19 September 2014

UK banks sign up to Zapp mobile payments

15 January 2014  |  11016 views  |  20 Woman shopping with Tablet Computer

Five major UK financial services firms have committed to rolling out mobile payments technology from Zapp, enabling customers to make in-store and online purchases from within their banking apps.

HSBC, first direct, Nationwide, Santander and Metro Bank will embed Zapp within their phone and tablet apps, bringing the technology to their 18 million customers.

Steve Pateman, head, UK Banking, Santander, says: "Our customers want the choice to be able to pay on the go using mobile technology, and the Zapp proposition is second to none with its capabilities."

However, RBS, Lloyds and Barclays - which has its own Pingit mobile payments system - have not signed on.

Set up by VocaLink last year, Zapp is bypassing the card networks by integrating its system directly into bank apps and tapping into the Faster Payments rails for mobile payments - in store, online and through apps.

For purchases at participating retailers, customers who choose to pay by Zapp will be taken to their banking app, where they will log in, see their balance, and confirm the purchase.

Zapp argues that its system is both more convenient and secure than other options because customers do not need to hand over any card information. Instead a token that lasts only for a few minutes and has no intrinsic value but represents the request and authorisation of payment, is passed between the retailer, Zapp and customer's bank.

Zapp says that it is in talks with several major retailers about introducing the technology at the checkout and has already struck deals with major payment processors WorldPay Optimal Payments, Realex and SagePay.

Trials for the e- and m-commerce features and a bill payment option are slated for the summer ahead of a full launch by the end of 2014. In-store payments - which may prove a trickier problem - will follow in 2015.

VocaLink has invested heavily in Zapp, pumping £33 million into the business as it seeks to grab a share of a mobile payments market expected to explode. According to the Centre for Economic and Business Research, 20 million adults will use their mobiles to pay for goods and services by the end of the decade, with the value of purchases tripling from current levels to £14.2 billion in 2018.

Zapp will face stiff competition from the likes of PayPal, Google, the UK's telcos, and Visa and MasterCard but hopes that by working directly with banks, it will come out on top.

Peter Keenan, chief executive, Zapp, says: "I am truly excited to announce our lead financial institution partners: HSBC, first direct, Nationwide, Santander and Metro Bank. Together with our already announced acquirer partnerships, Zapp will go to market with real scale offering simpler, more secure and efficient payments to millions of customers and businesses."

Comments: (20)

Alexander Peschkoff - TEDIPAY - London | 15 January, 2014, 10:32

I like Zapp's concept, but it's hard to see the proposed user flow to fly: "For purchases at participating retailers, customers who choose to pay by Zapp will be taken to their banking app, where they will log in, see their balance, and confirm the purchase." 

What benefits would consumers get compared to conventional bank cards?.. For example, will/can Zapp offer the same consumer protection as a credit card? Especially in case of e-commerce?

Also, how can a mobile-generated (i.e. s/w-based) token be *more* secure than "chip & PIN" transaction?.. (Card data passed during an EMV transaction is useless without CVV.)

With the proposed implementation, it will be hard for Zapp to displace cards and wallets: Zapp cannot be used for transit payments and cash withdrawals from ATMs, for example. If consumers do continue carrying their cards, they are likely to continue using them.

Having said that, by working with the banks direct Zapp could indeed gain a competitive advantage. IF they get user experience and value proposition right...

Andrew Smith - CloudZync - London | 15 January, 2014, 10:38

I agree with Alexander here. The actual user experience and process flo is pretty poor to say the least, and what protections can they offer when the money is moved via fasterpayments...

Also, its in participating stores, so they face the same challenege all payments companies face who want to change customer habit, and merchant habit, and that is are you making life simpler and adding value. The answer is no....so why would a business offer zapp? why would i opt to move money from my banking app to pay things when it will take longer than actually paying on my card, and i dont get the same protection and to top it off, no added value or incentive to do so...



Matt White - Finextra - London | 15 January, 2014, 11:03

On protections, Zapp says:

"All Zapp payments will be covered by similar protections as exist today for debit card payments, ensuring that in the event of goods not being delivered or an issue with the payment the consumer will be covered."

Andrew Smith - CloudZync - London | 15 January, 2014, 11:06

Easy to say that, hard to get the money back from the merchant since they would already have the money..So would Zapp foot the bill?

There are simply far too many questions regarding the proposition, and thats because it isnt available, this is all what they hope will happen

Alexander Peschkoff - TEDIPAY - London | 15 January, 2014, 11:18

There are no fast rules when it comes to debit cards and consumer protection (http://www.money.co.uk/article/1004510-is-debit-card-protection-the-same-as-for-credit-cards.htm).

As Zapp seems to "consolidate" the banks in opaque way, i.e. user pays via a specific bank's app, it's that bank that needs to deliver the promise (unless it says otherwise in T&Cs).

If consumer protection equals the one offered by credit cards AND if the liability is shifted from e-merchant to the bank (i.e. consumer...) in terms of chargebacks, then Zapp has an interesting and compelling story to tell.

A Finextra member | 15 January, 2014, 21:08 Wow. Seems to me that getting BBC coverage today, plus a big FinExtra spread means that people are getting it; Zapp is going to revolutionise the way we pay. I have read and agree with all the constructive feedback above. I guess it boils down to first incantations are not going to solve every concern, but with enough consumer (e.g. BBC) and business (e.g. WorldPay, HSBC etc) interest at his stage I know where I'd bet my money ;-). Anyone else know of other mobile payments outfits doing as much with the right people and getting the same attention? Yes, there's still a chance that things could not pan out, but the egg on face of so many big players says to me that is increasingly unlikely to happen. Personally, very keen to see the outcome in 5 years time..
Will Perrin - BP plc - London | 16 January, 2014, 10:08

Do people still use debit cards, apart from in ATMs?  As it says above, you get no consumer protection.  You also get no rewards.  Can't remember the last time I actually swiped mine.  Right then - I'm off to book my next free flight...maybe MBNA will go Zapp eventually...

A Finextra member | 16 January, 2014, 10:33


Debit growing faster than credit. Macro factors are at play, affordability, recession etc. 

Alexander Peschkoff - TEDIPAY - London | 16 January, 2014, 11:07

Will, Zapp could (and I think should - http://www.finextra.com/blogs/fullblog.aspx?blogid=8784) extend itself to credit products. That way they can compete with Visa/MC by offering e-commerce merchnant tangible and compelling benefits.

Think about it: partner banks accepted Zapp as a front-end for their products. It doesn't matter whether it's debit or credit; online purchase or ATM transaction. That means that Zapp could, potentially, displace Visa and MasterCard in the UK.

Technically, V/MC can offer everything Zapp does (and more...) But it's about agility and flexibility these days. Zapp could have an edge there (if they don't lose focus on their main stength...)

There is, however, another critical element: execution (user experience that leads to user adoption and frequent use). Zapp is not shining there for now, IMHO.

Will Perrin - BP plc - London | 16 January, 2014, 11:16

Agreed - I was just wondering why no credit cards had signed up at this stage, but if our colleague is correct, then that may be the answer.  I'd love to start leaving my wallet at home...

Andrew Smith - CloudZync - London | 16 January, 2014, 11:53

From my understanding of the Zapp proposition, its not actually a scheme, rather a mechanism for using faster payments to complete a payment itself. Zapp payments is simply a wrapper for the consumers own banking app, and it is that banking app that uses faster payments to complete the transaction, Zapp has no access to faster payments. 

So with this in mind, things like credit just cant be supplied by Zapp. In addition, questions about consumer and merchant protection still remain, its one thing to just claim both will be protected, its another to explain how.

You can see why Barclays havent got involved as their own pingit/buyit app already delivers more.

Alexander Peschkoff - TEDIPAY - London | 16 January, 2014, 12:47

What is a credit card? It's a credit "hat" for some underlying bank a/c. That is connected, in the UK, to FP scheme...

Barclays Pingit hasn't (yet?) extended itself to Barclaycard products due to some internal conflicts of interests. Not due to technological limitations.

The problem with credit has a different nature, in Zapp's case: if they offer retailers certain "Zapp" rate, it will hard to make it a two-tier one (for debit and credit). Although V/MC do the same without any problem. It all depends on how Zapp sells its story to the retail world. With e-commerce that's pretty straightforward.

A Finextra member | 16 January, 2014, 13:13

I'm sceptical of the customer experience here - doesn't feel like there is much incentive for a consumer to use zapp rather than just use their card? Personally I find it a pain to enter all my passwords on my bank's clunky login screen every time...no way I'd do that over just getting my contactless card out.




Alexander Peschkoff - TEDIPAY - London | 16 January, 2014, 13:20

As for UX, Zapp makes more sense in e-commerce where they act just like PayPal, but with a twist of out-of-band authentication. However, as discussed above, a critical element is missing for e-commerce to fly - support of credit products.

Jan-Olof Brunila - Swedbank - Stockholm | 17 January, 2014, 10:59

Services like Zapp are credit transfers, where I transfer funds from my deposit account to someone´s bank account. payer and payee may have their accounts in different banks. That is easy. It may be much more difficult to reclaim a transfer due to no delivery of goods, error or other reasons. In practice the payee should voluntarily make a new transfer to the payer since the deposit protection legislation protects the funds that went into the payee account! If the payee is a fraudulent or disorganized merchant, it is less likely that the funds are repaid. For e-commerce and later shipping trades the global card schemes have the "services not rendered/goods not received" guarantee to the cardholder where the issuer can pull back the monies from the acquirer who then is left to deal with its non-performing merchant. This applies both to debit and credit cards. Thereby the consumer protection is upheld by the involved financial institutions and they assume the risk for non-performing merchants - and therefore excercise control on the participating merchants. Who protects me if I pay with Zapp and I never receive the merchandise and the merchant does not respond to my repayment request? Zapp seems to be more fit for rapid credit transfers between consumers than for shopping payments.

Andrew Smith - CloudZync - London | 17 January, 2014, 11:18

Agreed...You can see why the banks they have on board are on board, after all these are banks that dont have a p2p app, and dont have a thing in the mobile payments area at all...So they obviously will sign up for a wallet that actually pushes the consumer into their own banking app to complete a mobile payment...

Fact that Barclays is no where to be seen regarding Zapp tells a big story. Why would they. Pingit/buyit is light years ahead of the Zapp clunky vision.

Is this a good idea, or a dead end concept?

A Finextra member | 17 January, 2014, 12:18

would be good to understand how refunds work, if/how chargeback rules work and how merchants and consumers are protected. Also if/when credit can be enabled. I'd give a go as all done in my bank's app and I trust bank (to handle money ;-) and is better than PingIT as I wouldn't have hassle of top ups

Alexander Peschkoff - TEDIPAY - London | 17 January, 2014, 12:20 Andrew, you are missing the big picture here, IMHO: five major banks accepted Zapp as the frontend layer for retail payments. Several major acquirers agreed to support that layer. That is a strong starting point. With the right execution and partnerships, the rest would follow...
Andrew Smith - CloudZync - London | 17 January, 2014, 12:34

Hi Alexander. I agree, that sounds impressive. But, lets look at it. HSBC and the banks are supporting this because they have nothing to offer themselves, they are hoping that Zapp then takes off so that their customers dont jump ship to a different bank.

IMHO the experience is pretty poor, its a lot worse than chip and pin transactions at POS and so, do we really see merchants promoting this? Especially as their is still no added value to that merchant for making an investment in Zapp? Even for eCommerce, the experience is behind a PayPal and has no traction compared with PayPal.

Support from the likes of WordPay isnt anything to write about either, anyone can buy into being supported by WorldPay and others.

Its all good PR and no doubt helps raise funds for Zapp, but does any of these relationships help deliver a solution that an SME and a consumer will buy into together (cant have one and not the other). IMHO no, nothing new here....

Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 17 January, 2014, 16:56

If the average John Doe really cared about fraud protection / chargeoff and stuff like that, IMHO they'd stick to credit cards, especially for online shopping. For the market segment that uses debit cards for online transactions today, Zapp offers a strong value proposition by obviating the cumbersome task of entering so many keystrokes for card #, CVV, expiry, etc. on a virtual keyboard. Just enter one PIN # - hopefully the same Mobile Banking PIN # - and they're done. Not sure if this segment is big enough to support yet another PSP, though.

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