Banks in the UK Wake Up, Join Mobile Payments Market

Mobile payments promise to revolutionize UK commerce. The UK is a sophisticated and enthusiastic consumer technology market, with smartphone adoption and mobile commerce activity both growing fast and surging ahead of other European territories, according to a new eMarketer report, “UK Mobile Payments 2014: A Market Stymied, Despite Potential.”

UK Mobile P2P Payment Users, 2013-2017 (millions)

This would appear to have created the platform for consumers and retailers to embrace proximity payment via their beloved handsets. But the UK is also a curious anomaly. Piecemeal technology adoption by both consumers and retailers has created a fragmented ecosystem, in which use of these mechanisms ranks far behind that of other mobile services—at just 2.2 million mobile payment users forecast for 2014, according to Yankee Group—and behind other countries.

None of the technologies in the market today have created the conditions for a mobile payments ecosystem to match the convenience of cash and bank cards at scale. But the rush of competing attempts will, from 2014, undergo an evolutionary shakeout that will sow the seeds for large-scale payments standards, address consumer concerns and, finally, begin to popularize mobile payments in the region.

eMarketer believes that the biggest factor driving improving prospects for UK mobile payments is the awakening of banks. And this year, bank groups will reclaim their role in the payment channel by teaming to launch their own mobile payment systems in competition with other operators.

Launched in April 2014 by The Payments Council and run by leading banks, Paym is designed as a person-to-person payment system, allowing registered users to pay one another by sending funds not to a bank account number and sort code, but to a mobile phone number from a mobile banking app. Paym launched with interoperability among nine banks supporting a potential 30 million consumers. Expansion plans are in place to include seven more banks, allowing 90% of current UK account holders to opt in by late 2014.

While Paym is intended for use by individuals and for individuals to pay small traders, an initiative from a parallel consortium of 18 banks will enable mass mobile transactions with retailers. VocaLink, the group which powers the technologies underpinning ATMs and bank payment systems, plans a fall 2014 launch of Zapp, a system for completing direct, bank-funded digital transactions with retailers made online or in stores. Zapp’s backing is considerable: VocaLink processed over 10 billion transactions in 2013.

eMarketer believes these initiatives will help kick-start mobile payments more than any other efforts to date. So far, many would-be vendors have framed the mobile payments opportunity as one that will disintermediate banks from the transaction chain. But in the UK, banks will play a bigger, not smaller, role.