QR codes and instant payments: Key international uses and U.S. developments
As organizations prepare for instant payments, there are many tools at their disposal, including one that may be buried at the bottom of their toolbox: Quick Response (QR) codes. The technology was invented in the ‘90s and has experienced mixed adoption in the U.S. However, QR codes have become a popular way to initiate a payment in a number of countries and are even bolstering faster payments adoption.
This article reintroduces QR codes, describes key international innovations and explains how the technology is gaining traction in the U.S.
What are QR codes?
A QR code is a barcode that contains horizontal and vertical patterns that can be optically scanned and decoded. Most smartphone users can use their camera to scan the QR code and initiate an action, such as opening a website link, viewing a restaurant menu or even initiating a payment.
A QR code can be static or dynamic. If it’s static, the information contained in the QR code is fixed and cannot change. For instance, a merchant might display a QR code on a placard that links to their website’s homepage. Alternatively, a dynamic QR code can be edited, which means its creator can personalize it for each specific user, such as a customer’s bill at check-out.
Innovation one: Changing the customer experience at checkout
In a number of countries, consumers regularly use QR codes to pay merchants. For instance, consumers in China often scan (Off-site) QR codes to complete transactions via Tencent’s WeChat or Alibaba’s Alipay. Singapore recently introduced (Off-site) a unified QR code that combines the QR codes for each individual payment app into a single, multipurpose QR code; the user scans the QR code to complete a transaction with the payment app of their choice, which can include faster/instant payments options.
In India, consumers are able to use their bank mobile app to access their debit card account and scan a Bharat QR code to pay via the Unified Payments Interface (UPI) faster payments network (Off-site), which transfers the payment immediately into the merchant’s bank account. In the UK, consumers can take advantage (Off-site) of QR code systems where the payer scans the QR code through a third party that facilitates the connection to their financial institution’s account.
As the above examples illustrate, countries leverage QR codes in different ways, which results in differences in how transactions are cleared and settled. In China, they leverage a stored value on a closed-loop network. In India, consumers can use a proprietary QR code to pay using a debit or credit card network, or a Bharat QR code to access the UPI network. Meanwhile, in the UK, QR codes are facilitating transactions from consumers’ financial institution transaction accounts via the UK’s Faster Payment Service.
In stylized terms, most QR code-initiated transactions involve the merchant presenting a static or dynamic code to their customers:
- A cashier tallies a customer’s purchases and asks the customer to scan a QR code on a placard or a screen.
- The customer unlocks their cell phone and opens an app (e.g., a digital wallet or mobile banking app) that contains their banking or other account information.
- Within the app, the customer uses a camera feature to scan the QR code, which, in the case of a static code, prefills the merchant’s payments identifier and allows the customer to enter the payment amount and send the payment. With dynamic codes, the code can be personalized in a way that a “request for payment” (RFP) with the payment amount and other transaction details can be initiated. In this instance, the customer can simply review and click confirm to send the payment.
- With faster/instant payment services, the process ends with an immediate credit transfer between the consumer’s account and the merchant’s account at their financial institutions.
Innovation two: Changing invoicing and remittances
Some countries are beginning to place QR codes on invoices to complete payments. For instance, in the Netherlands a bank-centric payment method has developed a QR code (Off-site) for e-invoicing and remittances. In addition, the European Payments Council (Off-site) (EPC) has published guidelines for initiating payments via a QR code. These guidelines will support the development of functionality to enable businesses in Europe to place QR codes on invoices and receive payment on instant payment networks in compliance with the EPC’s SEPA Instant Credit Transfer scheme (Off-site).
This innovation can help streamline how businesses pay vendors. Instead of mailing a check, or logging on to the vendor’s portal to initiate a purchasing card or ACH payment and then manually entering the payment details into their accounting system, the merchant can upload the invoice into their accounting system, initiate the payment, including the remittance details, and reconcile the transaction automatically.
Moreover, if businesses use an instant payment service to send the invoice, the payment and the remittance details, both payer and payee benefit by:
- Optimizing cash flow: With instant payments, businesses can guarantee immediate transfer of funds, allowing them to control the timing of their payments while eliminating the risk to the vendor of returned payments due to insufficient funds.
- Accelerating access to supplies: Vendors that require payment in advance of shipment can release orders more quickly with instant payments while providing a benefit to their customers.
- Streamlining reconciliation processes: QR codes can take advantage of instant payments’ RFP functionality to send an invoice and then enable accurate remittance information to be automatically included with the payment, saving both the vendor and its business customer the need to manually gather and handle the information.
The growing use of QR codes to initiate payments at point of sale suggests that B2B remittance scenarios like the one below could eventually gain traction as well:
- A vendor emails or sends a paper invoice to a small clothing store for 50 t-shirts. At the top of the invoice, the vendor includes a QR code that the clothing store can use to complete the transaction via an instant payment.
- The clothing store owner decides to pay via the QR code and opens their banking app to scan the code.
- After scanning the code, the owner is directed to a page where the payment details are pre-filled.
- The owner verifies the information and clicks a button to complete the payment. The funds (and relevant remittance information) are immediately sent to the vendor’s account.
QR codes are attracting attention (and potentially gaining a foothold) in the U.S
In the United States, most in-person payments involve a credit card, debit card, cash or check. However, consumers and businesses are increasingly using mobile phones and other internet-connected devices to initiate payments. And there’s some indication that QR code-initiated payments are starting to occur in the U.S. For example, merchants like CVS are using QR codes at select stores to enable their customers to complete transactions via their PayPal or Venmo account. In addition, the U.S. Faster Payments Council recently created (Off-site) a QR code work group that aims to develop a QR code interface for faster and instant payment transactions.
As developments like these continue to unfold, it’s possible QR code-initiated payments will become more common in the United States, particularly for initiating instant payments. Consequently, it may be time to think about what this may mean for your business. Visit the instant payments education page to learn more about the benefits of instant payments and their potential uses.