QR codes: What the West can learn from the East when it comes to payments

By Justin Xiao on Monday 26 April 2021

OpinionAlternative LendingDigital BankingSavings and Investment

There is a compelling case for QR code adoption in payments, says Justin Xiao, Chief Operating Officer Southeast Asia & Australia for Railsbank.

QR codes: What the West can learn from the East when it comes to payments
Image source: Photo by ThisIsEngineering from Pexels

Digital payments are growing faster in the wake of the COVID-19 pandemic, accelerated as much by health concerns and physical closures as the pre-existing desire for convenience and a mobile-first solution.

One of the most compelling shifts is the increasing use of Quick Response (QR) codes in the payments space. QR codes, when decoded by smartphones, instantly capture the payment details to facilitate payment. This allows businesses to implement a truly contactless payment solution cheaply, quickly, and efficiently, without the need for card terminals and associated hardware.

Lessons from the East

Asia is the undisputed leader in QR code payments. In China, QR codes were already popular, with many shops and consumers expressing a strong preference for this type of payment. The pandemic has further fuelled adoption.

China saw offline scan-to-pay transactions grow 15-fold between 2017 and 2020, reaching RMB 9.6 trillion in total value in Q4 2019. And then in 2020, WeChat saw its QR code feature increase by 26 per cent in value from 2019, despite a slight contraction in China’s economic growth.

I’m often asked exactly why QR code payments are becoming so important throughout the wider Asia region, and I see three big drivers behind the rapid growth.

The first is the push towards digitalisation and a cashless economy, which has seen governments establish national QR code standards. 

The region’s regulators witnessed the momentous demonetisation episode in India in 2016 and how the Bharat QR standard - the first in the world - supported the sudden shift to electronic payments. Encouraged, they have created an equitable playing field by introducing their own versions: Thai QR (2017), SG QR (Singapore, 2018), and QRIS (Indonesia, 2019).

The second driver is the vast influx of Chinese tourists and merchants who are bringing their preferred payment method with them. This has ‘trained’ merchants elsewhere in the region on how to operate QR code payments and spurred an ecosystem of payment facilitators and banks that have enthusiastically supported QR enablement. 

In Thailand, for example, when acquirers upgraded their payment terminals, they opted for the newer generation, 5-in-1 Android-powered terminals that can easily present QR codes or scan ones flashed on smartphones.

The third is a burgeoning e-wallet ecosystem that has embedded QR code payment capability as a lead feature. The digitally-savvy population of Southeast Asia in particular has been quick to adopt e-wallets thanks to a plethora of offerings from banks and non-banks alike.

This started in the 2010s with telcos keen to improve average revenue per user (ARPU), inspired by the mobile money operators in Africa. Then the e-commerce and ride-hailing platforms followed, inspired by China, and the banking incumbents had to get onboard as well, so as to not miss out.

The West plays catch up

The pressure is now undoubtedly on the West to keep up - especially when you consider that consumers are pivoting to the latest digital payment options and mobile solutions. The recent Mastercard State of Pay report highlighted this appetite well, with 70% of people globally now using their mobile phone to make payments. 

Many recognise that COVID-19 has prompted a move away from cash, with 50% in the US and 49% in the UK agreeing with this statement.

The pandemic has changed the game, having had a profound impact on behaviours. About half of Americans used contactless payments at least once in July 2020, and by October, a third said that contactless solutions were in fact now their go-to purchasing methods. 

QR codes are an obvious additional solution to aid adoption, but take-up of this solution has been slow, with only 11 million US households expected to have used the method by the end of 2021.

The good news is that merchants, restaurants, and other businesses are inspired and catching up with their counterparts in the East. PayPal waived all QR code-based payments fees in May last year, while CVS introduced QR code-powered payment methods at over 8,000 of its US stores to promote greater use. 

Square, meanwhile, has enabled businesses to create food and drink menus with a QR code to display at their premises in the UK and US.

It remains to be seen how sticky these changes will be once lockdowns and social distancing ease across the US and Europe. 

It’s imperative of course that merchants and businesses continue to drive QR code innovations, but - as I’ve witnessed across Asia - governments and regulators need to collaborate with these forward-looking companies to create the right standards and infrastructure to support such change.

 

Justin Xiao is Chief Operating Officer Southeast Asia & Australia for Railsbank. The views and opinions expressed are not necessarily those of AltFi.

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