Are QR Code Payments Coming Of Age In India?

QR-codes seen as a low-cost option, particularly for small businesses, are gaining traction.

A vendor uses a mobile phone to scan a QR code on a SIM card packet for the carrier Reliance Jio. (Photographer: Dhiraj Singh/Bloomberg)
A vendor uses a mobile phone to scan a QR code on a SIM card packet for the carrier Reliance Jio. (Photographer: Dhiraj Singh/Bloomberg)

Turn on your phone camera, point at a sticker and pay.

That’s how simple QR-code based payments appear to be. Amid a sea of options, QR-codes, seen as a low-cost option, particularly for small businesses, are gaining traction.

On Wednesday, Vijay Shekhar Sharma, founder of Paytm, launched his company’s latest offering—the ‘all-in-one’ QR. While having introduced QR code payments a few years ago, Paytm’s latest offering claims to allow merchants to make and accept payments through its wallet, UPI-based payment apps and Rupay cards.

Paytm, along with PhonePe, Mobikwik, Razorpay, Freecharge and many others are pushing QR-code based payments to capture transactions made by small and informal merchants, like kirana (mom-and-pop) stores. They hope to replicate the experience of a country like China, where over 7.2 trillion yuan worth of payments were made via QR-codes in the twelve months till March 2019, according to a June 2019 report from the iResearch Consulting Group.

QR codes can help increase the penetration of digital payment infrastructure given the lower barrier of entry and modest cost of acquiring, said Vivek Belgavi, partner and fintech leader at PwC India.

Nearly 93 percent of retail transactions in the country take place at small mom-and-pop stores or stand-alone outlets, but less than five percent of these merchants have been on-boarded on the QR-based payment system, said K Srinivasan, global revenue officer at Financial Software and Systems—a global payment systems company. Since QR codes transform the economics of payments due to the low set-up cost, they have the potential to become critical in the expansion of the payment acceptance network, Srinivasan added.

How Popular Are QR Codes?

Over the last three years, the National Payments Corporation of India developed two QR code standards—the UPI QR and Bharat QR. The latter works exclusively with banking applications, while the former can receive payments from a number of banking and third-party payment applications as well as cards. These replaced a few private QR code options in the market such as Paytm’s QR code option, which worked within its own network.

NPCI declined to share data on the quantum of payments via QR codes but conversations with payment service providers suggest a pick-up in transactions using this option.

Vivek Locheb, head of offline business development at PhonePe, said that around 60 percent of PhonePe’s 9 million merchants actively use QR codes at their outlet. As a result of the NPCI’s push for inter-operability, their QR code app “also offers customers the flexibility to use all payment instruments, which includes UPI, all debit cards, credit cards and wallets including third-party wallets like Airtel money, Jio money and Freecharge, among others,” he said.

Freecharge said that it has been witnessing a month-on-month growth in customers using the QR codes to scan and pay through UPI at their merchants. It declined to give specific transaction data. “Since the launch of UPI there has been a paradigm shift in payments and once people got used to it for fund transfers, there has been a large rise QR code adoption by merchants and customers mainly because UPI is truly interoperable as it is open to third-party applications,” said the company’s Chief Executive Officer Siddharth Mehta.

According to Akash Gehani, co-founder at Instamojo, QR codes are best suited for informal companies and merchants, whereas large retailers would offer QR codes in tandem with other modes of payments.

QR codes bring a significant advantage for the informal establishments that have low technology adoption. These entities cannot afford computers and POS (point-of-sale) machines unlike bigger merchants, so there is a large room for growth and penetration of QR codes.
Akash Gehani, Co-Founder, Instamojo

Gehani pointed out that merchants that sell handicrafts or food items often go to trade fairs or markets for their business, and even auto-rickshaws, are perfectly suited for QR code based payments as it portable, quick and safe.

Preferential Regulatory Treatment

While payment companies have spent considerable amounts of capital and cash to acquire merchants, the government has also been instrumental in driving the adoption of QR code-based payment.

In October 2017, the Ministry of Electronics and Information Technology directed all ministries, government departments, autonomous bodies and public sector companies to offer payment options like BHIM UPI, Bharat Bill Payment System and Bharat QR. Thereafter, the ministry directed state governments and all its departments to adopt and integrate these payment options as part of their services.

According to the Ministry’s annual report for 2018-19, there were nearly 30.8 lakh Bharat QR codes deployed across India by the end of March 2019.

The Reserve Bank of India is also doing its bit to push this means of payment.

In December 2017, the RBI reduced the merchant discount rate for QR-based payments to 10 basis points below the MDR charged for point-of-sale machines, which is an added advantage for merchants accepting payments through QR codes.

QR Codes: Pros & Cons

The reasons behind the attempt to push QR-code payments is the lower cost attached to them.

If small shop owners want to go digital and look to get a point of sale machine, they have to first pay between Rs 5,000 to Rs 15,000 to get the device. In contrast, to start QR code-based payments, a merchant only needs a bank account, a smartphone and a data connection to accept payments. The only “infrastructure” needed beyond that is the QR code sticker.

The bank or payments company also incurs considerably lower costs as it only needs to print QR stickers as opposed to issuing a plastic card for credit or debit card payments.

“With QR codes the time to activate and on-board a merchant has become much faster compared to PoS machines,” said Mehta of Freecharge. “The time to process transactions is also faster compared to regular UPI transactions.”

But QR codes come with limitations, too.

Most QR codes that are printed on the counters of shops or for vendors are what is known as “static QR codes”. This means that the QR code only features the merchant’s details like their UPI ID and/or their registered Bharat-QR identity. They don’t give you much information about the customer transacting nor about the product/service being sold.

As a result, payment service providers get less ‘data’ that they can then use to target customers better or expand their offerings.

QR code payments generate limited intelligence, said PwC’s Belgavi.

“In digital payments, merchants need more layers of value-add in addition to just convenience which is not possible through static forms of payment,” said Belgavi. He added that going forward there will be a move towards payment means, including “dynamic mobile”-based payments acquiring, which can record more data and create a pull factor for merchants.

According to Navin Surya, chairman of the Fintech Convergence Council, QR code payments are unlikely to replace card payments in value. “However, for small mom-and-pop shops or vendors this is a low-cost model for accepting payments and over time it will help ease customers making day to day low-value transactions, replacing cash transactions,” Surya said.

He said payment companies will deploy all types of payments accepting mechanisms, depending on the segment of merchants they are targeting and the customer segment that the merchants are targeting. “The QR code market will grow over time as customers get used to it and merchants encourage them to make payments through it.”