Most contactless payments saw a surge in adoption in 2020, and QR codes were in the vanguard. Smartphone-enabled apps appear to have gained particular traction with smaller retailers and merchants, which found they could quickly deploy cashless QR codes to address COVID-19 concerns and lockdown restrictions without installing additional point of sale (POS) infrastructure.
It may have also boosted the many QR code-based contact tracing apps introduced during the pandemic. This trend significantly increased people’s familiarity with the mechanism as a way to share information. Those experiences were then extended to consumer payment environments, notably in physical stores and hospitality venues. GSMA Intelligence estimates that QR Codes became the second-most offered channel for merchant payments in 2020, second only to the unstructured supplementary service data (USSD) mechanisms favoured by emerging economies in South East Asia and Africa.
The West catching up
QR codes were developed as early as 1994 and have long been popular in Asia, especially China, Japan and India (reports suggest that even homeless people now request payments via QR codes). But with acceptance rates now growing in the US, Europe and Africa, adoption rates are forecast to expand rapidly over the next four years.
In its latest report – QR Code Payments: Key Opportunities, Regional Analysis & Market Forecasts 2021-2025 – Juniper Research predicts the value of QR Code payments will reach US$2.7tn by 2025, for example, driven by low acceptance costs compared to other forms of contactless payments. Much of the growth is expected to come from retailers in emerging markets that lack the necessary credit/debit card systems, whilst those in developing economies will use them to supplement existing contactless payment card provision.
Juniper is also forecasting fast, simultaneous expansion in user numbers – from 1.5bn in 2020 to 2.2bn by 2025, by which time almost a third (29%) of all mobile phone users are expected to use QR codes. User numbers in the US alone are expected to jump 240% between 2020 and 2025, with recent endorsements by PayPal and pharmacy chain CVS playing critical roles in that expansion.
A consumer sentiment survey conducted by MobileIron in September 2020 found that 72% of smartphone users in the US and UK had scanned a QR code at least once in the previous month, with around 40% having done so in the last seven days (mostly in restaurants, bars or cafes).[i]
Advantages go beyond touchless
QR codes need a phone camera and reliable Internet connection to function efficiently, so rising smartphone penetration and the spread of mobile broadband coverage and capacity in different parts of the world have undoubtedly played a key role in driving their take up.
They also offer several advantages for merchants and consumers that go above and beyond just being touchless, a characteristic which is likely to sustain an increased level of importance post-pandemic as people generally remain warier about minimising their contact with shared services.
Integration with mobile banking apps helps to speed up and streamline payments meaning merchants get paid almost immediately. No card or account details are disclosed during transactions, a trait that significantly reduces the risk of fraud. Besides, QR codes can provide relatively simple methods for merchants to comply with new financial services rules and regulations, such as the European Union’s payment service directive 2 (PSD2) strong customer authentication (SCA) requirement for payment transactions.
Government-backed vs third party schemes
That’s not to say that there aren’t challenges for the technology ahead. The payments industry still needs to adopt technical standards to enable interoperability between different QR code deployments, according to the GSMA. Several QR code specifications exist, including – Alipay, WeChat Pay, EMV, JPQR, Bharat QR, HKQR, SGQR, QRIS, Prompt Pay, Mercado Pago and Pix – most of which have overlapping features but also some significant differences.
Divergent methods of facilitating transactions can also hinder compatibility. The choice generally revolves around merchant or customer presented approaches. The former sees the merchant point of sale (POS) system producing a QR code that the customer scans using their smartphone app, with the transaction then passed to an eWallet app for payment. With the customer presented approach, the buyer scans their purchases to generate a QR code on their smartphone’s screen, then read by the POS system before payment is requested.
There are also differences in QR code schemes implemented by third-party suppliers and those orchestrated by national governments. Government backing has already driven an expansion of QR code usage in China after the People’s Bank of China released a fintech development plan designed to create a single unified standard. 2020 subsequently saw Tencent share a common QR code system for mobile payments with state-owned UnionPay, allowing merchants to offer a single code to enable transactions on both services.
Elsewhere, Ghana became the first African country to launch a universal QR code that enabled all Ghanaians to make instant merchant payments from their eWallets, bank accounts, and international credit/debit cards in March 2020. With state impetus now driving expansion in many different parts of the world, Juniper Research estimates that by 2025 national QR code payment schemes will account for 22% of all QR code payments by volume, up from 8% 2020.
On the supplier side, the technology got a big boost from PayPal, which expanded the use of QR codes to 28 countries globally, including the US, Canada, Australia, the UK and most of Europe last May[ii]. The move means users of the PayPal app in all of those countries can now make QR code-based mobile payments for in-store purchases and conduct person to person money transfers from one smartphone to another.
Rumours that Apple was preparing to introduce QR code support into Apple Pay to coincide with iOS 14 as an alternative to NFC turned out to be premature. But many industry watchers still expect the smartphone manufacturer to add the technology as a payment mechanism at some point in the future (QR codes are already enabled for partner reward and loyalty programmes).
As and when more big names get behind the technology, the increasing use of QR codes as a mobile payments mechanism across the globe looks like an odds-on bet.
[i] QR Codes: Consumer Sentiment Survey, MobileIron, September 2020
[ii] PayPal rolls out QR payments to 28 countries around the world, NFCW, 19th May 2020