Zap’s ambitious plan to transform retail rewards in the Philippines

Zap wants to change the Philippines' retail landscape using NFC tags.

The Philippines is ripe for disruption. With its economy soaring, consumer spend rising, and investment money flowing in, the nation’s tech startups are put in position to shape a new normal across industries and sectors.

Leading the charge is a posse of young entrepreneurs, defined not just by geography, but by the fact that they’ve received a lease of life from Kickstart Ventures, a PHP100M (USD2.45M) early stage fund that began setting its wheels in motion last year.

With 10 investments so far, Kickstart has become one of the most important catalysts for the country’s startup aspirations.

One of its investees is Zap, a company that, while shy to reveal its exact investment sum, gladly laid out its plans to transform how retail rewards is done in the Philippines.

Founded by Dustin Cheng, Justin Lim, Terence Lok and Angelique Uy, Zap is a marketing platform that connects retail businesses to consumers through web and mobile technology. It benefits businesses by making marketing as painless and targeted as possible, while at the same time giving them tools to gauge their marketing spend and track customer data.

These alone won’t make the service particularly special. What’s unique about Zap’s approach occurs on the consumer side.

In a two-sided platform business, getting merchants onto it is just half the battle won — what’s the use of building a huge shopping mall if footfall is non-existent?

Similarly, Zap needs to drive consumers to its platform. To do so, it will sell novel NFC stickers which can be placed on mobile phones, wallets, or even bags.

The Zaptag, as it is called, is a passport into the startup’s network of retailers — allowing consumers to earn cashback points and rewards with every spend. What this means is that Zaptag has the potential to even become a mobile payment system — should the company eventually decide to go down that route and allow users to top up cash into the system.

The sticker is a thoughtful implementation of technology. It is platform agnostic, which means users don’t need to own an NFC-enabled phone or even a smartphone to be a Zapper. They don’t even need access to the Internet. This lessens risk for the company too, as it becomes less of a slave to external factors.

Priced at a mere PHP100, or less than a typical daily minimum wage, Zaptag is easily affordable to consumers while businesses join the program free-of-charge.

The Zaptag is an attempt to circumvent the lack of a mature mobile ecosystem in the country. The NFC sticker is just part of a larger ecosystem that consists of Zap terminals that are supplied to merchants free-of-charge (throw in some free marketing collateral too).

The company has also created a web-based backend system where users can sign up for the service and businesses can create targeted marketing campaigns and monitor the results.

Unlike mobile loyalty startups such as Perx and Squiryl in Singapore, which let user collect stamps in exchange for rewards later, Zap is designed for instant gratification. Points earned by consumers can be spent immediately at any Zap-enabled store, which now number over 90 brands, including restaurants, fashion stores, fitness clubs, and lifestyle hubs.

Although a phone isn’t strictly necessary to use the service, Zap is a truly mobile solution in that consumers can carry the Zaptag anywhere. Which is why its partnership with Kickstart makes perfect sense.

The true value of the deal lies not just in the money, but in the distribution and marketing opportunities made available through Globe Telecom — Kickstart’s parent company and the second largest mobile operator in the country.

Expect tie-ups with pre and post paid mobile subscriptions, which could push up Zap’s brand awareness amongst Globe’s 31M subscribers.

The partnership will be crucial to Zap’s success. Although it seems to have no problems getting merchants to sign up, its next roadblock lies in converting curious consumers into loyal users.

Achieving scale quickly is especially important for a startup like Zap, which benefits from network effects and becomes more useful to both consumers and retailers as more people use the platform.

Scale is important for the startup’s bottom line too. The company earns income by charging a fee for every transaction made through its platform and to a smaller extent charging retailers to blast out SMS promotions.

While headcount matters to marketers, what’s more important to the company is that consumers use its system again and again. It basically needs to be synonymous with retail rewards in the country.

Zap appears to be entering the market at an opportune time and picking the right battles. While the surging e-commerce is the trendy space to be in, it is far from reaching its potential, with a market size of only PHP 3B (USD 74M) in 2011. That’s not an area Zap is interested in, at least for the moment.

The country’s surging retail sector, meanwhile, is already generating USD 14B in sales. It is forecasted to grow to USD20B by 2017. Cavernous shopping malls are already dotting the landscape in Metro Manila — popular hangouts among the country’s young and middle class.

By focusing on physical shops and not e-commerce, Zap has the potential to gain traction really quickly among the cost-conscious in the Philippines and Southeast Asia.

Beyond its profitability outlook, Zap is proof that startups in Asia’s emerging economies don’t always have to ape after ideas from the West. Instead, it has taken cutting-edge technology — in this case NFC — and applied it in a way that surmounts a nation’s infrastructural limitations. That’s true innovation.

With an impending launch this month, all eyes will be on the team and whether it can execute on its innovative but challenging business model.

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