QR Codes: The Future of Mobile Payment Systems?
Table of Contents
- What is a QR code payment?
- Where are QR payments already being used?
- The big choice: Merchant vs. customer presentation
- How QR code payments could change eCommerce
- What is a merchant QR code?
- What does the QR in QR code stand for?
- Are QR codes safe?
The "QR" in QR code stands for "quick response," and, for the last few years, most people's quick response to seeing a QR code is to move right along, expecting little more than a redirect to a marketing website. QR codes quickly went through a phase of near-ubiquity after they went mainstream. However, there often just wasn't much substance to the content they linked users to, and people stopped taking QR codes seriously.
Sometimes, however, it just takes a little time and innovation to make the most of new technology. QR codes are coming back in a big way, facilitating mobile payments for users around the globe.
Digital marketing firm Juniper Research predicts that the use of QR codes for electronic payments will surge over 300% over the next five years. Retailers and tech companies are paving the way for this incoming QR explosion, with iOS and Android both embracing QR codes by putting integrated QR code scanners into their respective camera apps.
In the early days of QR codes, a dedicated app was required to scan them, which severely limited their practical use. Now, the vast majority of customers will have that capability, even if they've never thought about scanning a QR code before.
What is a QR code payment?
QR codes are similar to bar codes in that they store data in a physical representation, namely a pattern of dark and light spots within a limited space. The difference between the two is that QR codes can store a much larger volume of data. What does this mean for merchants and their customers?
- They can be scanned from digital surfaces like mobile phone screens, opening up many possibilities for digital information transfer.
- They have integrity checks built-in so that a QR code can be read even if part of it is damaged or obscured.
- QR codes can be encrypted.
- QR codes can store URLs, payment confirmations, text, or geolocation data.
A QR code payment uses a camera or scanner with the software needed to read a code and process the information within a payment app or transaction. These payments can support app-to-app payments, POS scanning, and customer scanning from a smartphone.
Where are QR payments already being used?
China is ground zero for the QR code renaissance, with QR-enabled mobile payments displacing cash as the preferred transaction payment method, from street vendors to high-end department stores, bypassing credit and debit cards completely. The collective total of mobile payments surpassed $13 trillion dollars last year, with most of that figure coming from QR code payments on the WeChat and Alipay apps.
Recognizing that these payments represent a huge chunk of their consumer economy, China is taking steps to regulate and standardize mobile payments.
Where China goes, other countries in its economic sphere follow. India, for example, has taken steps to reduce the amount of cash circulating in its economy, with QR code payments enabled by mVisa filling in the gaps. In many other countries, where access to traditional banking companies is limited and cash is unreliable or hard to come by, mobile payment systems have been eagerly adopted, giving financial empowerment to many people who had been shut out of these markets in years past.
Over the past few years in particular, standardized QR code payments have become the norm in Southeast Asia, especially in countries like Thailand, Singapore, Indonesia, and Vietnam.
The big choice: Merchant vs. customer presentation
The big question facing businesses looking to facilitate QR code payments is whether to adopt merchant-presented or customer-presented QR codes for payment scanning.
In some countries where QR code payments are standard, it's common for merchants to print out a physical QR code and simply tell the customer the payment amount to enter. However, this implementation is largely cost-driven and creates more opportunities for customers to make mistakes and for fraudsters to tamper with or replace the code. However, many merchants in these countries use more high-tech methods for processing QR code payments, although whether those methods are merchant-presented or customer-presented varies.
With a merchant-presented QR code, the customer rings up their items for purchase, and then the merchant's point of sale system produces a QR code for the customer to scan with their mobile device. This tells the customer's mobile payment app how much they're being charged, and the customer's device sends a payment for the total charge to the merchant. Thailand has been an early adopter of this system, with POS terminals that automatically generate a code for each transaction.
In a customer-presented QR code system, the process is similar. Instead of generating a unique QR code for every customer, the merchant's POS system features a scanner. Customers open their payment apps and display their personal QR codes. The scanner will read the code, then send a payment request for the purchase amount through the appropriate payment app. This system is widely used by larger retailers in China, such as Starbucks and McDonald's.
Customers tend to consider three factors when deciding on a method of payment: Ease of use, simplicity, and security measures. While there's no clear winner yet, many of the early adopters of QR code payment systems, like Walmart, have gone with merchant-presented codes.
Either method allows for greater data security than traditional systems, in which the merchant's point of sale system reads payment information off of a card and initiates the transaction. When the consumer retains all of their payment information on a private device and "pushes" the payment to the merchant's bank, the risk of having customer information compromised by fraud or a security breach is greatly reduced.
It's also not necessarily an either/or choice between merchant-presented and customer-presented methods.
Many of the latest QR-enabled POS terminals offer the ability to both generate and scan QR codes. Different markets and different types of transactions may favor one method over the other, and EMVCo, the organization that standardizes payment protocols for the major chip card companies, has issued guidelines for both methods.
However, the choices made by the heavyweight retailers and eCommerce companies are likely to influence consumer expectations in terms of which side of the transaction presents the code and which side scans it.
How QR code payments could change eCommerce
The advantages of using QR codes for eCommerce may seem less obvious than the ways in which they can streamline and speed up brick-and-mortar store transactions, but the security and cost benefits of scanning QR codes for payment could mean that the days of eCommerce companies saving credit card data for future purchases are numbered.
Stored card data is the big prize for most of the digital thieves who attempt to hack into eCommerce companies' servers. When a customer's card information never leaves their own device, there's nothing for the hackers to steal.
With QR code payments, the web is no longer the platform on which the transaction takes place—everything happens on the customer's device.
QR code payments may still be an emerging concept, especially in the United States, but as more retailers encourage their adoption with app-enabled loyalty programs and promotions, more and more consumers will be sold on the convenience and advantages of using QR payments, as well as looking to eCommerce companies to provide the same checkout experience.
QR code payments could be the payment method of the future, or at least part of it. Many other countries around the world are already using and standardizing it. It remains to be seen what kind of support QR code payments will have in the U.S. Implementation among merchants has been slow, and there's little customer demand for this payment method so far, but that could change if the benefits become more well-known.
What is a merchant QR code?
What does the QR in QR code stand for?
Are QR codes safe?