Zapp: a game changer for banks
Zapp will create the next wave of payment innovation, delivering significant benefits to the UK economy. 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 £14.2bn in 2018. By offering Zapp, banks will help to reduce fraud, lower the cost of cash to the UK economy, put consumers more in control of their finances and help businesses across the UK with their cash-flow by providing an instant settlement payment method.
The arrival of Zapp is in many ways a natural development stemming from the introduction of the Faster Payments Service five years ago and latent consumer demand which has been building since. Zapp is a reaction to today’s digital age, where everybody wants everything instantly: payments are no different.
Having a robust, real-time infrastructure greatly simplifies the layering of new services. It offers consumers a much simpler and more secure way of doing things. First generation mobile payment services tended to rely on users setting up connections to the people that they wanted or needed to move money to – effectively setting up bilateral beneficiary arrangements. This is analogous to a point-to-point communication, while the Faster Payment Service is the equivalent of an IP network, which facilitates universal communication.
Zapp is not a mobile wallet. Zapp payment functionality resides within the banking app on the consumer’s smartphone. When the user clicks on the ‘Pay by Zapp’ button on a retailer’s web site or in store 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 during the extensive primary research and product testing phases.
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 name and delivery address, which means that the merchant does not have any customer account data to process, removing one more security issue. Compared to a typical card transaction, where all the information a fraudster needs is passed over, the potential for fraud is greatly reduced. The user only has to deal with their normal log-in for the banking application, removing the need for additional passwords and other security steps - fraud levels could be cut by as much as 60%.
The key to success will be in the user and merchant uptake of the service, which is why the company has concentrated on getting a critical mass of banks and acquirers signed up before taking it to consumers. This ‘network effect’ is likely to lead to a rapid uptake. Again, there is an historical parallel with SMS text messages, which went through similar adoption phases, only really taking off when users could contact users on other networks. The upsurge in adoption of SMS was driven by universal interoperability - in the early days usage was low and then suddenly it skyrocketed. The real value of networks lies in their speed of connectively and reach.
This conceptual separation works both ways, in that the Zapp model has a high degree of future-proofing and portability. The model has been designed to be independent from the transport mechanism, concentrating on what it does, not how it does it. This also allows for seamless exportability of the service into new territories.