A U.K. company is building a mobile payment system that is designed to appeal to the needs of both banks and retailers, but faces challenges in winning consumers away from mobile wallets that have already hit the market.

The company, London-based Zapp, is looking to be in as many places as possible when it launches its service in the second quarter of 2015. A subsidiary of VocaLink, Zapp is working with leading banks and retailers such as HSBC, Santander and supermarket chains Sainsbury's and Asda (a unit of Walmart).

Absent is Barclays, which has developed its own mobile payment services, including the Pingit person-to-person app and the bpay contactless payment system. Zapp also faces competition from Apple, which is expected to expand its month-old Apple Pay service to Europe.

Still, Zapp has potential to take off, said Andy Schmidt, a research director for CEB TowerGroup in Arlington, Va. 

"I think they've got some real opportunities here," Schmidt said. "But there are going to be some bumps along the road in terms of making it usable at point of sale. It's got all the hallmarks of a winner, but as with anything, it's going to come down to the execution."

While other payment apps stand alone, Zapp is designed to operate inside existing bank apps. The selling point for banks is that Zapp gives customers another reason to download their mobile apps, said the company's CEO, Peter Keenan.

The benefit of this arrangement for Zapp is the company doesn't have to persuade people to download its app, Keenan said. "In the U.K., there's a very fast-growing pool of mobile banking users. It gives us access to that pool immediately from launch."

For retailers, the benefit is Zapp's use of same-day ACH settlement, Keenan said. Under Zapp's model, merchants must be paid within 24 hours. They can wait up to 10 days for card-based payment, Keenan added, noting that the slower ACH system in the U.S. is not conducive to the company's model.

Zapp costs retailers up to 0.2 percent per transaction, with a share of the fee passed back to banks, Keenan said. To use Zapp for a purchase, customers must log into their mobile bank accounts and click on the Zapp icon. They can then select the account from which they want to pay.

What happens next depends on the technology in place at the point of sale. In the beginning, transactions through Zapp will take place via a bar code that appears on the phone's screen, Keenan said. The retailer will scan the bar code to initiate payment. About two thirds of U.K. retailers have scanners, Keenan estimated.

Zapp also has a Near Field Communication solution that will work like Apple Pay, remotely exchanging information with the terminal. But the company is still in talks with banks over how to make that work, at least on the Android and Windows systems, Keenan said. Eventually, he said, Apple may open up the NFC chip on the iPhone, allowing Zapp to be used on the iOS platform.

If Zapp takes root in the U.K., the company will look first to Asia and the Middle East for growth, not the U.S., Keenan said.

"We've designed the system to be completely international," Keenan said. But, he added, "We want to get it launched in the U.K. and prove the business model before we embark on any international expansion."

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