Mobile payments – Zapp – an expensive option ?

With great fanfare, last week Zapp announced the support of a number of high street banks and building societies for its mobile payments solution including Santander, HSBC, Nationwide, First Direct and Metro Bank. But does yet another mobile payments method offer real variety and benefits to card accepting businesses or just higher costs ?

Mobile Payments

Zapp is the mobile payments initiative by Vocalink, which itself is owned by a consortium of high street banks.  Its not to be confused with the mobile payments initiative currently being run by the Payments Council which may offer a similar(ish) product.  Zapp is a mobile accessible debit payment system which links to your customers current account.  What makes it a little different is that the payment app is accessed by customers through a button on their mobile banking app rather than a standalone app therefore considered easier for users.  Hence, in signing up major banks to distribue, Zapp becomes an immediately available  mobile payments option for any of the banks’ customers who have mobile banking.  Payments come directly from the customers’ current account and data is encrypted/tokenised without the need to share bank account details with the merchant.

Theres a few interesting aspects to Zapp.


Vocalink are positioning Zapp as competition to Paypal but we don’t really see this.  To start with Zapp apears to be purely a debit based payment system and is therefore incapable of processing credit card payments which Paypal obviously can.  So it can never entirely replace the offering of Paypal or Mastercard/Visa for that matter unless it widens its acceptance offering and merchants will still need an acquirer to accept credit cards.

We see Zapp more as direct competition to the debit card offerings of Mastercard and Visa and the card processors (WorldPay, First Data, etc) – okay, it works on a mobile device rather than a card but the funds still come from your current account, circumventing the Mastercard / Visa switch and the processors’ platforms and instead are authorised, processed and settled on Zapp’s mobile payments infrastructure.  Interestingly, the major banks supporting Zapp (namely Santander and HSBC) no longer have an investment in payment processing and have outsourced their merchant services to Elavon and Global Payments respectively, so Zapp might be a way for them in getting more of the processing fee that they don’t currently share in (See Payment processing – who processes for the UK high street ?).  Barclays still have their own merchant services and also have their Pingit money transfer product to protect, so their support for Zapp won’t come easily.  RBS recently sold their merchant services (WorldPay) to Bain Capital/Advent International and could still be under some sort of competitive restriction preventing them supporting Zapp?

The other angle for the high street banks is that Zapp would charge a processing fee to the merchant which is unconnected to interchange (the fee which the card issuing banks currently receive in respect of any card payments processed).  Given the EU Commission is finalising proposals to cap interchange costs at c.0.2% of transaction value (see EU cuts interchange costs for card acceptance – who benefits ?), Zapp could be a way for the high street banks to circumvent this fee cap and therefore protect or increase their revenue stream from debit card transactions.  Interchange on debit currently sits at 8p for chip & pin transactions but is higher for cardholder not present (“CNP”) and e-commerce transactions and the 0.2% cap would “kick in” and lose the issuing banks money for any chip & pin transaction greater £40 which is below average (or even lower value transactions for CNP and e-commerce transactions).


As always, at Cardswitcher we are primarily interested in the cost!!!  Zapp’s pricing is not yet published but in a recent article with Justin Basini (chief marketing officer at Zapp), prices were quoted as 20p – 30p per transaction irrespective of transaction value.  Basini went on to say that this was “competitive” given PayPal’s pricing of 2% – 3% of transaction value. Its true that Zapp would be considerably cheaper than PayPal on debit transactions but PayPal can also process credit transactions which Zapp can’t and even if it could, pricing would have to be higher than 20p – 30p.

Secondly, as we said above, Zapp’s true competition is not PayPal but the debit card offerings of Mastercard and Visa.  Merchants often moan that processing costs for these cards are too high but bear in mind that Mastercard and Visa get only a fraction of the fee (<10%) with the lions’ share going to the banks that issue the card and the processor/acquirer who process the transaction.  Even small merchants can currently get debit card processing costs of c.12p – 15p (large retailers pay close to interchange at 8p) so 20p – 30p for Zapp feels unsustainable

Or is it unsustainable?  For that level of pricing, Zapp are no doubt relying on the momentum of mobile shopping and mobile payments to force merchants into accepting Zapp as a payment method because customers’ demand it and they may miss a sale if a customer needs to delve into a purse/wallet to produce a card rather than paying by mobile.  Its very much the same argument that currently runs for cash vs. cards and each merchant has their own view on the impact of not offering a particular payment method.  However there are mobile payments alternatives to Zapp, ie the existing proliferation of e-Wallets (or mobile wallets) from Mastercard, Visa and some noteable retailers.  Who wins all depends on the the relative “take up” by customers of e-wallets vs. Zapp, and by partnering with the banks and becoming a native app within their apps then Zapp may have stolen the lead.  Watch with interest……..

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