The use of QR codes for payments has seen widespread take-up across Asia and other emerging markets due to the low-tech, low-cost deployment. But will they be able to compete with established card rails in the developed markets? Joy Macknight reports.
As many countries set their sights on transitioning to fully digital economies, the move away from physical cash is gaining momentum. For developed markets, that has meant an increase in near-field communication (NFC) mobile or contactless card payments; however, in the emerging markets it is all about the quick response (QR) code.
At the forefront of QR code adoption is China, driven by the likes of e-commerce giants Alipay and WeChat, which have built QR code-enabled mobile payments ecosystems. According to the Better Than Cash Alliance, combined Alipay and WeChat Pay mobile payments in China grew from $81bn in 2012 to $2900bn in 2016 – a twentyfold increase in four years.
Today, Alipay has more than 15 million small and micro merchants in China using QR code payments, according to Roland Palmer, head of Alipay Europe, the Middle East and Africa. “Small merchants find it to be a low-cost, efficient and safe solution, with the additional advantage of avoiding fake bank notes. Consumers, meanwhile, find it convenient to carry only a phone when shopping,” he says.
Lack of infrastructure
Other countries in the region have also been quick to adopt QR codes, particularly those countries lacking historical payment infrastructures. As Thad Peterson, senior analyst at Aite Group and author of the March report ‘Mobile money in China: disruption at scale’, explains: “In China and other south-east Asian countries there is no card infrastructure and people generally didn’t have the resources or means to access the banking system. Therefore, what has emerged is a mobile-based payment platform that is completely different from what was out there.”
India has also embraced the QR code. Homegrown e-commerce platform Paytm launched its QR code-based payment option in October 2015 and today has more than 9 million member merchants. Like Alipay and WeChat Pay, Paytm is expanding its footprint in the region: in October, it launched a QR code-based smartphone payment service joint venture with SoftBank and Yahoo! Japan called PayPay.
The standardisation quest
But with rapid adoption came a plethora of QR codes and now there is much work being done to develop acceptance standards. For example, almost two years ago the Reserve Bank of India, along with the four major card companies – Mastercard, Visa, RuPay and American Express – launched Bharat QR, an interoperable solution.
More recently, Singapore introduced a unified payment QR code called Singapore Quick Response Code (SGQR) in September. It has been adopted by 27 payment schemes, including PayNow, GrabPay and Singtel Dash, and will be deployed gradually over the next six months. There are similar initiatives afoot in China, Hong Kong, Indonesia, South Korea and Taiwan.
The SGQR specifications are based on global technical organisation EMVCo’s QR code specification for merchant-presented mode, issued in July 2017. EMVCo, collectively owned by American Express, Discover, JCB, Mastercard, UnionPay and Visa, also launched consumer-presented QR code specifications in the same month. “The specifications are flexible enough that if there is a domestic solution already in place then there is an opportunity for that QR code to reflect both the global and domestic options without them competing head to head,” says Brian Byrne, director of operations at EMVCo.
Alipay has its own technical standard, according to Mr Palmer. “Our focus today is on meeting consumer and merchant needs first. In parallel, we will continue to work with stakeholders that are trying to develop QR code standards,” he says.
Africa’s QR potential
Africa, which is akin to Asia in that most countries lack a universal payment infrastructure, has seen a pick-up in interest to deploy QR code-based payments. The continent is leapfrogging the traditional card rails and going straight to mobile, as demonstrated by M-Pesa in Kenya.
Mastercard has been fuelling much of this interest. For example, it made two announcements at the Mobile World Congress earlier in 2018: a pilot with Kenyan pay-as-you-go solar provider M-Kopa using Masterpass QR, Mastercard’s QR code-based payment technology, in Uganda; and the Masterpass QR bot for Facebook Messenger pilot to enable Nigerian small businesses to set up digital money accounts and accept QR payments, with the support of Ecobank and Zenith Bank.
In South Africa, Nedbank launched the Masterpass payments ecosystem in 2015 and quickly realised there was a real application on both sides of the payment market ecosystem – for consumers and for merchants. “We first saw an opportunity to use QR codes as a bridging technology to get consumers comfortable with using their phone for a payment, but not necessarily just tapping and walking away, which is indicative of a contactless card payment,” says Chris Wood, executive for card issuing and payments at Nedbank. “But the flexibility of the QR code market has since increased and now I think QR is something that is here to stay for some time.
“Even with mobile tap and pay or a contactless card, the merchant still requires an expensive point-of-sale [POS] terminal. QR allows micro merchants, weekend merchants and informal traders to come into the secure card acceptance market, whereas they might not have had that option before.”
In July 2018, Nedbank launched Scan-to-Pay, a feature that makes it possible for customers using the Nedbank Money app to pay any physical or online vendors that offer Masterpass, SnapScan, Pay@ or Zapper QR codes as a payment option.
Entersekt, a South African mobile-based security fintech, worked with Nedbank on its Scan-to-Pay function. “We created a secure channel between the bank and the customer, so when the customer scans the QR code, a notice pops up on the device for the customer to approve the transaction. The customer is in control,” says Schalk Nolte, chief executive officer at Entersekt. “It is completely seamless and more importantly they can now use that app to scan any QR code.”
Previously, the South African market was hindered by a lack of interoperability across the different schemes. Mr Wood is a vocal supporter of QR code standards, which he believes are critical for the solution to scale. He says: “All QR code providers, fintechs presenting QR codes and banks that are creating QR codes on behalf of merchants should follow the EMVCo standard. Otherwise customers will be confused about which they need to use, when they need to use it and how it works.”
Developed market take-up?
Many are sceptical as to whether QR codes will have similar potential in more mature payments markets. As Raja Gopalakrishnan, executive vice-president for payments, global financial solutions at FIS, which produces an annual global faster payments report, ‘Flavours of fast’, says: “QR codes have had far less impact in Europe than elsewhere, due to the greater deployment of ‘pay’ applications and other Bluetooth and mobile wallet solutions. Furthermore, the complexities of achieving a pan-European approach to QR in the absence of standardised technology has been more of a barrier to adoption. The situation is similar in the US, where merchants are only just getting to grips with EMV and wider acceptance of NFC payments is still a work in progress.”
Samuel Murrant, senior analyst, payments, at GlobalData, calls it “a solution in search of a problem” in developed markets. “In a market where card use is heavy, then you have to accept cards anyway. Therefore, the addition of a QR code, while it doesn’t cost much, doesn’t save much either,” he says. He believes that QR code adoption is more likely to develop out of peer-to-peer (P2P) payments behaviour, and points to Jiffy in Italy and MobilePay in Denmark. “Jiffy started as P2P exclusively, then moved into in-store and online payments. That will be the key for European markets, and probably the US as well,” he says.
Italian payments services group SIA added QR code functionality when it extended Jiffy, its mobile payment service, from P2P to peer-to-business (P2B). “We decided to adopt the merchant-presented QR code because we believe it is a better user experience and puts the customer in control of the transaction,” says Marco Polissi, head of Jiffy service at SIA. “The merchant generates a QR code from its point of interaction – either an app for a small merchant, or pin pad or POS for a large retailer – and displays the amount. The buyer can then confirm the amount and approve the transaction through strong customer authentication, such as biometrics.”
In November, SIA teamed up with Intesa Sanpaolo to make the Jiffy service available for large retailer Carrefour Italia and its subsidiary Iper, Market and Express stores. Intesa Sanpaolo customers can scan a QR code at the cashier and pay with XME Pay, the wallet available in the bank’s mobile app, via Jiffy using their fingerprint or facial recognition to confirm the transaction.
“We started with P2B QR code payments with a big retail chain such as Carrefour, but this is just the beginning. Together with SIA we are planning to replace our payments engine to deliver a more instant experience,” says Stefano Favale, head of global transaction banking at Intesa Sanpaolo. “We want to leverage the new European [instant SEPA credit transfers] platform, RT1, but also have the possibility of using QR codes. This is the most efficient way to build trust and acceptance while not adding too much to our infrastructure, which can be costly.”
Instant results
Mr Polissi agrees that the QR code is the most appropriate technology that can boost instant payments, especially in retail. Mr Favale adds: “QR code technology is enabling a new paradigm both in in-store and online e-commerce. And while we are just at the beginning of the adoption curve, we need to have international standards for policies and procedures in place.”
According to the September minutes of the European Payments Council’s (EPC’s) multi-stakeholder group for mobile initiated SEPA credit transfers (SCTs), an updated version of the EPC QR code document, first published in September 2016, will be distributed shortly. The group will also analyse the different formats of QR codes used for SCTs and check on the specifications for the QR code standards used in India and Singapore.
Interestingly, in mid-November 2018 the Swiss Financial Centre has also published implementation guidelines for its QR bill, which will progressively replace the existing multiplicity of payment slips in Switzerland and offers a “way of dealing with the challenges presented by digitalisation and regulation”, according to Swiss financial infrastructure group SIX. The QR bill will be available for use from June 30, 2020.
Nedbank’s Mr Wood is watching advances in the developed world closely. “All the benefits we have spent the past three-and-a-half years unpacking for our customers are now starting to expand more broadly in the payments world; other countries are beginning to realise these too and other banks are getting involved," he says. "It means that the global payments ecosystem constituents are getting on the same page, which is good for the consumer.”
Tourist attractions
Another driver of QR code adoption is the increasing number of Chinese tourists visiting Europe. Intesa Sanpaolo is engaging with new platforms such as Alipay and WeChat Pay, so that “Italian merchants can provide Chinese tourists the same customer experience via QR codes that they have in China”, says Mr Favale.
Likewise, SIA introduced Alipay in Italy in 2017. “Alipay is a big success, as Italy is the second European country of choice for Chinese tourists. The average transaction is €400, which is much higher than with cards in Italy,” says Mr Polissi.
Nick Kerigan, managing director of future payments at Barclaycard, reports interest from UK merchants who want to accept Alipay as a form of payment for the growing levels of Chinese tourists. In 2017, Barclaycard ran a pilot with Alipay and several retailers to enable Alipay payment acceptance in the UK. “Thousands of merchants in Europe looking to capture the Chinese consumer spend are now offering Alipay, which is great pick-up in just two years,” says Mr Palmer, pointing to popular tourist hotspots such as airports and duty-free stores, department stores and luxury brands, as well as tourist attractions.
More recently, Alipay partners and merchants are not just looking for a new payment method, but for what Mr Palmer describes as “payment plus”. For example, merchants can do marketing through storefronts on the company’s mobile application. “We are becoming more of a lifestyle app where, even before the consumer scans a QR code and makes a payment, they have learned about the merchants that are offering Alipay,” he says. “We can also link the QR code to in-store promotions and discounts.”
In London, it has become clear that Alipay recently piloted an innovative service based on the QR code, called 'scan and order'. “In Chinatown, some restaurants can now display a QR code on the table via which customers can access the whole menu, not just the payment possibilities, and choose their dish through their app. Many restaurants love that because it makes them more efficient,” says Mr Palmer.
Despite these advances, Mr Kerigan is not convinced that developed markets will experience the wholesale move to QR codes seen in Asia. “In Europe, where NFC and contactless have more momentum, QR solutions will exist alongside NFC for a significant period. We believe that the future is about giving consumers more control over how they want to pay,” he says.
