Zapp - why it matters and rocky road ahead

Zapp is a VocaLink's venture. VocaLink are the "payment rails" in the UK - they are the engine behind Faster Payments scheme and the nationwide ATM network (LINK). They are in bed with every major bank in the UK.

Zapp partnered with the UK's largest acquirer to offer retailers an alternative to... Visa and MasterCard. That's what Square, PayPal, Dwolla and a dozen of startups are aiming to do in the US too.

Should Visa and MasterCard be afraid (in the UK)? Well, that depends... 

Zapp are dependent on their partner banks when it comes to key decisions (to the best of my knowledge). That's Zapp's problem number one. 

Problem number two is their "walled garden" modus operandi that stems from the nature of what they do (e.g. at some point, they didn't even have a public contact number and the only way to reach them was via one of the banks...) Any innovation thrives in an open ecosystem (unless you are Apple). Payments are not an exception.

Zapp are not convinced about "one penny" business model (a fact) - they are planning to charge retailers on par with V/MC (my educated guess). Little surprise there... However, with decimated V/MC rates thanks to the latest EU ruling, retailers need mega incentives to pay Zapp ten times more for the same transaction.

When it comes to pure payments, retailers don't have any problem with the current status quo. At all. That's Zapp's problem number three. They could offer Weve-style advertising platform, but banks and creative engaging consumer marketing - you've got to be kidding...

The last problem they are facing is the most challenging one: user experience (directly proportionate to adoption) - manual entry of a 6-digit code is dead on arrival. PayPal Beacon and Square use photo-based approach, but even that is far from ideal - imagine a busy store with 30-40 photos at EVERY check-out...

Payments are "one-to-one" transactions. When it comes to a mobile phone, the options for reliable, secure and fast "one-to-one" interaction are very limited. 

GSM is one of them, but you need either a mobile operator or an expensive in-store kit to make it work - and it would still be slow. 

The other "usual suspects" are screen (QR or "flashes"), RF (WiFi, Bluetooth, NFC), speaker and mike (ultrasound), EM radiation (bet you haven't heard much about that...), accelerometer (bu.mp), camera (QR), keypad (Zapp) as well as some less usual/obvious interfaces. From transaction flow point of view, only few interfaces offer simple and convenient user-experience. None of them are as ubiquitous in retail as cards.

Whoever finds the (right) answer to that multi-trillion dollar question will hold all the ace cards. To date, neither Zapp, nor Google, PayPal and Square are hitting the bull's eye yet. Back to the drawing board...