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PAYMENTS – THE RISE OF QR

Background

Mobile phones have come far and wide over the past few decades, evolving from cumbersome, heavy wireless communicators to small portable all-in-one device. With the exponential leap in technology, the mobile devices have not only gained higher portability but also greater functionality, now extending their capabilities to accessing the internet, solving computational problems, tracking and managing a person’s lifestyle and documenting said lifestyle with blogging and image capturing capabilities.

The current generation of millennial have had a childhood where such capable mobile devices are a part of their daily lives. Naturally they would adopt certain features differently than the previous generations of mobile device users. As such, the capability of frequently documenting moments of their daily lives has quickly become more and more popular and the presence of cameras even more so as an essential part of their lives. Such habits has contributed largely to the rise of QR-based payments.

Global Rise

With the availability of cameras on almost every mobile device available in the market, it has become a natural choice for capturing various forms of graphical information, such as that of QR code. An upgrade from its predecessor (the Bar-Code), QR-Code is a 2D visual representation of a set of information. Originally developed as a form of quick scan for information for inventory management, the use of QR-code was eventually extended to web-link/URL based information to containing large amounts of data within itself. Later, the QR code was used as food stamp, coupons and vouchers and it quickly gained popularity as a trendy way of capturing information.

However, initial security concerns had to be addressed after which, over time, it slowly became accepted as a new form of retailer-customer based digital transaction.

Global trends

The popularity of QR-code based payments did not grow evenly across the world and is more commonly used in some parts of the world than others. Over the past few years, more Asian countries have picked up the trend of QR payments than the rest of the world. This is evident by the trend set by mobile based payment services provided such as WeChat in China or the GoJek and GrabTaxi in Indonesia, all of which provide mobile wallet services. This trend is quite possibly due to the advantages QR-based payment systems provide to its owners and users.

Popularity in Bangladesh

Before identifying the advantages provide by the QR-based payment system, let us take a glance at how it is currently affecting our local payment industry. Similar to the payment trends set in China and Indonesia, QR-based payment is slowly gaining popularity in Bangladesh. The banking industry has picked up on its success in a similar landscape and is quickly adapting it to enable payments in its mobile banking/wallet applications. However, due to the newness of this technology, there are certain dangers the financial institutions need to be wary of.

Why QR-Based Payment Works

Ease of Distribution

Some of the most commonly used cashless payments available in the market comes in the form of payment cards. This may be in the simple mag-stripe or the smart chip-based payment card. In either case, the cards provided by the banking institutions are expensive for the banks in bulk and have a requirement of physical delivery to the customer/user (at a bank branch or at his/her home). A QR-code based payment wallet does not have a physical constraint that needs addressing. The application can be downloaded onto the user’s mobile device at his/her own convenience from anywhere, saving the bank on issuance and delivery. At the very least, it will provide users, who already have a physical payment card issued, with an alternative method of making payments.

Ease of Deployment (Acquiring)

Since the cashless payment acceptance in Bangladesh has been mostly handled by the banking industry, this is where banks will benefit the most. Acquiring, or in simpler terms, accepting cashless payments for merchants, has always been a bit of an investment for Acquirers (banks). The use of QR-based payments acquiring assists the banks in the following manner:

Payments Acceptance Device

– The traditional method of cashless acceptance at a merchant counter has always been in the form of payment cards. This requires a payments acceptance device (commonly known as PoS device) to be deployed at the merchant end which is generally provided by the acquiring bank. The cost of the average PoS device is fairly expensive with the additional requirement of an internet/network connection to communicate with the bank servers. This cost is a very large investment for the bank for each of the hundreds of merchants they acquire.

When considering such a large investment in acquiring, the QR-code based payment provides a great advantage to its owners as its investment lies in the form of a single paper printout at the merchant end.This results in a very low investment for banks when setting up a payments acceptance system at the merchant end.

Merchant Acquisition Support

– The job of a merchant relationship management team does not end a merchant acquiring as maintaining and updating the PoS generally falls under their responsibility as well. This can cost the bank a substantial amount on a yearly basis to keep all the POS terminals updated and working.

However, a QR-based payment only requires the merchant to download a QR code from the bank’s merchant portal and print it out without any physical assistance from a support team.

Ease of use

– In this current day and age, the mobile device has become a part of the owner’s identity. People rarely find themselves without his/her mobile device at an arm’s reach. It only makes sense that a mobile wallet will eventually replace the wallet based cash carrying payment system. The advantages of a QR-code based payment are not limited to the service providers alone. The end users benefit from using such a form of payment as well. Some of the reasons why someone would prefer paying by scanning a QR-code are:

1. Convenience of cashless – Cashless is always a convenience for users. It helps users avoid carrying large amounts of money in a wallet or requiring to have the correct change. It’s less risky from theft as there security mechanisms can be placed in a cashless medium which cannot be placed on cash itself. Although not a very large issue on a personal level, in terms of counterfeit money, a cashless transaction also has no risk at all.

2. Convenience of Mobile Wallet – The convenience of a mobile wallet extends well beyond its payment features. The mobile wallet allow users to track a history of transactions made using the wallet, while accessing several banking functionalities at the tip of the user’s fingertips.

3. Does not limit number of customers – One unique quality that the QR-based payment system provides is its ability to support more than one user at any given time. Traditional cashless payment systems use devices that can cater to a single customer, causing a queue of users waiting in a line to pay. With the help of QR-based payments, several users can send payment instructions to the merchant concurrently, making the payment process effortless. The merchant only needs a device to confirm the payment from the user as a final step of the transaction.

Factors To Take Note Of QR

-based payments is new technology in the Bangladesh payments landscape and, as a new form of payments, we should practice lessons we’ve learned from past experiences, specifically in the digital form of payments. For example:

Standardization

1. Compliance – As there are standards for chip-based payment cards, there will eventually be similar standards for QR-based payments as well. One such standard has already been outlined with the basic requirements specifying the information that a QR-code for payments should contain. It is very important for the system owners of QR-based payments to adhere to such a standard as it will ensure that the same code will be universally accepted across the world (similar to our current payment cards). Without this standard, the QR-based payment systems will be limiting themselves to their own closed-loop payment system.

2. Consolidation – We have witnessed cases where a single merchant has several PoS devices at their cashier counter to support the different acquirers. It is not too difficult to imagine that, in the near future, merchants may have their cashier counters are covered in different QR-codes to support different payment wallets. This is a scenario that should be avoided. A single QR-code should allow any wallet application to pay into the merchant’s account regardless of the origin of the merchant QR or the mobile wallet.

Security

1. Encrypting the information – The QR-codes themselves should be encrypted so that the information contained within are not provided in plain text. The encryption keys may be stored within the mobile wallets in a secure manner that is the standard for current non-QR mobile wallets. This will deter malicious users from trying to exploit the payment system for their own benefits.

2. Wallet information – Any payment application will obviously contain some information that pertains to the user’s payment information. Such a payment system owner must take great care in identifying the information the mobile wallet exposes of its user as exposed data may be used by malicious users to steal user’s information, or worse, gain access to the user’s account.

3. Stored data – The data stored in the wallet itself may contain data that compromises the security of the user’s wallet account. It is not very difficult for an educated hacker to plug into a mobile device to extract information stored within. Proper security standards currently available for mobile wallets should be followed to ensure that such stored data is not stolen, compromising the user’s account.

Looking to the Future

QR-based payments is new technology with little guideline and specifications for payment applications. However, considering the leap in technology and current demands of millennial users, it is clear that QR-based payments has great potential. It’s trendy and can support multiple channels of payment without substantial investment or support from merchants and issuers.

But QR-based payments is not alone in the current payments industry. Emerging technologies such as NFC based contactless payment are also in development and will soon be available and supported in the payment ecosystem. Since the general users are comfortable with card-based payments, it is hardly likely that it will be disrupted over the next decade. However, as true for any technology, card-based payments will eventually be shadowed by newer and more convenient forms of payment.

QR-based payments has already made its mark in several countries and is a tried and true method. With proper implementation and security measures, it is very likely to make a mark in the local payments industry. ■

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