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January 27, 2014updated 04 Apr 2017 4:09pm

Zapp gets off to positive start, major challenges ahead

So far so good. As press launches go, Zapp hit the jackpot. Coverage in just about all of the UK newspapers and a slot on Radio 4's highly influential Today Programme. It helped that Zapp was able to announce that four UK lenders (HSBC/First Direct, Santander, Nationwide and Metro Bank) were on board. With a degree of gullibility, the press dutifully cut and paste Zapp's press release and reported that five banks had signed up, as if HSBC and First Direct were separate banks. But no matter, writes Douglas Blakey

By Douglas Blakey

So far so good. As press launches go, Zapp hit the jackpot. Coverage in just about all of the UK newspapers and a slot on Radio 4’s highly influential Today Programme. It helped that Zapp was able to announce that four UK lenders (HSBC/First Direct, Santander, Nationwide and Metro Bank) were on board. With a degree of gullibility, the press dutifully cut and paste Zapp’s press release and reported that five banks had signed up, as if HSBC and First Direct were separate banks. But no matter, writes Douglas Blakey

T’is but a small point. The four retail lenders in question so far partnering with Zapp account for a combined market share of around 34% market share of UK current accounts, so not a bad start. As for funding, when I spoke with Zapp’s Justin Basini he was quite gung-ho. Zapp has to date held two rounds of funding, raising £16m and then £17m with bankowned consortium VocaLink the source of the funds. Says Basini: "We do anticipate needing more funds to continue the expansion and ideally we would like that not to come from the banks."

I bet they do. That probably means that retailers and telcos are being targeted not to mention private equity being tapped to invest. As for signing up additional banks, one can envisage a number of the smaller banks being persuaded to join Zapp. The Co-op and NAB UK, perhaps. Zapp says it is speaking to all UK banks, big and small. But of the three major retail banks that Zapp would love to welcome on board, Barclays has its own Pingit product and Lloyds is well down the road to developing its own Pingit-style offering. As for RBS NatWest? Well, what do you think? Would it make sense for RBS to roll out its own solution to differentiate itself or row in with Zapp?

From what we know of RBS CEO Ross McEwan’s digital ambitions – we will hear more of that when the McEwan Strategic Review is released – I am sceptical that RBS will satisfy its ambitions by being just another member of Zapp. We will, I do not doubt, hear more of RBS’ plans in this area at the next Live Debate of The Digital Banking Club (13 March, since you ask) when head of mobile at RBS Terry Cordeiro is on the panel. As for the retailers to join Zapp, at this stage your guess is as good as mine. No retailer has yet gone public that they are to join Zapp.

The route to market meantime is for Zapp is to partner with the acquirers. So WorldPay is in. But it is the big supermarket groups where I am a bit fogged. The likes of Tesco sits down with its acquirer partners on a regular basis and plays hardball when it comes to the rate it negotiates. It agrees a rate that the ordinary retailer can only dream about. Is Tesco going to be swung by a pitch from Zapp that it can achieve savings in terms of reduced interchange fees? I may be proved wonderfully wrong with RBS and the supermarkets are among the early adopters. It is certainly going to be fascinating to track Zapp’s roll out.

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