Zapp: putting banks back in the m-payments picture

Keenan: two-thirds of fraud can be eliminated

Among the more than 1,500 exhibitors at the Money2020 in Las Vegas this week, Zapp, the mobile payments initiative, is probably one of the few that is aiming to put banks firmly back into the middle of the payments process.

Formed earlier this year as a separate subsidiary of VocaLink, the UK payment processor, Zapp expects to launch next year with the backing of most of the major UK retail banks, Peter Keenan, chief executive of the venture, says that at the time of launch the Pay by Zapp service will be available to 40% of UK current account holders, and it will have the backing of 50% of the nation’s online and mobile retailers – including well-known brands.

Key to the Zapp approach is that it forms part of the banks’ own mobile banking application, sitting behind the bank’s own authentication layer, providing the same level of security as the app itself, and making the purchasing experience more comfortable for the user, says Keenan. When they click on the Pay by Zapp button on a retailer’s site, their banking app is automatically launched and the customer is presented with a choice of accounts, their current balance and details of the transaction. The balance function is something that has gone down well with consumers in tests, he says: “It is one of the things that marks this as different from a normal wallet.”

In the background, a token is passed between the merchant, Zapp and the bank, representing a request and authorisation to pay. Once authorised, the only customer information sent to the merchant is the delivery address, which means that the merchant does not have any customer data to process, removing one more security issue. “If you compare that to a typical card transaction, where all the information a fraudster needs is passed over, the potential for fraud is much reduced and the user is only having to deal with their normal log-in for their banking applications, so there is no need for additional passwords and so on,” he says. “We think it is going to get rid of about two-thirds of the fraud in the ecosystem, if not more.”

Keenan says that the intention is to get the transaction time down to just 12 seconds – beating the current industry best of 14 seconds held by Amazon 1-Click and way below the typical online checkout time of 87 seconds.

While many are predicting that banks will be disintermediated in the mobile payments revolution, Keenan points to customer research that shows consumers are far more likely to consider such services if it is being offered from their bank. “Notwithstanding all of the issues around the financial crisis, customers still trust banks when it comes to making payments,” he says.

“There is no point bringing in a new ecosystem if it doesn’t bring benefits to each of the constituent members,” he says. “For merchants, they are going to sell more at a lower cost; for the banks and institutions it gives them security and strengthens the customer relationship at a time when they are worried about all of these new entrants coming in and disintermediating them – we are probably the only solution that is putting the bank account right back at the heart of spending.”

In the Zapp vision, while banks are back at the centre, services such as it is enabling will have a more profound effect on retailing, because  the system also has the potential for using the mobile device in the physical world, where a consumer could simple scan a code representing the goods they want to buy – which could be through an NFC chip, a QR code or a six-digit one-time code – and they enter that into their banking application. One such application would be self-checkout in physical stores, where a customer could simply scan a QR code on a product and have it delivered to their home, which Zapp calls Click & Go . “That is going to fundamentally change retailing,” says Keenan. Restaurant billing can be similarly transformed, he adds. “Restaurants see that as a huge advantage in terms of table turnaround, for instance, and that is the sort of benefit that gets retailers very excited.”

It is just such a revolution that he says is generating the buzz around the Money2020 event, and which will see enormous changes in the US over the next 12-18 months.

“Spending time at Money 2020 is amazing because we are living through such a huge level of payment innovation globally. The customer experience of payment is going to change massively over the next few years and we are looking forward to Zapp and VocaLink playing a significant role in this change,” he says.