This week Zapp announced the confirmed support from five UK banks and building societies – HSBC, First Direct, Metro Bank, Santander, Nationwide. I’ve been following Zapp for a while now and this support from leading UK banks takes it beyond the concept stage and starts to make it a reality.
Zapp will allow consumers to pay in store or online, using their mobile phone and without the need for cash or cards. What makes it unique is that it operates outside the card schemes’ payment rails and it has the backing of major financial institutions who already have customers using their mobile apps. Because Zapp is part of VocaLink, the organisation that manages inter bank payments in the UK, it always looked likely to be a mobile POS scheme that would get some market traction.
However the big question is – will significant numbers of consumers start using Zapp? Will they make the jump from using cards to using phones? Whether you pay with Zapp or with a debit card, the funds come out of the same account. Debit card transactions are typically free to the consumer and Zapp transactions will presumably also be free. The banks will likely try to incentivise stores and online merchants to promote Zapp by making it a cheaper form of payment to accept (no card scheme interchange fee to be paid), however no one should ever underestimate consumer inertia.
The key factor to making it a success will be the consumer experience – any friction and a card will feel like a simpler option. One advantage phone based payments have over cards is the ability to provide a consumer with information at the point of purchase; that can be transaction based information, e.g. this month you’ve spent £50 so far in Caffe Nero, or promotional, e.g. there’s a half price croissant in-store today if you buy a coffee. However because Zapp will be integrated into the banks’ own mobile apps, rather than being a separate app, it will be up to individual banks to consolidate and provide that sort of information and do they have the systems to do it? Being part of a banking app will help adoption from customers (like me!) who make extensive use of banking apps but alone it won’t be enough. Zapp claims the payment process is more secure than existing methods because customer credentials are tokenised and not shared with the retailer in the way a card number is. Whether this will resonate with consumers remains to be seen – I suspect ease of use is what will make or break Zapp as far as consumers are concerned.
And of course, what about RBS NatWest, Barclays, Lloyds and TSB? Will they jump on board?
You can follow Jonathan Jensen on Twitter at @sevendotzero
It’s an exciting alternative to the card industry duopoly which retailers will surely be keen to implement but I think you are spot on when you say that “ease of use is what will make or break Zapp as far as consumers are concerned”
The weakest link seems to be that it relies on the banks’ own mobile apps. Currently these mobile banking apps are not really suited for mobile payments. They are designed for a different purpose with greater emphasis on (perceived) security rather than speed and convenience. My banking app for example requires something like 25 clicks to log in compared to just 4 for my O2 Wallet. There is some sense here when you consider that a banking app has access to my monthly salary as well as a large chunk of my savings. in contrast the maximum at stake in my O2 Wallet is a firmly ring-fenced pre-paid balance. Turning mobile banking apps into mobile payment apps is going to require some thought around mobile identity to ensure than consumers see them as both secure and convenient.
Zapp are undoubtedly aware of this and have been encouraging banks to start working this out. According to Finextra, Bank of Scotland has launched a mobile app that links the account holder’s mobile device to the banking app so that both security and convenience are improved. The automated security replaces some of the manual input to remove “friction” from the process. This should persuade more BoS customers to install and use the app. http://www.finextra.com/news/fullstory.aspx?newsitemid=25651
Now I know that Bank of Scotland are not one of the five banks named as already committed to implementing Zapp Payments but they must surely be heading that way. Isn’t this the really exciting thing about Zapp: how they are starting to link up different technologies to produce a complete mobile payments solution that will work for everybody.
I agree that the banks’ mobile apps will need some work to make them fit for purpose for Zapp. However they are apps that consumers are familiar with. Getting consumers to download a new app from a brand they’d never heard of would have been a bigger challenge.
Plus the fact Zapp is using an existing account with an existing balance is a big advantage. Wallets that are predicated on a separate balance (like the O2 Wallet) will always face a challenge in consumer adoption.
Thanks for the feedback Stuart.