Quick Response (QR) codes are not a new phenomenon; they have become increasingly common in marketing, providing links to websites or special offers. If you have been to a festival or concert in the past few years, you may have had a square box of data on your phone screen scanned as ticket entry. In the UK, we are less familiar with their use to initiate a payment but as a low-cost option that facilitates the transfer of funds.

QR codes are a compelling option for merchants to change the face-to-face checkout experience. With fears around COVID-19 likely to extend far beyond the short term, we may see much faster than anticipated adoption of this wholly contact-free payment option.

FAST, EASY AND TOUCH-FREE 

Scanning a QR code has been a popular way to communicate payment instructions in China for some time. In 2017, there were 40 million retailers in the country with a registered Alipay QR code.¹ In very simple terms, either the merchant scans the customer’s code, initiating a ‘pulling’ of funds from the customer, or the customer scans a merchant code ‘pushing’ funds to the merchant. In the wake of the pandemic, the use of QR payments as a simple, safe and a health-conscious alternative is facilitating QR adoption outside of China. PayPal has recently rolled out QR code payments to 28 markets.²  After scanning, the code users are able to choose whether funds are transferred from their bank account or one of their registered cards. 

The bank account connection is where we see the value for merchants, particularly micro-businesses like market stalls with day to day cash flow challenges. Rather than waiting a day or two for a card payment to clear, scanning a QR code could initiate a bank transfer via Faster Payments enabling the merchant to see the money within minutes. Consumers might question whether the QR code experience is any better than using NFC like Apple Pay, but it is certainly a credible alternative to cards (including contactless) for face-to-face payments. 

COULD TOURISM FURTHER ACCELERATE ADOPTION?

As global borders continue to open and tourism returns, retailers, and the country in general will be looking for ways to encourage tourists into stores and give them the confidence of a safe experience. Increasing acceptance of the most popular payment method in China, and the most ‘COVID-proof’ one, would help to attract the huge numbers of Chinese visitors the UK usually receives each year (Chinese tourists took a record 883 thousand trips to the UK in 2019³). Last year, Barclaycard saw the value in this market even before the pandemic by signing a deal with Alipay, China’s largest mobile payments company, to allow their merchants to accept payments through the QR-code-based Alipay app.⁴  Perhaps we will see incentives for other acquirers to follow suit as the UK tries to boost tourism incomes.

IS THIS THE FUTURE OF PAYMENTS?

As adoption of mobile payments like QR scanning increases, so do the benefits for merchants who can start to do away with point-of-sale (POS) hardware and receive more timely transfer of funds. Card companies, however, are fighting back. New alternatives such as micro POS and tap-to-phone require less hardware. Only this month, Apple acquired Mobeewave, an app than transforms a phone into a payment terminal. This is a potential game-changer for phone-to-phone card payments via NFC. Some card-focused fintechs are working on ways to provide merchants real-time access to funds via their payment platforms by netting their own settlement.⁵ 

However, the shift to true mobile payments is accelerating, and it presents a real opportunity for new players to enter the payments ecosystem. Banks should look at presenting the option for QR scanning within their apps to try to retain ownership of the user experience as this shift occurs and, importantly, offer consumers the choice in how they want to pay and be paid. 

For more information about this article or how we're helping banks and payments providers today, please contact Oliver.smith@capco.com

Sources:

^{1 http://www.ecns.cn/business/2018/01-04/286997.shtml
2 https://investor.paypal-corp.com/news-releases/news-release-details/paypal-rolls-out-qr-code-payments-touch-free-way-buy-and-sell 
3 https://www.statista.com/statistics/515789/chinese-tourist-visits-to-the-united-kingdom-uk/
4 https://www.home.barclaycard/media-centre/press-releases/Barclaycard-partners-with-Alipay-to-help-UK-merchants-increase-sales-from-booming-Chinese-tourism.html 
5 https://squareup.com/us/en/business-debit-card}