are taken straight to your banking app to approve the payment. This is so much quicker than sitting down at the PC and making an internet banking transfer.

You get to see your bank balance before pressing “confirm.” This is a big advantage for many cash-strapped shoppers today.

It’s fundamentally secure. Digitising the plastic card payment systems while locking down security has impacted customer experience. 3D secure. Enough said.  Zapp works with one-time tokens so can offer a great user experience without imposing a disproportionate security burden on acquirers and merchants.

Why should Zapp succeed?

Zapp is very well funded by Vocalink. I nearly fell off my chair when I saw the marketing budgets. It’s safe to say there’s enough to ensure all UK consumers and merchants will know why Zapp is good for them.

The Zapp management team is experienced but, more importantly, have the right attitude. They have set out from the beginning to work with the grain of the ecosystem and clearly understand that success requires consumers, acquirers and merchants all to benefit. The Zapp team have actively listened to feedback and modified the proposition accordingly.

The Zapp proposition is well researched. Unusually for a payment start-up, Zapp began with a major piece of qualitative and quantitative field work. It’s nice to see best practice consumer marketing applied to a technology play.

Zapp is the most bank-friendly payment option. It puts the banking app to the front of shoppers’ digital worlds and give the opportunity to add additional current account related services such as credit products or insurance at point of sale. And it gives UK banks an option in case Visa becomes too independently minded.

There are still plenty of challenges

Yesterday’s announcement of five banks committed to Zapp is a solid start and represents about one in three UK current accounts. But there’s a long way to go to reach the ubiquity required to make the payment type attractive to merchants. In particular, Zapp needs Lloyds (30% share) and RBS (16%).

Barclays is still doing its own thing with PingIt and related products. Barclays isn’t big enough to move the market on its own but having a major player with a unique perspective is causing confusion among the retailers and giving some of them an excuse to delay investments.

Consumers don’t seem overenthused on banking apps. Mobile banking has been around for some years but WorldPay research showed just 20% of people are regular users. Zapp may be the service that finally gets the public downloading and activating banking apps but it’s a risk.

Zapp’s overall user experience is hostage to the user experience of the banking app. You hit the Zapp button and then have to pass security to enter your banking app. This can be very elegant or painful. But that’s up to the bank, not Zapp.

Banks move slowly and yesterday’s news release omitted firm dates for launch. Zapp requires deep integration to banking apps and will involve technical and strategic decisions within the banks. These are large organisations and can’t move quickly. This problem is is not unique to Zapp; the same issues have slowed down V.me.

The competition is moving quickly. Paypal has rediscovered its self-confidence and Visa seems finally to have unstuck the V.me programme.

80% of transactions are still made face to face. There is a Zapp use case for payment at point of sale but it’s not compelling. No disrespect to them. Nobody’s cracked this yet. Chip & PIN works fine in Tesco and this limits the potential market for any online-only payment type.

Consumer protection is still a grey area. The public knows that paying with credit cards is advantageous and know that Visa debit gives enhanced safeguards. Zapp is still working on its scheme rules but will need Martin Lewis, Moneysaving Expert, to give his seal of approval.

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