Can U.K. Banks Succeed in Mobile Payments Where Telcos Stumbled?

Zapp is racking up bank and merchant participants for its mobile payment venture in the U.K., filling the gap left by the telco-led Weve initiative and providing scale as Apple Pay launches.

Barclays is the latest bank to announce support for Zapp, which will launch as a digital commerce payments app in October, with an in-store Near Field Communication feature slated for 2016 and plans for expansion outside of the U.K.

Much like the telco-led Softcard wallet in the U.S., Weve failed to gain traction in the U.K. and eventually suspended its plans. Zapp hopes its bank-led model can succeed by tapping into the existing relationships of its partner financial institutions.

"In getting any U.K. system off the ground, you need access to lots of merchants and acceptance points," said Peter Keenan, CEO of Zapp, adding Zapp's current relationships cover 70% of the U.K.'s acquirers. Keenan also contends the concept of pairing mobile payments with a cell phone bill did not catch on with consumers. "The two models that are emerging are the Apple Pay model, where you connect a card to the wallet, or our model, which goes directly to a bank account," he said.

VocaLink, a London-based payments provider, launched Zapp two years ago. Thus far, Zapp has signed up HSBC, First Direct, Nationwide and Santander, which along with Barclays give the venture ties to the country's largest financial institutions.

There are also merchants and payment companies on board for Zapp, including Best Western, Sainsbury, ShopDirect, Optimal Payments and Elavon.

Apple Pay's near-term launch will beat Zapp to the market by at least a couple of months. Like many mobile payment executives in the U.S., Keenan does not describe Apple Pay as a competitor, but as a catalyst that will spur mobile payment adoption to a degree that will benefit all mobile wallet initiatives.

This has already played out in how Apple has influenced merchant views of NFC technology, which was competing with cloud-based wallets and QR codes for merchants' attention, he said.

"The whole NFC story was still be debated on the merchant side until Apple came along to support it," Keenan said. "And NFC is a better customer proposition. It's faster and more secure and works much better with a mobile phone."

Zapp has at least one advantage over Apple, at least for now. Barclays has not yet announced support for Apple Pay, which is expected to launch in the U.K. shortly. Barclays has its own mobile payments offerings, including a wristband that might be seen as a competitor to the Apple Watch; the issuer also offers a person to person mobile payment service called Pingit.

"When Apple announced a list of bank partners in the U.K., Barclays was a notable absentee, and in the last few weeks it has made a series of announcements about competitive propositions, such as joining Zapp or launching a series of its own contactless products under the bPay brand," said Zil Bareisis, a senior analyst at Celent.

Barclays did not make an executive available for an interview by deadline, and did not answer an emailed question about Apple Pay, though Barclays has told other media outlets that it is in talks with Apple. In an email, a Barclays spokesman said Pingit would benefit Zapp's overall mobile payments model.  Apple did not return a request for comment.

Consumers should also be ready to adopt mobile in-app and contactless payments in the U.K. because the infrastructure is more mature than other markets, such as the U.S., Keenan said.  "There are about 40% of the merchant point of sale terminals here that are NFC enabled, compared to one or two percent in the U.S. where they still like mag stripe payments, though that is changing," he said. "The merchants [in the U.K.] are really getting behind NFC, particularly in anticipation of Apple Pay."

The faster-payments efforts in the U.K. additionally bodes well for mobile payment adoption, Keenan said. The U.K. faster payments council recently signaled support for international standards, and VocaLink, the company that started Zapp, also operates the U.K.'s Faster Payments System.

"Zapp sits on top of faster payments," Keenan said, adding the end of intermittent "batch" processing in favor of real time processing lends itself to m-commerce because the financial data is more current and accurate. "For mobile payment consumers, the account balance always represents the current, or real balance. For merchants, you don't have to wait overnight for settlement."