The way we used to pay was simple, or at least we thought so. Long before money, we got the things we needed by trading items of equal value. We trusted the value of the goods, since we could see the physical objects we were receiving. Then, we evolved and started using currency, and the world became a global marketplace for trading goods and services in exchange for physical cash. It made our lives seem much easier. However, fundamentally, exchange was still based on physical items. Thereafter came credit cards, which replaced cash filled wallets and money went digital across the globe. Now, even cards have gone digital. You can just store your card in a mobile app, instead of carrying it physically. We are constantly headed towards a future of effortless commerce. The Coronavirus pandemic, over the last few months, has accelerated this journey. The seamless ability of carrying out monetary transactions digitally has become a necessity.
The Covid scenario has presented a great opportunity for contactless payment solutions to gain traction. People are more aware and conscious of physical touch points in current times. The trend will continue to stay for sometime in the medium term. This period has the potential to create a fundamental paradigm shift in people’s payment behaviour permanently. They may want to keep continuing with the method of contactless payments due to its sheer convenience. Being the most trouble-free mobile payment solution, this crisis provides a huge opportunity for the QR payments space to grow.
QR code has been a great invention in the field of technology, yet somehow, its power has still been undermined. In many economies, they are still just used as links to navigate to some website or associated information. However, QR codes can be used to build payments infrastructure in a very quick and economical fashion, benefitting all stakeholders in the network – customers, merchants and acquirer banks. Transactions are instantly settled. You don’t need to carry wallets filled with various cards. Everything can be done with the comfort of your mobile phone - turn on the mobile app, point the camera at the QR sticker and pay; thus avoiding any physical contact in the entire journey. On a stakeholder basis, let us examine how QR payments can help each of the participants – consumer, merchants and acquirers.
Customers: Consumers will be empowered by QR payments from here on due to its fast-paced instant transactions. Card transactions at POS generally take 15-20 seconds to process, which lowers consumer experience. Also, in case of transaction failures, cards again take a significant amount of time for reversals as compared to QR payments. In the latter, the reversals are almost instantaneous.
The greatest promise of QR is its offering of interoperability: customers want interoperability and a one stop solution for their transacting needs. They should be able to pay through their mobile app as an omni-channel interface. For this, QR can be used to transact through savings account, credit card accounts and digital wallets. There is no need for a separate card to carry out transactions. Even for ATM transactions, QR codes will be deployed, replacing the need for actually carrying your cards. They also have the potential to gain traction through integration with commonly used apps like WhatsApp, Instagram, Facebook and more.
QR technology will also promote financial inclusion in emerging economies. With the advent of small finance banks and open & alternate banking, customers who otherwise generally don’t have an alternative to traditional cash, will be served through QR payments in mobile apps to facilitate small ticket transactions. This will include and empower them in the digital ecosystem.
Merchants: With the current crisis impacting businesses across the globe, many of them will now look towards digital solutions for accepting payments in order to keep up with changing consumer behaviour. However, many small businesses will look for cost-effective solutions as compared to expensive POS services provided by large players.
QR payments will help in this space. It can help in the proliferation of digital payments infrastructure, given the lower barrier on entry and easy setup for merchants. The minimal cost incentivizes merchants to easily accept payments through QR. It also helps merchants settle transactions instantly as compared to the delay in credit cards. India is the greatest example in this space. It is a country where more than 90% of transactions happen in small mom and pop stores (or stand-alone outlets). The advent of UPI and BharatQR facilitated the adoption of QR payments by merchants on a massive scale. Merchant only needs a bank account, a smartphone and a data connection to accept payments (and in some cases, a QR sticker). It also helps them keep an account of their finances in an effective way, thus reducing any scope of error. Apart from the commonly used static QR, merchants will now have dynamic QR setup too through cost-effective mPOS solutions. This will even help them better track finances and invoices. QR codes can transform the economics of payments due to the low cost structure, and has the potential to become a critical enabler for merchants to run their businesses.
Acquirer - Usage of QR code payments started back in early 2011, when WeChat and Alipay started with private offerings in a closed loop system. Since then, it has grown slowly outside China. Demonetization in India, in 2016, accelerated its adoption due to an alternate need for cash. With the current crisis, this opportunity will be further used by banks and financial institutions, in both developed and emerging economies, to make their respective payments ecosystems more mature.
As mentioned earlier, the modest cost associated with QR makes it easy for banks and PSP to acquire merchants. The acquirer also incurs a considerably lower cost as compared to providing card machines, plastics, etc. to facilitate payments. The time to onboard and activate a merchant has also become much faster as compared to alternative POS machines.
However, static QR is the most commonly used kind, and it gives very limited information on the customer and product. Thereby, acquirers are constrained in leveraging this data to target customers and customize their offerings. However, moving ahead, dynamic QR will be incorporated in mPOS solutions, which will again help banks leverage data and at the same time provide merchants with various levels of value-added services.
In conclusion, QR network has the potential to create a significant business impact which will benefit all the stakeholders. Benefits will be primarily reaped in terms of less revenue sharing, low maintenance cost, reduced dependencies, low setup cost for merchants, faster settlement of transaction, low overhead costs and the freedom for merchants to carry out business with any issuing bank.
The story of Bharat QR – One of the most successful stories and use cases around the adoption of QR is that of Bharat QR, developed by NPCI in collaboration with VISA and Mastercard. It has revolutionised payments in India by solving the challenge of closed loop QR payment systems and making it completely interoperable. From starting out with a low MDR rate to reducing it to the current rate of zero, the adoption of BharatQR has been tremendous, reaching even the remotest parts of the country. It has also linked itself to the UPI platform, which enables P2P payments as well as closed loop wallet players like PayTM to join the network. More than a million merchant QR terminals were deployed within a few months of the launch. As of today, more than 70+ banks and a large number of independent merchant acquirers and network operators are associated with BharatQR, targeting the huge market in India, with still millions of small merchants untapped in the digital payments space.