Zapp could be a window into a “third scheme”

I sat in on some interesting discussions about the coming Aussie immediate settlement system, the New Payments Platform.

Down at Cards and Payments Australia in Melbourne I sat in on some interesting discussions about the coming Aussie immediate settlement system, the New Payments Platform (NPP, their more advanced version of the UK’s Faster Payment Service, FPS) and the kind of “overlay services” that might be built on top of it.

While I was listening to this discussion, I remembered that a couple of years ago at a Smart Payment Forum in the UK, my old chum Adrian Cannon gave an update on the state of the UK FPS and said that in his opinion there would be an FPS point-of-sale service in the UK within five years. I agreed with him and referred to something I wrote back in 2007.

“The mobile handset is the obvious means to implement secure, authenticated payments. I go to a shop, buy something, wave my phone over the POS, the bill shows up on my phone, I enter my PIN to pay it and my phones instructs an FPS transfer.”

[From Digital Money: Changes to the card payments landscape in Europe]

Now, as Adrian predicted, there is an FPS-at-retail scheme under development in the UK and I am very interested to see how this develops because I have long thought that payments in general will be subject to a shift from pull to push. There are a great many reasons why a push-only payment solution is much better suited to the modern world, doing away with the 1970s hacks of direct debits and standing orders. With ubiquitous networks, smart devices and strong authentication we don’t need these any more.

Pingit and Zapp are both examples of “push” payment systems, ultimately controlled by the payer, in contrast to direct debits, which “pull” payments from your bank account. “It reverses the system,” says Mr Yates, “and puts the payer in control.”

[From Mobile apps boost payment security – FT.com]

The retail venture, Zapp, will launch this year (Before I get any e-mails on the topic: Consult Hyperion has provided paid professional services with the last year) and there is some pretty serious money behind it.

“VocaLink – owned by the banks – has invested heavily its venture, recently putting in another £17 million on top of an initial outlay of £16 million. However, Zapp says that it is still hoping to attract outside investment as it bids to secure a total of around £100 million to bring the service to launch, with much of the money earmarked for an aggressive marketing campaign.”

[From Finextra: M-commerce start-up Zapp vows to take on Visa and MasterCard]

So why is this so important? Well, as I heard several people say in the context of the Australian discussion, an immediate settlement overlay is a new and very different proposition for retail payments and rather than be used simply to emulate existing infrastructure (potentially at lower cost) it ought to be used to enable new products and services, to create transactional infrastructure that does not currently exist.

“Furthermore, if a mass market mobile payments initiative takes place which does not use the traditional rails, and is instead based on the Faster Payments system, it will have considerable ramifications for the UK payments market at large.”

[From Zapp Vs Pingit – the creation of the UK’s 3rd debit scheme? – Payments Cards & Mobile]

Actually, I would say the ramifications are for Europe at large, because the idea of a European “third scheme” might well make more sense as a layer on top of a pan-European immediate settlement service (perhaps an evolution of MyBank) rather than a derivative four-party Visa/MC lookalike. The idea of a super-simplified push-only instant payment service is appealing to many stakeholders (I’ll blog about this some more in the near future) and it seems to me that from the European Commission perspective this sort of service – based on what we at Consult Hyperion have been calling the “triple-A play” of authentication, apps and APIs – it could be an attractive platform for innovation.