Could QR codes be the future of payments in the UK?

By Andrew Mitchell, Vice President, Development and Infrastructure Support at JCB International (Europe) Ltd.

China, Japan, and South Korea are countries lauded for their technological and scientific achievements, often perceived as ‘futuristic’ or far more advanced than western counterparts. Innovation in construction (super cities built seemingly in days), travel (high-speed rail or self-driving vehicles), consumer electronics (super apps like WeChat), or even robots becoming more integrated with day-to-day life (and often eerily human-like…) are examples of the impressive developments that have been achieved in these markets.

But one innovation, initially created for the automotive industry 26 years ago, proves its weight even against the heavy hitters of other technological advancements, especially when it comes to ease of use, widespread adoption, and varied use cases. I am, of course, referring to the trusty QR code.

Simple in its design, creation, and implementation, the QR code has been underestimated in its ability to permeate and revolutionise new sectors and industries. In China, for example, the QR code is so pervasive that it can be used to pay for virtually anything – from fresh produce at farmers’ markets to street food – making its greatest impact in sectors that had historically been cash-only.

Comparatively infant, QR codes have had a positive impact on the UK hospitality industry this year, with more businesses using them as a means for the UK’s national health service (NHS) track and trace scheme and also for simpler user experience like downloading an app to place food and drink orders.

Consumer familiarity with QR codes will stick around longer than this virus and will help encourage more use cases for QR codes in Europe, such as point-of-sale (POS).

Looking at the ways in which QR code technology has been adopted and implemented in Asian countries will give us insight into where these opportunities may lie for those wanting to further disrupt the payments industry in Europe.

Born out of necessity

The ‘East’ has proven to be thrifty and ingenious in its independent thinking. In China and India for instance, the drive to promote QR was born out of necessity in the vacuum of a fully-fledged EMV-based card market. Whereas European markets have been fully punctuated by card payment networks and EMV-based methods.

Cards became the primary global payment instrument technology due to the energetic efforts to make them secure during the late nineties/early noughties. At the time of its rollout, EMV heralded the mass adoption of complex cryptography that was ground-breaking outside of the world of signals intelligence. However, times have changed. The relative expense to implement EMV-based-chip cards caused the lesser-deployed markets to address the problem of secure non-cash-based payment instruments in modern, digital terms.

In emerging markets like India and China, due to non-EMV deployment, their canvasses were relatively blank and the governmental yearning to gain market adoption of digital payments was strong. Consequently, the necessity of domestic fully purposed solutions caused a re-think about the methodology; and being late to the party allowed the benefit of hindsight.

Initially with chip, followed by contactless, and now potentially biometric data, the cost of making and distributing EMV-based products is increasing, as is the heated debate between manufacturers, issuers and merchants about who passes this cost onto the card user.

Could QR codes be a supporting solution?

Such ancillary technology is popular in Japan, another market where cards are firmly established. The cashless initiative promoted by the government in Japan has suddenly spawned a multitude of QR providers offering temporal discounts in the past few years driven by diverse organisations such as MNO’s, banks, and online marketplaces. eMarketer estimates more than 21% of Japan’s population, 23.9 million people, will use their smartphone to make mobile payments at the POS by the end of 2020. This shift is also echoed by Line Research (in the same article) which found roughly 38 % of smartphone users in Japan surveyed said they used their mobile device to make a payment at a physical store in 2019, an increase of 25 % from the year prior. eMarketer credits this to Japan “betting big” on QR. The next years will be interesting to see if these adoptive companies can sustain their business models and encourage consumers to continue repeat usage.

Increasing European interest in QR

We will see an increase in QR in the UK and Europe because of the great top-down and bottom-up efforts being made by institutions and companies alike.

In Europe especially, there is a strong push by supra-governmental institutions to promulgate QR as means to rapidly adopt peer-to-peer payments via mobile-initiated bank transfers. In the view of some in Brussels, this will induce European banks to rely less on non-European companies for delivering their retail payment instruments.

At this moment, a working group derived from the European Central Bank is heartily working towards creating common European regional standards for instant payments at electronic points of sale, which would entail a customer initiating an instantaneous transfer from theirs to the retailers bank. They are considering predominantly EMV and QR code as primary security techniques whilst the transacting interface is likely to be via smartphone. Along with the European Payment Council’s ever stronger shoves for European banks to adopt instant payments, we are likely in the coming years to have a plausible recipe for mobile-based QR codes being used at points of sale that would automatically trigger an instant bank transfer – so the retailer will have your money in their bank account before you leave the store.

From a bottom-up perspective, for some time several companies have seen the commercial opportunity brought by a groundswell of positive customer use case. The success story of the Swedish QR payment system Swish, created by the largest Swedish banks, is well noted for enthusiastic adoption by its users due to its simplicity and broad uptake, meaning that it has become an everyday product for peer-to-peer payments.

More broadly across Europe, in the last few years other such QR schemes have emerged and joined forces to create the European Mobile Payment Systems Association (EMPSA), which aims to ensure the spread and interoperability of QR-code payments across the region. In today’s Schengen ‘borderless’ environment, such interoperability will be crucial to its success, so it is a promising start that many European countries are already working together to ensure cross-border acceptance of their products.

Is the UK ready for QR?

The core problem with QR adoption in the UK is persuading the market of the overwhelming reason to change what it is doing and invest is less-proven tech when the existing business model supposedly is not broken.

When the efforts towards QR codes are driven by clusters of banks as per the Swish case or iDeal in the Netherlands, it seems that banks are able to be more convincing in augmenting new products, though the reputational aspects of use-case and customer experience are still more organic elements to be fostered before such products bite with consumers.

Of the major players in China, Alibaba the online marketplace provider was first and was ultimately was positioned to have the means with which to issue and dictate the transaction methodology used. Tencent as the second big-success player factored on the lifestyle brand had greater ubiquity in the day-to-day lives of everyday folk and was well positioned to proliferate even further.

Now factoring the movements of major European institutions and the poised position of GAFA to replicate the Chinese example; there appears to be a renewed appetite for European banks to re-assert their grip on their own payment instrument market. The formation of the European Payments Initiative is still a lesser known quantity but is indicative that European banks are not satisfied to lose any ground in their retention of providing us with payment products.

It’s no foregone conclusion how this will end, but QR is definitely on the table and the plurality of actors involved suggest that, like Japan, in a few years QR code payments will substantially co-exist with today’s product roster.