M-commerce start-up Zapp vows to take on Visa and MasterCard

M-commerce start-up Zapp vows to take on Visa and MasterCard

UK mobile commerce outfit Zapp is targeting 20 million users by 2017, promising to rival traditional payments giants such as Visa and MasterCard by the end of the decade.

Set up by VocaLink earlier this year, Zapp is aiming to bring real-time mobile payments - in store, online and through apps - to millions of Brits by integrating its system into bank apps and tapping into the Faster Payments rails.

The firm is on the verge of closing deals with up to three major high street banks, which will then invite customers to opt in to the service when it launches in the second half of next year.

Bypassing the card networks, customers who choose to pay by Zapp will be taken to their banking app, where they will log in 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.

The company admits that, for in-store purchases in particular, the convoluted log-in procedures some banks currently employ for their apps could put customers off. Zapp says that it is talking to banks about making these processes faster and is hoping to convince them of the merits of 'adaptive authentication' - a risk-based approach that lowers the log-in barriers for smaller payments.

Despite the issues surrounding log-ins, Zapp CEO Peter Keenan says that the service has the potential to revolutionise in-store payments, freeing them from the checkout. For instance, customers in sandwich shops could pick up their food and pay via QR code and then flash their phone at a staff member on the way out of the shop to prove that they have paid.

As well as QR codes, retailers could integrate Zapp with their contactless infrastructure. However, the firm says that its token-based system means that the secure element requirements normally associated with this technology becomes redundant.

As well as bringing banks onboard, Zapp is also expecting to have several major retailers committed to the project within the next few weeks, lured in by promises of higher checkout completions and lower fees than those associated with card payments. Payments providers WorldPay Optimal Payments, Realex and SagePay have all already struck deals with the firm.

Zapp is not only targeting the high street and e- and m-commerce firms, it is also setting itself up as a rival to the likes of iZettle and PayPal Here. The company's technology will let merchants such as plumbers accept payments, which will be processed immediately thanks to Faster Payments.

Trials for the e- and m-commerce features, small business service and a bill payment option will begin next summer ahead of a full launch by the end of 2014, while in-store payments will follow shortly after.

According to a report from the Centre for Economic and Business Research, commissioned by Zapp, the value of mobile goods and services purchases will triple by 2018 to £14.2 billion. Confident of getting banks and merchants signed up, Zapp is hoping to win a significant share of this, setting a target of 20 million users and two billion transactions a year by 2017.

VocaLink - owned by the banks - has invested heavily its venture, recently putting in another £17 million on top of an initial outlay of £16 million. However, Zapp says that it is still hoping to attract outside investment as it bids to secure a total of around £100 million to bring the service to launch, with much of the money earmarked for an aggressive marketing campaign.

Comments: (9)

A Finextra member
A Finextra member 04 November, 2013, 15:41Be the first to give this comment the thumbs up 0 likes

As ever, the proposition is interesting for a consumer. I only say interesting as the whole login process etc is not quick, and linking actual banking apps with a wallet app doesnt deliver a great user experience...

While this may seem interesting to consumers, what about businesses? What does it deliver in addition to what they can already do, which is take a payment? it seems nothing...

A Finextra member
A Finextra member 04 November, 2013, 16:19Be the first to give this comment the thumbs up 0 likes

I agree. Though those shoppers that have historically used their debit cards for on-line purchases may prefer Zapp to entering their card details on to a merchant web site. For face to face transactions I'm far less convinced that consumers would want to go through the hassle and would probably opt for their traditional method of payment.

In terms of speed and convenience, I'm not sure how this would compete with the likes of the card scheme digital wallets such as V.me by Visa who aim to make the on-line experience just as slick - but for any card, including credit cards AND with the Section 75 protection!

Pricing would need to be very competitive too if retailers were to throw their behind it ...... and the cost of Visa & MasterCards are due to come down in 2015 following EU regulation!

A Finextra member
A Finextra member 04 November, 2013, 23:02Be the first to give this comment the thumbs up 0 likes

"Higher checkout completion" - how many customers abandon their shopping at store checkouts these days?.. How many of those do so because they are not happy with the currently available payment methods?..

"Lower fees" - interchange will soon drop below 0.5%... How low can one go?..

As for contactless interface, Zapp will either need own readers in every store (even £1bn could not be enough for that...), or use EMV protocol and proprietary BIN - in that case, they need every UK acquirer onboard...

"Token-based system does not require secure element" - if the tokens are generated via a phone app using app's "internal logic", how quickly can/will that be broken?.. If the token is pulled from a cloud, what about (a) off-the-grid shops and (b) phone authentication?.. "Mobile fingerpinting" and other SE-less methods are NOT providing adequare security. Google made some announcement re similar (SE-free) approach based on HCE, yet - with all due respect - Google is not the company that wowed the world with its track record when it comes to Android security. Far from it, in fact...

It is indeed unclear what problem and whom for Zapp is looking to solve. More questions than answers at this stage. Let's see what the future holds...

A Finextra member
A Finextra member 07 November, 2013, 16:01Be the first to give this comment the thumbs up 0 likes

I normally don't comment on these things, choosing instead to giggle at some of the comments. However, Alex's last comment has oddly enough sparked me into putting some of his inaccuracies right... here goes.

"Higher checkout completion". I fear you misunderstand this area. Drop outs are caused by poor customer journey which allows time for purchasing doubt to sink in. Slicken the journey, less time for doubt, greater conversion. There are reports all over the industry that point to drop outs still being a major concern. Why else do you think that PayPal get away with charging 2.75%? Because they increase conversion rate - fact.

"Lower fees" - lower than PayPal for sure.

"Contactless interface" Zapp own readers would be daft. Its not Brazil y'know ;-) I will not comment on the "all acquirers" remark, other than to say that there is more than one way to skin a cat (like repurposing ISO fields etc).

"Token-based systems does not require secure element" - your whole opinion is steeped in lack of vison and doesn't consider the future. Off the grid shops / phone authentication: how long are they going to be off the grid for? How long till that merchant in a cave selling ice creams gets a broadband connection, and offers wi-fi? How long till Zapp / the Banks sort out a way to do offline auths? And why would they solve it right now for a set of edge cases rather than get the ball rolling first?

"Mobile fingerprinting" - here I think you are forgetting the risk-based approach to consumer payments that all participants take today. Criminals will keep finding ways to crack the "perfect" resolution we put in place to fraud, and we will keep finding ways to beat them, and the vicious circle will repeat. In the meantime, Joe Average just wants to buy his kid that scooter from Amazon / Argos / Jim's Market Stall without any hassle.

"What problem is Zapp trying to solve?" - for me it is trying to position a cheaper than PayPal alternative to merchants, whilst making the purchasing experience slicker for consumers (which they like and the merchant likes) whilst letting consumers use their bank's own infrastructure that they already fully trust and have done so for over a century to keep their money safe.

I would also expect a number of other logical extensions to the core product that you and I are not privvy too. Why would Zapp, who look to be in a good position with the banks and the merchant acquirers, tell the world their full plans now? They don't need to - what they have is sparking enough interest without giving away any more of their roadmap! (although I'd expect the banks and acquirers have a view to what this does actually look like and it must be good if they are interested, and I'd like to think that Loyalty would have a role to play for the consumer ....)

And no, I do not work for Zapp or any affiliated organisation!

A Finextra member
A Finextra member 07 November, 2013, 17:12Be the first to give this comment the thumbs up 0 likes

That is a lengthy comment....I think I would have to add a few points...

So far, the Zapp experience (what has been documented) seems very clunky, if anything it adds time to the checkout experience so I would guess this would cause more drop-outs. It also requires other apps on your device, not just the Zapp app.

PayPal does indeed charge 2.75% plus their admin fees blah blah. I have no doubt PayPal helps reduce checkout drop out, but i think the experience part doesnt have much to do with it once you get that far. Even checking out with PayPal could be improved. I think most drop out is caused by user experience, trust in the merchant and trust in the brand that's handling the payment, especially online. PayPal has a good name here, though not whiter than white (but then none could be)

I think the token based comments are a little off and depends how they are used. Zapp doesnt seem to be using tokens to marry them up with a payment method such as a card, rather as a way of passing information to another banks banking app (whats been shown so far). The question is where are these tokens being created and how secure can they be? If they arent then fraud is a higher risk...

The issue regarding Zapp solving a problem, Zapp isnt trying to position itself as a cheaper than PayPal option, after all they arent the ones actually settling the transaction - moving the money and completing the transaction, it is the customers bank. They are looking to make money from each transaction they pass onto the bank or have flow through the voca-link faster payments platform. If anything they are looking to be a well paid middle-man. For the merchant, maybe this will mean cheaper fees, but there is no added value. For the consumer, they only let me pay with my mobile, nothing more...So why would I do that? No incentive for me as a person, i still have my cards in my wallet and i still have the habit of paying by card or cash, the proposed expereince from Zapp i dont think will change that at all...

It's an odd situation, and you are right, not much has been said on this so who knows what they really will deliver ... once they start...



A Finextra member
A Finextra member 07 November, 2013, 18:15Be the first to give this comment the thumbs up 0 likes

What "other" apps?

If the token is intercepted or fraudulently created, how can money be stolen?

How do MasterCard and Visa add value?

How many times would I need to use my mobile to make a payment before I start longing for this to be the norm instead of cash / cards? What about my teenage son, my sister at university, my nephew at primary school, the graduate poised to take over Tesco in the next 10 years - they are the future; what are their views on habit of paying by card and cash? What about the prevaling trend of people being stuck to their mobile phone and using apps?


A Finextra member
A Finextra member 08 November, 2013, 15:47Be the first to give this comment the thumbs up 0 likes

Dear Anon,

Your point re "higher checkout completion" relates e-commerce, yet Zapp is taking about "in-store purchases in particular". You misunderstood my point.

As for security and lack of vision: TEDIPAY bring to the market a game-changing secure platform for mobile transaction that has been praised by the industry experts as "revolutionary". Hence, I'd not jump into conclusions if I were you...

Zapp could be cheaper than PayPal, but debit-type payments do not offer the same consumer protection as credit cards. You are comparing apples to oranges.

Last, but not least: "Zapp own readers would be daft". That depends on your perspective. If Zapp is aiming to compete with Visa and MasterCard, end-to-end infrastructure makes perfect sense. Try telling Octopus in HK that they are stupid...

A Finextra member
A Finextra member 11 November, 2013, 13:53Be the first to give this comment the thumbs up 0 likes

Hi Alex

Re checkouts, I read the article and understood it meant internet shopping. The article could have been a bit clearer, but as there is no endemic issue at physical checkout I guess they felt they'd get away with their wording. With your additional context, I can see what you meant and I agree with you. I think Zapp also agrees (look at para 5 & 6) as they recoginise some challenges with the current status quo at physical pos, but also some innovation possible as a result of the Zapp tech.

Apologies for the "lack of vision" comment, I meant no offence. I am sure that in the realm of security and fraud then you and your organisation are true visionaries. My comment was targeted more at the subtleties of customer experience, consumer behaviour patterns, market trends, risk/reward modelling, and how payments can (and is being) innovated across these domains. I suppose I think that Google's move is the right one as it removes a layer of technical and commercial complexity in the payments chain, so I'm a fan of the anti-TSM pattern in that regard. I also like Cards in general as they "just work" and I expect that Tedipay is innovating here, so I will keep an eye out on the how when that starts being announced on your website.

On the debit-type payments protection, I think you could be right and are elluding to Section 75. I've not seen it in the press that Zapp will support a similar style protection or not. PayPal do have chargebacks, if you can get them to get a refund for you! The schemes still have a pretty solid position and track record here. But I wonder how much that is actually needed in the Zapp world?

On Octopus, for things like Taxi drivers, that does seem to make sense as more often than not its "greenfield". Bit trickier for larger scale ops like Boots or Sainsbury's, with significant sunken investment in PED / POS and tightly packed IT delivery roadmaps obfuscated by physical tasks in store where PEDs are concerned. So, depends on the merchant segment. Your initial point was about the commercial cost of putting readers in everywhere ("even £1bn not enough"), then you point out Hong Kong's Octopus so I guess you are sitting on the fence a little on what is best. I trend towards sitting on the fence, however I see the solution as within the merchant segment and if Zapp enables reuse of existing rails, then its up to merchant demand on whether it needs to be a stand alone Zapp reader or something that does a wider range of acceptance types. Either way, acceptance could easily be a mobile phone app or the merchant's own banking app or a Ingenico reader style device, right?

All in all, physicall point of sale and mobile payments like this is pretty hard. Let's see what they do and/or announce.

A Finextra member
A Finextra member 11 November, 2013, 17:27Be the first to give this comment the thumbs up 0 likes

Interesting thoughts.

As for Octopus, it took them over 10 years to get where they are now, and they still have a long way to go as far as retail is concerned. But they had a HUGE advantage - "density and frequency", to quote Roy Vella. Retailers came to Octopus, not the other way round...

With regard to using mobile phones in physical retail, contactless is by far (IMHO) the most convenient interface (with laughable market penetration, though...)

Your point re Section 75 lead me think that focusing (as Phase 1) just on micropayments - where transaction cost, pro rata, is the highest - could have been a good move for Zapp...