Is there a battle looming in the UK between Apple Pay and Zapp?

 In Blog

Apple Pay and MCX grabbed the industry’s attention late in 2014 for obvious reasons. A similar situation is brewing in the U.K. between Apple Pay and a mobile payments system named Zapp from Vocalink, which created the Faster Payments Service and is owned by all the major U.K. banks.

But will more mobile payment options matter to a consumer base that’s more than OK with using plastic at the point of sale, especially when the widespread use of contactless cards in the U.K. has already sped up paying in stores, on buses and even on the London Underground?

U.K. consumers are somewhat wishy-washy when it comes to mobile payments, at least according to the results of Mobile Payments Today’s 2015 State of the Industry consumer survey.

When consumers were asked if they were interested in using their mobile phone to send or receive money to friends and acquaintances, the majority of respondents (53 percent) said they were not interested. Consumers who fell into the 18–24 demographic, however, are overwhelmingly interested (75 percent) in mobile P2P payments.

In terms of in-store mobile purchases, the majority (79 percent) have never initiated such a transaction. That should come as no surprise because, despite the U.K.’s mature contactless infrastructure, products from companies such as U.K. mobile network operator EE have not experienced much success. Google Wallet at the physical point of sale is still only a U.S. thing, though the company recently made Gmail funds transfers available in the U.K.

But with Apple poised to enter the U.K., things could quickly change.

Apple’s brand

Apple right now is in the process of creating a U.K.-based team that will help launch Apple Pay in the region and serve as a springboard for the rest of Europe, as well as the Middle East, India and Africa.

“I think Apple can play an incredible role in educating consumers to get them excited about something [mobile payments] they’re generally not very excited about,” Tony Moretta, an industry analyst who helped create the Weve MNO joint venture in the U.K., told Mobile Payments Today in a recent interview. “Apple has shown itself able, more than most companies, to change consumer behavior.

“Even if you don’t think it’s that special, what they’re doing from a hardware or software perspective, I just think they’re more likely to get more people to start doing something.”

While Apple has yet to reveal a hard date for Apple Pay’s launch in the U.K., pundits speculate that it could happen in April. This also happens to be about the same time Zapp is supposed to make its debut in the U.K.


Zapp relies on banks building it into their mobile apps, although, as those banks own Zapp’s parent company, this shouldn’t be too much of a problem. The system is intended to provide real-time payments between consumers and merchants — both online and at the point of sale — without the need for a digital wallet. Zapp will generate digital tokens that will hide customer bank account details from merchants, and it is intended to work with different technologies such as NFC, Bluetooth, QR codes and PIN-entry point-of-sale terminals.

Zapp, however, has faced launch delays since at least the third quarter of 2014. Meantime, it announced in October 2014 retail partnerships that will go into effect this year. Asda, Sainsbury’s, House of Fraser and Shop Direct are among some of the major U.K. High Street retailers that will support Zapp. Earlier in 2014, HSBC, first direct, Nationwide, Santander and Metro Bank announced their support for the system.

Ian Sayers, Zapp chief technology officer, told Mobile Payments Today in late 2014 that he believed merchants are interested in Zapp because they’ll be able to collect customer information without keeping a card on file.

“I think we have a lot more data we can extract, which is far more than what you get in the existing card world,” he said.

This could give Zapp an advantage over Apple Pay in the U.K.

One of the knocks against Apple Pay is that, while Apple masks card information from retailers with tokenization, it also prohibits retailers from obtaining vital customer stats to help build loyalty programs. For comparison’s sake, MCX is the anti-Apple Pay in the sense that its business model relies on a loyalty platform.

Pricing is another benefit Zapp could have over Apple Pay.

Because Zapp involves the Faster Payments Network, it doesn’t need to ride the traditional card network rails like Apple Pay would. Whether it’s the U.S. or the U.K., merchants will explore options to lower or eliminate their transaction fees.

Current market

Consumers have used Paym and Pingit — two mobile person-to-person payments services in the U.K. — to varying degrees of success, but the numbers aren’t overwhelming when you consider the region’s population.

Consumers have downloaded the Pingit app more than 3.5 million times since U.K. bank Barclays released the system in February 2012. Consumers have used the service to make close to 775 million pounds ($1.2 billion or 976 million euros) in payments. More than 1.6 million consumers had registered for the service as of Nov. 16, 2014.

Paym just announced that almost two million consumers have used the service since it debuted in April 2014. Users have transferred more than 26 million pounds ($39 million, or 34 million euros) in funds during that period.

“The card schemes could’ve done P2P payments years ago very easily, but in the U.K. they don’t see a market for it because outside a certain part of the economy, people don’t generally pay each other,” Moretta said. “The P2P side really hasn’t taken off.”

Tristan Hugo-Webb, the London-based associate director of Mercator Advisory Group’s international payments practice, says it’s worth noting how consumers will react to both Apple Pay and Zapp.

“Everyone needs to be patient,” Hugo-Webb said. “The industry wants this to take off immediately, but it takes some time to counter this consumer aversion. Mobile wallets are great for storing loyalty, but consumers here don’t necessarily want to use it as a payment mechanism.”

But Apple Pay does have some momentum as it nears a European launch.

In January 2015, Apple released record-breaking first-quarter earnings that saw it sell almost 75 million new iPhones worldwide. Apple did not break out sales by region, but the company’s products are popular in the U.K. Combine that with mature contactless infrastructure and Apple might see better Apple Pay numbers in the region.

“I was surprised Apple didn’t try to use the U.K. as a test market for Europe,” Hugo-Webb said. “But consumers in the U.K. like using cards, so the longer Apple waits to bring Apple Pay to the U.K., they could face a harder time convincing consumers to switch from cards.”

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