A QR code payment is a type of contactless payment method where consumers and merchants can initiate payments by scanning the QR code at point of sale;
The strongest adoption of QR codes for payments has been in Asia, with China witnessing impressive growth. The use of this payment method has not seen massive adoption outside Asia;
At the August 2019 IAF meeting, it was approved that the EMVCo QR code standard will be adopted into the IAC Code Set. AusPayNet will also review if and how the EMVCo QR code standard could be adopted into the BECS Code Set. ETEG will prioritise the analysis of QR code use beyond existing rails.
Point of View
A Quick Response code (QR) is a two-dimensional code made up of black and white squares that can be read by a smartphone camera. A QR code payment is a type of contactless payment method where consumers and merchants can initiate payments by scanning the QR code at point of sale. Through this process, the transaction amount is transferred from the consumer’s account to the merchant’s account.
There are two different ways QR payments can be made:
Consumer-presented QR codes – the consumer scans their purchases with their smartphone which then generates a QR code on their device’s screen. The consumer needs to present this QR code for scanning at the merchant’s point of sale system. The merchant uses a QR code reader to scan the displayed code, requesting a payment for the total amount.
Merchant-presented QR codes – The consumer scans their purchases and the merchant’s point of sale system generates a QR code for the customer to scan using their smartphone. This tells the consumer’s mobile payment app or digital wallet the amount they’re being charged, and the consumer’s device sends the payment to the merchant.
The strongest adoption of QR codes for payments has been in Asia, with China witnessing impressive growth driven by its high smartphone usage. In 2018, the number of smartphone users in China was approximately 713 million, with this figure estimated to reach 868.2 million by 2023. Incidentally, China is also leading the global cashless trend with a mobile payment market worth $12.77 trillion in 2017. It was reported that more than three-quarters of Chinese citizens were using digital payments, in preference to cash in 2017. According to eMarketer, 525.1 million people in China would have used a mobile payment app at point of sale in 2018. This equates to 79.4% of China’s smartphone users.
The Chinese have, to an extent, leapfrogged the cash and card revolution and therefore the need for associated infrastructure. According to eMarketer junior forecasting analyst Showmik Podder, “chinese citizens have skipped the adoption of credit cards, making proximity payment apps part of day-to-day life.” The biggest players in China who offer QR code payments are Alipay and WeChat Pay who have utilised the proliferation of smartphones to their advantage. These tech giants have designed their systems such that they are easily integrated with already popular social media and on-demand services platforms. At present, both Alipay and WeChat Pay account for 90% of the mobile payment industry in China. These applications are closed loop and bypass regulated payment rails.
The rise of QR code payments in China has become all-pervasive, with consumers now able to pay for everything from meals and groceries to rent and rides. This payment method has redefined the sales and purchase experience. A big driving factor for the widespread adoption has been China’s payment landscape, which has not generally included the ‘traditional’ debit and credit cards.
Alipay and WeChat Pay leverage the benefits of QR code payments to offer their consumers a convenient and frictionless user experience.
Convenience – Consumers are not required to enter the account details of the person they are paying (i.e. consumer to merchant). When the consumer scans a merchant’s QR code, the merchant’s details are automatically captured, together with the total amount payable. This makes the payment process transparent, quick and seamless.
Easily adoptable – The use of mobile wallets is increasing exponentially globally, with non-cash transactions conducted using e-wallets estimated to total 41.8 billion worldwide in 2016. As long as consumers have smartphone cameras, they can ‘scan and go’ for ease of payment.
Inexpensive – QR codes do not require POS infrastructure. Merchants do not have to rely on payment infrastructure or bear the up-front investment of buying a card terminal and other costly equipment. Merchants only require a QR code reader to scan the codes at point of sale.
Speed and Data capacity – QR codes can contain large amounts of transaction data which can be transmitted from consumer to merchant, and vice versa quickly.
Secure – At point of sale, the consumer confirms the transaction amount first and "pushes" the payment to the merchant's bank. All payment information is retained in the consumer’s mobile device. This reduces the risk of having their account information compromised by fraud or a security breach.
The use of QR payments has not seen massive adoption outside Asia. Australia has witnessed the mass adoption of smartphones, with nine in every ten people now owning a smartphone. Consistent with this trend, we are also seeing more Australians choosing to pay for purchases using their smartphone - 3 in 5 smartphone owners have used them to make payments.
However, this trend has not translated into a mass adoption of QR payments in Australia. The most popular QR payment apps in Australia are Alipay and WeChat Pay. For the foreseeable future, these applications only allow Chinese citizens with a Chinese bank account to set up accounts and make payments. Therefore, merchants locally are only targeting the Chinese consumer market (tourists and students) who are familiar with the applications and prefer using this payment method.
The reasons for slow adoption can be attributed to Australia’s:
Robust POS infrastructure - The card payments system in Australia is robust with POS terminals widely available at point of sale. Globally, Australia has the among the highest penetration of POS devices, with Australian consumers having access to over 980,000 terminals in June 2019.
Preference for contactless card payments and convenience - According to Westpac research and statistics from Visa, Australia is leading the world in contactless card payments, with 325.4 million Visa payWave payments made in 2017, up from 258.6 million in 2016. The research suggests that this 26% rise is only set to increase further in the coming years. In 2017, 90.6% of face-to-face payments among Westpac Visa cardholders were contactless, and contactless accounted for 68.4% of Westpac cardholders’ spend, up from 57.3% in 2016.
The popularity of contactless payments has created an ingrained behaviour amongst most Australians. They are accustomed to simply ‘tap and go’ at point of sale which has now become a seamless and convenient form of payment.
In payments, maintaining high security standards is a priority for both merchants and consumers. At the outset, QR codes cannot be differentiated from one another which makes it difficult to verify them to be genuine in the first instance. Fraudsters can generate their own QR code and target unsuspecting consumers, especially in the case of static QR codes. The People’s Bank of China recently announced its plans to start regulating QR payments. This regulatory oversight is due to the scale of WeChat and AliPay and also to enhance security standards for QR codes. Initial discussions considered setting a payment limit on QR payments. The Bank is mandating that financial institutions and payment processors begin to self-regulate and has provided a few guidelines on what they should do. The Bank has also asked an industry group to consider what steps can be taken to improve their QR code security.
In 2017, EMVCo published QR code specifications designed to ensure interoperability for merchant-based and consumer-based QR code payments. In Australia, in 2019 the New Payments Platform (NPP) released its own QR code standard, based on the EMVCo merchant-presented specification. The QR code would be routed via the ISO20022 NPP rails. The mandatory elements defined facilitate a consistent NPP payment experience for both static and dynamic QR Codes.
At the recent IAF meeting, it was approved that the EMVCo QR code standard will be adopted into the IAC Code Set. AusPayNet will also be considering the value proposition of non-card QR payments in the Australian market. We will also review if and how the EMVCo QR code standard could be adopted into the BECS Regulations.
The rise of QR code payments has proven to be a game changer in Asia. The benefits of the payment method have elevated it into a viable payments alternative. As smartphone ownership rises and mobile payment usage increases globally, QR payments have the potential to become mainstream in other parts of the world.