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IR35: The Meltdown

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IR35: The Meltdown

Bradley Post, Managing Director at Rift Tax Refunds.

The Problem

In simple terms IR35 is a test to determine whether individuals should be treated as employees or self-employed. Its full name is The Intermediaries Legislation and it came into force in April 2000 as part of the Finance Act but its recent application in the public sector is proving increasingly contentious.

Even before the latest round of changes in how the law operates, it was an uncomfortably large and bitter pill for many to swallow. The new rules around IR35 and public bodies were controversial at best when they were first announced. Now that their full effects are being felt throughout the sector, the nightmare scenarios that some were warning about seemed to have been, if anything, slightly optimistic. Here’s what’s happening, and why it matters.

On the 6th of April 2017, a new set of rules came into force that affect public bodies making “off-payroll” payments to contractors, whether directly or through agencies. Essentially, HMRC was no longer going to allow the public sector to take contractors operating through Limited Companies at their word that they were playing fair with employment status law.

From the outset, there were issues with the way the new system was playing out. Fast-forward a year, and we’re now seeing reports of literally thousands of contractors being wrongly classified and over-taxed. In some cases, it’s led to people swearing off public sector work, in others to deliberate non-compliance and the risk of legal challenges. At the heart of it all sits HMRC’s Check Employment Status for Tax (CEST) tool – which, depending on whom you ask, is either God’s gift to tax law or totally unfit for purpose.

Recent figures reluctantly released by HMRC under a Freedom of Information request show 54% of the results coming out of their CEST tool to be “negative”, meaning that that under the terms of the working relationship the contractor should be classified as an employee.

The problem is, that result doesn’t reflect the way people are actually being taxed. With HMRC breathing down their necks, hirers simply aren’t trusting CEST’s judgements. Worse still, a lot of them aren’t even trying to use it, instead making blanket decisions to class everyone as an employee.

What’s the Point of IR35?

IR35 was introduced to combat tax avoidance through ‘disguised employment’. This is where individuals work for organisations on a self-employed basis, often through an intermediary, rather than as employees even though their working conditions are the same as those of a full time employee.

Organisations were happy with this arrangement, benefitting from significant savings due to not having to pay employers’ NICs or offer any employment rights or benefits to the self-employed contractors. Individuals were happy as they could provide their services through their own companies and have more control over their take home pay by distributing profits as dividends for the National Insurance and tax benefits. They could also split ownership of their company with family members to hit lower tax bands.

HMRC, however, was not happy with this cosy arrangement, having calculated that up to £400m a year is slipping through its fingers each year from “bogus self-employment”.

Contractors meanwhile are reporting getting caught up in issues such as paying employer’s National Insurance contributions on top of standard employment taxes or suffering 25% reduction in take home pay as a result of having their employment status reclassified.

Changing the Game

Under the old rules, contractors with their own Limited Companies were responsible for working out if IR35 applied to them. For public sector contracts, that responsibility has now shifted. Under the new rules, it’s either the public body itself that has to make the IR35 decision, or the agency involved if there is one. As it turns out, this was how IR35 was supposed to work in the first place, back when it was first talked about in 1999. In fact, it was a backlash against that rule that saw the burden moved onto the contractor’s company instead.

 If a public body decides that IR35 applies, then the individual will be taken onto payroll as an employee and the body itself starts taking tax and National Insurance payments out of the contractor’s pay at source. The CEST tool is supposed to make these judgements simple and accurate. Of course, even if CEST performs infallibly, it can only ever be as reliable as the information it’s been given to work with. HMRC say they’re happy to stand by CEST’s results, although they’ve stopped short of making that compulsory for the public bodies using it – and left a little wiggle room for themselves as well.

Theory vs. Practice: What Went Wrong?

The term “fiasco” seems to be flying about a bit at the moment, whenever IR35 rears up its head. Basically, a lot of public bodies felt they hadn’t had enough preparation time or support to take on their new legal responsibilities. Honestly, IR35 was never a well understood or consistently applied piece of legislation in the first place, and the new rules have done nothing to fix that.

Public bodies now finding themselves between IR35 and a hard place have been making difficult decisions under pressure, which is leading to problems beyond just simple assessment mistakes. TfL, for instance, reacted with a knee-jerk safety play by banning off-payroll payments to Personal Service Companies altogether. Other bodies have either asked contractors to operate as if they were within IR35 or via an umbrella company. Worse still, there’s plenty of evidence of blanket judgements being made, Essentially, public bodies are simply assuming IR35 applies in all cases, hence the thousands of contractors being overtaxed.

So the next question is, what happened to CEST? Well, it turns out that in some cases it’s simply being ignored. Faced with the legal ramifications of getting the decision wrong, some public bodies are overruling CEST and declaring that IR35 applies. The NHS and MOD have both already been caught making these blanket assessments and now face considerable litigation risk because many contractors have been wrongly classified.

People just don’t trust the CEST tool enough to risk relying on it – and it turns out they might be right not to. For one thing, it appears to ignore the important concept of Mutuality of Obligation altogether. That means it’s going to wrestle uncomfortably with edge-cases – for instance, contractors who could theoretically have someone else do the work, even though there are practical reasons why they wouldn’t. More to the point, it seems like HMRC simply assumes that MOO always exists in contractor agreements, which simply isn’t true.

The Fallout

The IR35 meltdown has had a number of direct and knock-on effects. Many contractors are raising their rates to cover the extra tax they’re paying. Others have simply refused to take on public sector work, leading to project delays or outright cancellations.

Getting caught up in IR35 does carry with it some expectation of accompanying employee rights. Contractors who aren’t getting those could well be in a position to launch legal challenges. There’s no specific HMRC appeals process covering this at the moment, but the situation is continuing to develop and various options might start to bear fruit. Employment tribunals might be used to claim that wage deductions have been made unlawfully, for instance.

Keep in mind that IR35 assessments are supposed to be conducted on an individual basis through CEST. As things stand, only about half of assessments have gone through any compliance tests at all. In fact, CEST was a factor in just 24% of assessments made – partly because of blanket decisions and partly because the tool wasn’t ready when the assessments took place. In an environment that relies on voluntary compliance – and where HMRC simply doesn’t have the firepower to police the whole system effectively – what’s developing is a shocking lack of trust. That’s a backdrop against which a torrent of legal challenges could take place.

HMRC’s Reaction: What Do they Say?

CEST, according to HMRC, is “as good as the data fed into it”. They say they believe that it gives a reliable outcome 85% of the time, and is “a perfectly good tool and supports IR35 compliance.”

 Honestly, from HMRC’s point of view, the CEST roll-out has been pretty much a success. Of course, the only way they seem to measure that is in how much additional revenue it pulls in. The thing is, the raw numbers don’t tell the full story here. Since wrongly overtaxing contractors has the same effect, it’s thin evidence at best that actual compliance is being boosted.

In reaction to this a number of contractor websites are now sharing information on “how to pass the IR35 check” using the CEST tool, although surrounded with many warnings about the dangers of “contriving” a pass and that HMRC will issue status challenges if it believes an individual deliberately answered questions incorrectly.

 On top of that, there’s also the question of how far CEST is trusted by HMRC itself. Although they publicly stand by the tool, they’ve quietly outlined a couple of situations where they can challenge its results. Obviously, if they think the information put into it was inaccurate, they reserve the right not to be bound by the assessment it came out with. There’s been quite a lot of discussion over what that would look like in practice, but the bottom line is that it’s being widely seen as a less-than-ringing endorsement of CEST. That shaky faith only underlines the general concern around the tool, considering the significant gap between the number of “does not apply” results it’s been churning out and the number of people being filed under IR35 anyway.

Looking Ahead…

If the new IR35 system’s goal was to clamp down on non-compliance, it’s hard to call it an unqualified success. If anything, while tax revenue has risen, the door’s been opened on a whole new kind of non-compliance – this time on the part of hirers. Meanwhile, HMRC’s upbeat outlook has a lot of people more worried than ever about a private sector roll-out – perhaps as soon as 2019. If that did happen, it could mean some upheaval for contracts and projects already in progress. Judging from the continuing turmoil in the public sector, it’s going to take careful consideration and planning to avoid falling down the same rabbit-hole. Private sector hirers will need to understand what it would do to their costs if contractors started raising their rates, or what it would mean for their projects if contractors simply refused to accept an IR35 judgement.

At the same time, private organisations will face the same legal threats and consequences as public bodies. They’ll find themselves under the same temptation to deliver blanket assessments, and open to the exact same challenges and push-back from contractors affected. We’ve seen, and continue to see, all this happen in the public sector, with hirers, contractors and HMRC all having points to make and corners to fight. What we haven’t seen yet is a real solution to all three sides of that equation.

Rule one of this new game, naturally, is reaching legal compliance. Companies need to understand that short-cutting individual assessments isn’t the safe option it appears to be, and contractors have to accept that cheating the taxman is the bad idea it always was. If the new system hits the private sector as many expect, it’ll take effective guidance and comprehensive support from advisers to defuse the ticking IR35 timebomb – or at least achieve a more controlled detonation than the public sector did.

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Time for financial institutions to Take Back Control of market data costs

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Time for financial institutions to Take Back Control of market data costs 1

By Yann Bloch, Vice President of Product Management at NeoXam

Brexit may well be just around the corner, but it is market data spending that financial institutions are more interested in taking back control of right now. In fact, other than regulatory equivalence post the transition period, it is hard to think of a more prominent issue right now than the rising cost of market data. According to analysis at the end of last year by Burton Taylor, global spend on market data topped $30 billion in 2019. With costs showing very little sign in coming down, at least in the short to medium term, now has to be the time for market participants to better grasp of not only what their costs could be at the end of the month, but also the precise areas of business consuming the most data.

The problem has been, and still is, seeking out those month-on-month cost anomalies. For example, why is it that fixed income and FX derivatives costs have all of a sudden doubled compared to the previous month? The trouble is it is nigh on impossible to get accurate answers to questions like this because the vast majority of investment firms have no fullproof way of analysing how spending evolves over time. In certain cases, financial instructions can experience a 10%+ increase on their monthly market data vendor bills.

It is not hard to see why – as every small incremental cost mounts up fast. First there are the direct costs for one or more sets of data – which leads to billing getting far more complex. Sure, a market data vendor may be adding lots of different add-on services to help clients save money, but at the same time, they will also be adding on more costs. If this was not enough, there are also the indirect costs around data governance and regulatory compliance. New rules, such as the Fundamental Review of the Trading Book (FRTB), means that investment banks will have no choice but to consume a lot more data to be able to run models and back testing.

All this begs the question; how exactly can firms gain more control of their market data spending? A good place to start is trying to reduce waste. This involves firms making sure they do not request new sources of data from their vendors that they are not going to use. If data vendors charge for every single piece of data that the client requests, then the client needs to make sure they are going to act on this information. Then there is the recycling of the data. Say an investment fund needed a new piece of data instantly, and also needed that same piece of data at the end of the day. If the fund manager already has the data, they surely, they do not need to request it again? It is all about being smarter about reusing whatever data the fund manager has received previously. After all, different trading desks are all consuming data and requesting information through the data management team, but it is hard for the trader acting on the data to work out how much the data actually costs. This is why being able to allocate these costs to the different trading desks is key.

When all is said and done, the only way financial institutions can harbour any hopes of overcoming this longstanding data cost problem is by deriving more insights to ensure they a squeezing every last drop of value from their market data. Technological advancements mean that firms can now keep right on top of not just their data direct costs, like complex billing, but also the indirect costs around regulation. With so many other cost pressures across the business right now, it is time financial institutions take advantage of new technologies to finally address the issue of rising market data costs that has, frankly, plagued the industry for too long now.

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Cash was our past, contactless is our present, contextual payments are the future

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Cash was our past, contactless is our present, contextual payments are the future 2

By Jason Jeffreys, founder of FETCH

$6tn in the next five years, this is how much the world will spend through contactless payments, according to analyst firm Juniper Research. For many of us who have discovered and since relied heavily on contactless payments since its introduction in 2007, either through card, phone, or watch, or those of us who have taken a stroll down a covid-era high-street to see shop windows adorned with “card payment only” signs, this is hardly a surprise. Even the Church of England in 2018 equipped 16,000 religious sites with terminals to allow for contactless donations. So what is behind this rise? And what is next?

The switch from cash to contactless is a transformation of payments that is driven by four key factors: speed, security, accessibility, and hygiene. While businesses and customers alike have felt the immense benefits of the cash to contactless transition, the next iteration goes further by digitally transforming the entire transaction process. It’s that potential which pushed me to launch FETCH – technology that allows customers to order and pay from their phone, anywhere. By exploring the benefits already felt by our contactless present, I hope to show you why I’m excited to be part of the contextual payments future.

Speed

Aldi is all about low prices and this is achieved with efficiency – that is why their checkout staff are trained to scan as fast as possible, it’s why their barcodes are huge, and it’s why you can’t keep up. It’s all in the name of efficiency and cost saving, and contactless payments make this possible.

While increasing the rate of transactions has a direct impact on money through the till, there is an increase in the perceived speed which does wonders to get customers back through the door. Shoppers may have spent an hour or more in-store but their direct interactions with the shop and staff were quick and timely and that’s the experience they remember and the impression they build of the brand.

Aldi are not alone in realising this and while it is easy to point to the impact that contactless has had on the retail sector, its revolution has slowly crept into hospitality –  an industry notoriously late at adopting new technologies.

High-street coffee shops rely on getting as many people as possible through the doors and back out again. They want as little disruption to your day as possible but more importantly, they want to process as many payments per hour as possible. Cash transactions are slow in comparison to a single tap, so for the coffee shops, this means fewer transactions per hour and money lost. For businesses in this sector who rely on periodic rushes, measuring performance per hour is a necessity and maximising revenue over these short windows is so important.

For reasons obvious to anyone who has been to a crowded hospitality venue, stood at a crowded bar or waited for waiting staff during a busy dinner rush, the businesses in this space already running on contextual ordering systems like FETCH have all reported a vastly improved staff and customer experience in hospitality venues. While it may be difficult to spot how these benefits can be felt in retail, this reality is not bound to fiction or the distant future – it’s being pioneered already in retail by Amazon.

In a well documented glimpse into the future of shopping, Amazon’s latest Seattle store removes the transaction element completely. Instead, you put your items in your trolley as you go round the shop, and the sensors and cameras accurately and automatically recognise the items, keeping a track and total, before taking payment automatically and digitally through your Amazon account once you walk the trolley back out of the store. Can you imagine standing in a supermarket queue to pay once you’ve experienced the ease, simplicity and effortlessness of that?

Accessibility

Smartphones have got smarter and they have revolutionised the way we get through the day. From how we discover, connect, and socialise, to how we organise, learn, navigate and search for answers – rarely an hour goes by where we aren’t using our phones for something.

As time moved on they only grew to become more capable, responsible for managing more aspects of our lives, and it was only a matter of time before they were capable of handling secure contactless payments. The leap for people to trust their smartphones with just one additional task was tiny.

When you couple this with debit and credit cards being enabled with contactless technology by default, the rise of wearables, and e-commerce growing massively, the results are clear – people are more trusting of online payments, are more familiar with buying in this way, and have more ways of making contactless purchases, than ever before.

In fact, a Mastercard survey in 2016 indicated that Brits carry less than £5 in cash on average, with 14% of people surveyed carrying no cash at all, and 1 in 10 replacing wallets and purses altogether, opting for a simple card in the pocket instead. Figures which have no doubt grown even starker since 2016.

When we take this into consideration with 99% of 16-24 year olds, 98% of 25-34 year olds, and 95% of 35-54 year olds all being smartphone owners, we begin to see the inevitability of contextual payments as the next iteration and how the response to contextual payments will be positive and welcome; something FETCH clients and the vast majority of their customers can all attest to.

Security

Cashless payments means no cash in the till or on-site; no chance of mistakenly accepting fraudulent notes or coins; no trips to the bank to deposit or withdraw cash for the till; the end of time spent counting money every day, and the end of discrepancies which occur from this.

It limits the levels of theft, switches businesses over to an accurate, secure and efficient system, and gives business owners their time back. It makes tax returns, financial planning and forecasting and more all possible, easier and quicker and in short, it makes businesses stronger.

Jason Jeffreys

Jason Jeffreys

Contextual payments go further by offering really insightful data of what happens before and after people decide to part with their money; for example, how long they spend browsing before ordering, what they look at, what they’ve missed, when they order next and more. This means you are informed and can redesign and improve the user journey so it works better for you and your customers, all based on accurate, relevant and timely data.

As contactless payments evolve to contextual ordering, it’s important to choose a system that easily integrates with the wider business and your systems so you can continue to access the benefits of contactless. That’s why from day 1 of building FETCH I put so much emphasis on ensuring it integrates with one of the biggest and most popular POS systems in hospitality.

Hygiene

Initial adoption has long been the biggest barrier to widespread, sustained use of new technologies and going cash-free is no exception.

Given that the coronavirus thrives and passes through human contact and shared surfaces, going cash-free and contactless was a small, easy and obvious change to implement for businesses to become covid-secure and safer for customers and staff.

FETCH and other contextual payment systems are being used to go beyond this, to keep staff and visitors safe by limiting human contact beyond just payments. In our case, we have allowed hospitality customers to continue to browse, place their orders and pay, just as before, but without the need for repeated human contact at every single stage.

Given the health imperative and coercion from governments, local authorities and health bodies to switch to contact-free operations, businesses who may have once been years away from this change are laying down the infrastructure today out of necessity and it will be no surprise if contactless becomes a staple long after the coronavirus has left.

Post-coronavirus, contextual ordering offers businesses the chance to let the technology take care of these minor tasks, giving staff the space to instead dedicate their time, talent and energy towards elevating the overall experience. It’s the health imperative that acts as the gateway to this.

What does this transition mean for businesses? With visible consideration and effort put into hygiene, you are making your customers feel safe and cared for; by making transactions quick and painfree, you are giving your customers time to spend on the experience they came out for in the first place. In the process, you have created the ideal conditions for consumers to spend money and given them the confidence to do so.

I’ll end with the picture UK Finance data has painted through multiple annual payments reports: in 2006, 62% of all payments in the UK were made using cash; three years later it dropped to 58%; in 2016 the proportion had fallen to 40%; and just two years after that, cash formed just 28% of all UK payments. With a pre-covid prediction envisaging that by 2028 fewer than 1 in 10 payments will be made by cash, the widespread, covid-induced encouragement, adoption and enforcement of cashless policies in retail and hospitality has surely brought that many years forward.

Contextual ordering is the next inevitable iteration and if you were one of the few who reaped the benefits of going contactless early, you have the chance to be ahead of the curve once more. A welcome future for a multitude of industries is being set around us today.

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The Rise of Contactless Payments

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The Rise of Contactless Payments 3

By Bilal Soylu, CEO of XcooBee

Today, banks involved in the issuances of credit cards, and companies at the nexus of merchant services, are experiencing a rare event in the industry.

For years, digital payment innovators fought a hard battle to adopt contactless systems and create standards. The effort and push came from companies with much of the effort directed at consumers to adopt their methodology. Whether it is Samsung Pay, Google Pay or Apple Pay they all had to overcome similar hurdles – consumers were reluctant to adopt a technology that did not have a sufficient number of merchants; thus, the progress was slow.

The COVID-19 pandemic rewrote the script in a whirlwind. All of a sudden, consumers began to demand contactless payment experiences in every way imaginable. The supply side push has turned into a demand side pull and the adoption rate is spiking.

This left banks, originators and companies involved in the eco-system with an interesting dilemma – fast decisions have to be made as to which digital technology to invest in and do they bind themselves, for multiple years going forward, to a specific infrastructure.

While previously the belief was that this could be explored over a longer period of time, the current reality is that these decisions are forced on institutions “overnight”. In this light, there are many different aspects to contactless payments and originators, and banks need to make smart bets on which type should be supported.

So, let’s look at all the relevant elements of contactless payments to explore a better model for institutional support.

General Drivers of Contactless Acceptance Growths

Safety

Physical safety from virus infection by avoiding touching 3rd party equipment or allowing safe distancing from other people and/or equipment is the main driver today. It has been emphasized by many epidemiologists as a basic requirement for conducting business. Consequently, it will be no surprise that safety is the factor that underlies the rapid adoption of a number of contactless payment technologies by once reluctant consumers.

We expect this to be a primary driver well into 2021. Thus, any technology to be rolled out in the short term should enhance safety in some form or contribute in a way to the improvement of safety.

Security

An early benefit highlighted and emphasized by contactless technology providers was the data-security aspect that surrounds the transaction. Rather than exchanging the actual credit card number, for example, a tokenization is performed to create transaction specific tokens that are then used to complete the transaction. Even when intercepted, these tokens cannot be used outside this transaction and, thus, the approach is considered to be more secure.

Although the data-security value was incessantly marketed to consumers, most had, and still have, a limited understanding of the implementation of the technology. Thus, the appeal to the consumer with this benefit was not successful. However, the increased security elements were a clearer benefit for merchants and issuers. Hence, a steady growth of terminals and accepting merchants was the result.

In general, the tokenization approach to security has been chosen for many types of contactless payment systems, this includes NFC based card chips, digital payments like Apple Pay, Google Pay or Samsung Pay. However, for QR payments the use of tokenization should be verified as there are no current standards that govern its use consistently.

Convenience

Convenience was the aspect of many contactless payments system that appealed the most to consumers prior to Covid-19. The ability to either very quickly conduct a transaction or very flexibly conduct a transaction drove consumer adoption. For example, being able to load many payment methods onto a mobile device that users carry with them anywhere increased the appeal of use to consumers.

Thus, when evaluating a particular contactless payment technology with a longer-term outlook the convenience aspect should be emphasized. Given the historical basis, consumers are very likely to be attracted by this aspect as the main driver of adoption again. A financial institutions’ post-Covid planning and investment models for contactless technology should consider this to be a major aspect.

Contactless Payment Categories

When we speak of contactless payment systems, we normally refer to any payment technology that can trigger a payment transaction in the physical space with direct consumer presence, but without direct contact with merchant equipment. Thus, we would exclude online and ecommerce transactions for this purpose.

We will focus on the two mainstream contactless technologies, NFC and QR payments, and review them here. Other contactless payment technologies exist but have not reached widespread adoption so we will only provide brief overview of those.

NFC Payments

Technology

Near Field Communication (NFC) payments are the earliest form of contactless payments that found acceptance in the markets. Generally, two devices are needed and must be near each other to communicate via radio signals. Both the reader (interrogator) and sender (tag) must be within 4cm (1.5in) for the transaction to be initiated. ExxonMobile’s Speedpass is widely believed to be the first implementation of this touch and go type of pay experience that has come to exemplify NFC based contactless payments.

There are two common sub-categories from that technology today; The single card-based sender (tag) and the mobile-phone-based sender (tag). The mobile phone-based application tends to be more flexible allowing consumers to combine multiple cards into one mobile-wallet that is secured with some form with biometric access.

Market

However, NFC signals are not uniform and different standards are used in the Far East (i.e. Japan) rather than in Europe.

NFC payments found early success in developed western markets where the population already had easy access to banking and bank issued card-based tags. However, in countries where the banking system developed later and card-based payments were not common, NFC payments did not flourish.

Thus, today, the market for NFC is mainly concentrated in Europe, Japan, and US.

Activation

The roll out of NFC requires hardware on the merchant and consumer side. The merchant hardware is normally The Rise of Contactless Payments 4leased, and leasing programs have been steady revenue generators for those companies. Whereas, today, the global contactless Point of Sale (POS) terminals market is poised to grow by $5.54 bn during 2020-2024, progressing at a CAGR of 16% during the forecast period, according to research done by Technavio.

However, with the pandemic, the speed of system activation has been a key criterium for selection of the technology. In this context, delivery of hardware, setting up of POS systems and testing connectivity slows down rollouts and potential revenue.

Similarly, requiring consumers to be equipped with supporting hardware may also introduce a friction element, especially in markets where NFC has gained less momentum.

QR Payments

Technology

QR codes are like 3D barcodes. The user scans the QR code via a smartphone and the smartphone, then interprets the barcode and a related website or application may complete the payment process. Like NFC, this can be done very quickly without any contact between smartphone (reader) and the item or display using the QR code.

Normally, QR codes are immutable, meaning that once generated they do not change. However, there are now dynamic smart QR codes, like the ones Xcoobee offers, that can overcome this limitation.

Market

QR codes found strong distribution in markets where banking reach was limited in some form through government or market forces. The QR payment process, in many markets, also exemplifies a jump to direct digital payment, bypassing much of the banking system for purchase transactions. Especially when QR payment systems are connected to mobile wallets the provider of the wallet handles all transaction steps in-system, reducing friction and creating an ease to use and adoption. They have found popularity mainly in China, where AliPay and WeChat pay are gaining dominant market shares.

However, with the advent of COVID and the speed advantages in implementation and cost, other non-traditional markets such as EU and US are seeing dramatic increases in use of QR payments as well.

Activation

Activation of QR code payments commonly requires merchants to simply print codes, which can be accomplished with less hardware. The integration into bank systems is handled via merchant or bank app and the consumer simply requires a smartphone.

While bank offerings in this segment tend to be limited, given the simplified requirements, QR implementation can be quick for merchants to roll out.

Other Contactless Options

There are other contactless payment technologies that are currently competing for market attention and can be grouped into a biometric group and a technology group. The biometric group includes such options as voice, facial or palm recognition-based payments while the technology group includes options like Bluetooth and Farfield-type technologies.

None of these have gained sufficient market share or have execution or security advantages that would push them ahead without concerted efforts from large market-players. Similarly, there is no consumer advantage that would drive a consumer demand-based distribution for these technologies.

NFC vs QR

Which one should you choose to support? Each one of these contactless payment methodologies has advantages and disadvantages. NFC can be nominally faster to use for consumers and more lucrative for banks, but QR codes currently reach a wider market since more phones can read them than those that can read NFC tags.

Operational simplicity and speed also favor QR code activation, but if there is already and existing NFC infrastructure this may become a secondary consideration.

Simply speaking, we are living through unprecedented times, consumers are demanding contactless payment and creating a demand side wave in exchange for safety. How each institution answers this call best will depend on circumstances and context.

Overall, it may be advisable to hedge bets and support both methodologies and offer services based on both. Evaluate customer input, and then, adopt and activate the best option for your financial institution.

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