Category Archives: Alternative payments

Notes from APEX Europe

The convergence of mobile and digital, of money and data, of people and identity is affecting all parts of the retail and payments industries. Every corner of the market is confronting the same challenges but each brings its own specific rules, culture and heritage.

Consumers might say they would like a single app on their phone that does everything for them. But the reality is that a number of global giants have tried and failed to bring a ubiquitous solution to market – Google Wallet and Paypal Instore are just two examples. To these we can add any number of attempts by the mobile phone industry to incorporate payments into its product set culminating in the successive failures of CurrentC (ISIS) in the US and Weve in the UK.

If the future belongs to niche players that understand their customers and eco-systems, the pre-pay industry should be prospering. These businesses provide niche services that supply digital money for the unbanked, loyalty and gifting schemes on behalf of retailers, international money transfer and payroll programmes.

The pre-pay industry is moving from being a market in itself to becoming just one part of a much larger retail payments ecosystem and will need to integrate technically and emotionally with the mainstream mobile app world.

This was reflected in the opening up of the APEX conference to a much wider set of speakers and delegates. Unfortunately, this led to a fragmented and sometimes incoherent agenda of often unrelated content. Many of the presentations were worthwhile but they were not always in the right order and you have to respect the reckless iconoclasm of the organisers to run a three day conference without a chairman.

Nevertheless, three themes became quickly apparent:

  • The pre-pay industry risks being upstaged by Fintech start-ups that are looking simply to solve problems and don’t feel bounded or restricted by the etiquette and regulations of the payments industry.
  • There was a chasm between the questions the retailers were asking – rooted often in the physical challenges of printing and distributing gift cards – and the digital dreams of seamless mobile shopping journeys expounded by some of the speakers. It’s not that retailers don’t think about such things; it’s more that the content wasn’t matched to the needs of the individuals invited.
  • The SEPA area makes life much easier for everyone. The UK – benefiting from a strong and vibrant payments industry – would be ill-advised to withdraw.

Apple Pay

Apple Pay is quickly taking root in the US. Does this provide a model for the future of payments in Europe? Samee Zafar from Edgar Dunn thought Apple faced three significant obstacles bringing its service to this side of the Atlantic.

  • Apple’s market share is much lower than in the States, typically between 15%-30% in most EU countries compared to over 50% in the US
  • European banks still control the payment “switches” and so have more ability to throw obstacles in Apple Pay’s path
  • Recent regulatory reductions in interchange don’t leave enough margin for Apple to charge card issuers as much as in the US

In Samee’s view, this leaves the way clear for other wallets or similar mobile payment services to prosper. Zapp in the UK could be one. Or even the mobile network operators that may have finally arrived at the killer app…

Mobile networks

Christian Van Hommell Bonten from Wirecard (the conference sponsors) used his keynote slot to explain to a slightly bemused audience the three ways mobile operators can deliver a tap-and-pay service: using an NFC SIM, using the secure element (eSE) or via that latest buzzphrase, host card emulation. WireCard has powered a number of NFC SIM projects, most recently Orange in France which links to a pre-paid card embedded in an Orange Cash app.

This kind of solution requires phones to be equipped with new SIMs which costs the operator money and can take up valuable selling time in a mobile network’s retail outlets. Not a bad thing, said Christian. “The best way to bring a new payment type to a user is in a shop.”

Christian said that NFC SIM or eSE give the best user experience as you just tap and pay, even if your phone is locked. In contrast, HCE based services, which store card details in the cloud, necessitate a strong password on the payment app itself which slows things down. But HCE does present clear advantages to app vendors of all kinds – they should be able to add high value contactless payments to their services with as much ease as linking to Facebook Connect. There is a clear opportunity here for digitising gift cards and joining them up with location based communications of various kinds.

Meanwhile, in Italy, Poste Italia Mobile (an MVNO) is going live with an NFC SIM based service which allows its customers to tap and pay (provided they have a Post Italia payment card of some kind) at shops but also on public transport. Loyalty cards will be next. Already, 850K people have downloaded the Poste Italia app, 500K have got one of the new SIMs and 80K have digitised a payment card.

The video is slightly misleading. You don’t just tap and pay. You tap first. Then the app prompts for a passcode. So, it’s actually a two step process. Anyway, by next year 4m SIMs will have been swapped out and Daniela Maurello, the marketing director who made the presentation, was sure that Poste Italia’s reach alone would drive mass adoption of the service. Interestingly, the mobile network is not looking to make any money from this. The business case is about customer acquisition and this has allowed it to focus on customer experience.

Vodafone are expected to launch a similar service in a number of European markets imminently.

Unrelated to either the mobile operators or the pre-pay world itself, a couple of interesting start-ups presented:

LocalZ – winners of the John Lewis prize last year, LocalZ uses geo-location techniques, including beacons, to improve customer service. Pete Williams gave an example from Peter Jones, a John Lewis shop in Chelsea. If a shopper approaches the store and she has a click-and-collect order waiting, staff get an advanced notification so they can get the parcel ready. This cuts waiting time from 12 to 5 minutes. While still conceptual, this is a great example of technology being used to solve a specific and very measureable problem. The central assumption, that the people nearing the store are intending to come in an pick up their parcel, remains to be tested but sounds plausible.

Reward Technology – Paul Sheedy explained that his venture was aimed at the middle aged females that do most of the world’s grocery shopping. His business puts RFID tags in loyalty cards. This allows stores to recognise customers as they enter and to push messages back to their phones – by SMS primarily. Paul sees the need for a bridge from analogue to digital as real consumer behaviour is moving slower than some would like to admit. 45% of Spanish people don’t have a smartphone, for example.

Several other start-ups got a positive mention:

Quixter – a Swedish idea that registers your payment details along with your handprint, then pay by placing your hand on a reading-frame. It works using vein recognition and is live at one University.

SEQR – another Swedish venture, this is a multi-retailer mobile wallet which works by scanning a QR code produced by the till. It is live with McDonalds in the Sweden.

Orderella – order for drinks at counter-service bars and pick them up when you’re ready, avoiding the queue. It’s now available at 1000 location around the UK but will face the usual issues that the bottleneck in bars is not ordering drinks, it’s making them. That’s why there’s a queue. If you increase demand without increasing supply, the (virtual) queue will just get longer.

Tiply – use your phone to tip hotel and restaurant staff by taking their photo. It’s a great idea from the UK with a good tagline: “Don’t feel like a jerk because you don’t have cash.”


Zapp snaps up Asda and Sainsbury’s for mobile payment: analysis

While this news is very welcome, it’s emphatically not the big announcement we’ve been waiting for.

Retailers have been rightly keen on Zapp from the outset but their enthusiasm is only half the story. Zapp works by pinging transactions into your mobile banking app for approval. This requires a pretty sophisticated level of IT integration between Zapp, the payment service providers and the banks.

We’ve heard warm words from the banks yet we’re still waiting for any of them to commit publicly to a deadline. The banks’ development queues are full to bursting and Zapp is competing with many other priorities including and Apple Pay. Zapp deserves to succeed but I’ll be happier once I’ve seen a firm launch date.

Cross-posted from Essential Retail

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.

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

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

Klarna & Sofort merge. UK still isolated from payment innovation.

The UK may lead the world in e-commerce but its retailers only offer a very limited range of payment options at check-out. You can pay with a credit card, a debit card or occasionally Paypal. It’s rare to see a bank transfer option, pay by instalment or cash on delivery but all of these are common practice on the continent.

The anglo-saxon payment world refers to anything that’s not a regular card as an “alternative payment (AP) type.” If you’re interested, WorldPay publishes a handy guide.

Yesterday, two of Europe’s leading APs, Klarna and Sofort,  have announced a merger. This is why it’s important:

  • Klarna has a radical customer proposition. You can order goods on line but don’t pay until you’ve had them delivered and decided you want to keep them.  Shoppers love this (see below) and Klarna claims its service gives a 10% – 30% sales uplift.

Klarna comment

  • Klarna has a proven business model and has long been profitable.  Merchant charges are high (claimed to be 1.5% – 2.5% per transaction) but this is typically cheaper than Paypal.  For the money, Klarna takes liability in the event the shopper doesn’t pay up but says its very clever algorithms mean bad debt & fraud are low.  Klarna also has the ability to make money from shoppers by offering delayed payment (installments or credit) option. It’s even begun offering a sort of deposit account.
  • Klarna is large and growing with 15m users, 15.000 merchants  in Sweden, Norway, Denmark, Finland, Germany, the Netherlands and Austria.  It accounts for 30% of all e-commerce transactions in its home market of Sweden. Already it has over 800 employees.
  • Klarna is well funded having raised $250m from top drawer investors such as Sequoia.
  • The Sofort acquisition adds scale and indicates its ambition.  Sofort is big in Germany. It specialises in online bank transfers and the acquisition gives Klarna access to a further 25.000 merchants.  The combined group will now account for around 10% of all online payments in Europe.
  • The three clean-cut Swedish whizzkids who founded Klarna wear suits and ties. What better way to mark the business as highly disruptive to the established payment schemes?  Formal dress is today’s indicator of corporate rebellion.

Klarna management

Fulfilment is the most hotly contested area of e-commerce today and  the ability for merchants to offer something extra to their customers is critical. Sofort is active in the UK but has made little impact as the industry awaits Zapp’s long awaited launch of automated bank to bank transfers. In contrast, the highly innovative Klarna has largely ignored Europe’s largest e-commerce market although I’m sure it  (or something like it) would get a warm reception.