Is QR code technology the next wave in contactless payment convenience? Is it time for merchants to enable payments through a simple scan of a QR code?
Not surprisingly, the U.S. has been slower to adopt newer digital payment methods than other economically fast-growing countries. Europe and many major Asian countries have readily adopted various new digital payment technologies such as EMV, contactless, and QR Code payments.
But here in America, contactless payments have a much different story.
While other countries embrace digital payment methods, it has literally taken a pandemic to push Americans into greater adoption. Prior to 2020, consumers and merchants alike looked at NFC contactless payments with disinterest. But as soon as consumers became concerned about contact with a deadly virus, contactless payments got a lot more interesting.
Prior to the pandemic, adoption of contactless or digital payments was only slowly beginning to catch on. While countries such as Europe rolled out contactless chip enabled cards long before the U.S. and subsequently, enjoy greater adoption.
Banks and credit card issuers began flooding the market with contactless chip enabled cards. Consumers were beginning to realize the convenience of not carrying a wallet or purse. It was novel to pop into the store with just your phone or smartwatch and be able to complete a transaction.
But it wasn’t until the pandemic that consumers really began to embrace the value of the technology. Nevermind that it’s more secure.
AT some point consumers will return to shopping at brick and mortar stores. Well, at least some will! But if there’s one thing we know for sure, it’s that merchants must make consumers feel safe. Consumers have already indicated that they won’t feel safe if there isn’t an option for contactless payments.
NFC move over! There’s a new contactless payment method: QR Code contactless payments.
A QR code is a Quick Response code. Scanning a QR code generates a quick response that triggers an action. It could be a link to a website, or in this case, trigger a payment transaction.
QR codes can hold a lot of information. They’re made up of a matrix of tiny squares within the larger square that makes up the code. A QR code is a lot like a crossword puzzle. It can hold information in rows both vertically and horizontally. The amount of tiny squares directly correlates with how much information the code is harboring.
How does it work? Well, that depends on the type and size of the merchant.
There are two ways the use of QR codes can trigger a payment transaction. For very large retailers and chains, the retailer will scan the customer’s QR code. For small and medium-sized businesses, the customer will scan the merchant’s QR code.
Here’s how it works:
The customer will generate a QR code on their phone at the time of payment. The code is tied to the customer’s payment method of choice. It could be a credit card, an ATM card, or possibly another payment method such as PayPal.
The cashier scans the customer’s QR code with their scanner, which triggers the payment transactions to process.
For SMBs, it works the other way around.
The merchant will show the QR code to the customer who will scan it with their phone. Reading the QR code will trigger the payment transaction with the customers pre-selected payment source.
Will consumers adopt QR Code Payments?
There are several things we’ve learned about consumer behavior. They increasingly want a quick and frictionless checkout experience. They also want to know that their transactions are secure without it inconveniencing them. And, since the pandemic, they’re increasingly concerned with coming in contact with surfaces.
In an effort to keep up with changing consumer trends, alternative payment methods such as tap-to-pay and QR code payments have become more commonplace.
But QR codes are nothing new. Consumers are used to seeing them and scanning them. QR codes have been used for many applications long before payments. Restaurants use QR codes for everything from pulling up the menu on your phone to generating the check. Consumers are used to scanning QR codes for loyalty programs and to trigger the download of a store’s app.
The Starbucks app was one of the earliest successful employments of a QR code for payment. The app allowed customers to present a QR code (tied to a stored payment method) for payment. Dunkin Donuts is another great example of how businesses tie QR code payments to rewards apps that also allow consumers to redeem offers and earn points.
Now, many large department stores such as Macy’s, Kohls, Walmart, and Target utilize QR technology when their customers pay through their apps. At the innovative Amazon Go stores, QR codes are used to track customers as they choose items and charge them as they walk out the door. Let’s not forget how QR codes are used at Amazon Prime and Whole Foods. At checkout, the customer scans their QR code on their phone to get their 5% Amazon Prime discount.
Consumers either have strong feelings or almost no feeling regarding contactless payments.
So, in a way, consumers have already adopted QR code use in their daily lives. They’ve just not necessarily adopted them for contactless payments. Widespread consumer adoption of QR code digital payments may depend on perception.
Do consumers feel that it is secure? Before, when a consumer scanned a QR code, they were getting information. Now they are giving information, sensitive information. And we know credit card fraud is top of mind for most consumers. Widespread QR payment adoption may depend on consumer education in the security features of the technology.
On the other hand, consumers that have adopted and rely on contactless payments won’t go back. They expect to be able to use digital payments, and they don’t want to shop at merchants who don’t offer the option. And believe it or not, according to the September 2020 How We Shop Report, consumers actually choose to shop at a particular merchant based on the payment options they offer. I’d be willing to bet that hadn’t crossed most merchant’s minds.
QR vs NFC – Is this better or more convenient?
QR codes payments are more accessible to more merchants and more consumers.
There’s no expensive equipment to buy. QR codes can be read by the barcode scanners that most merchants already have and use every day to ring up products. Merchants only need to make a call to their merchant services provider to have the functionality integrated.
With QR codes, any customer with a smartphone could make a contactless payment, regardless of whether they have a contactless chip enabled card.
Of course, any customer with a smartphone can tap-to-pay with their mobile wallet. Also regardless of whether they have a contactless credit card.
However, it’s important to point out that not all phones are equipped with NFC technology. Less expensive phone models do not have NFC built into the phone. But any phone with a camera can scan a QR code. This makes the payment option for accessible for a wider range of customers.
NFC only works if merchants have upgraded to EMV compliant, NFC capable payment terminals. But as of last year, almost half of all merchants had not yet upgraded to NFC compatible terminals. On top of that, many that do have them, do not have the technology enabled. This has only fed consumers slow adoption. Availability is not guaranteed, and consumers don’t like to try things they’re not sure will work.
Both NFC and QR payments are convenient, just in different ways.
NFC stands for near field communication, which uses radio frequency technology to allow two items to communicate. So, NFC, as its name implies, works within proximity. The customer only needs to place their phone “near” the terminal for it to connect. It doesn’t need to be precise, or aimed, or angled in any certain way to work.
In addition, NFC, considered a contactless payment, still requires some form of contact. When a customer uses NFC to tap-to-pay, they still must enter a PIN code or sometimes a signature is required. They are not totally contactless.
QR code digital payments, on the other hand, require no PIN and no signature. Consumers just scan, confirm, and go. However, QR codes require more precise placement than an NFC transaction. The customer must aim their camera precisely on the QR code within the corner markers for the camera to read the code.
This could cause extra friction at checkout. Something both the consumer and the merchant want to avoid at all costs.
Downside of QR code payments for brick and mortar merchants.
If there’s one downside to accepting QR payments, it’s that accepting payments this way makes it a card-not-present transaction. So even though the customer is standing there, and they’ve tied their payment information to their QR code, it is treated as card-not-present.
Brick and mortar merchants enjoy the luxury of slightly lower processing rates specifically because it is a card-present transaction. Card-not-present transactions are subject to higher interchange rates. This will undoubtedly lead to higher overall processing charges for merchants.
This technology could save merchants from the expense of upgrading to NFC compatible terminals. And this could make keeping up with the latest technology in the eyes of their customers easier. Which is of great benefit to small and micro-business owners whose margins are tight, but want to remain relevant.
But merchants must weigh the long-term costs of processing payments as if they are card-not-present transactions. Many times, the ongoing costs of higher processing rates will greatly outweigh the onetime cost of a new NFC terminal.
At the end of the day, QR code payments could make contactless payments more accessible for merchants and consumers of all types. And that could prove to be priceless.
There is an undeniable future for QR code contactless payments in the U.S. and beyond.
EMVCo, the creator and governing body for EMV technology, have been planning for the future. They created QR code standards in 2018. QR codes offer a cost-effective alternative to NFC payments for merchants. And they offer contactless payments for a wider range of consumers. They understood this.
QR code usage is widespread in China, Japan, and India, accounting for trillions of dollars of transactions. India, one of the fastest growing ecommerce markets, built its own QR code payment wallet Paytm.
While the U.S. has historically been slow to adopt new payment technology, the Coronavirus has accelerated the use of contactless payments.
Merchants that already offer contactless payments are seeing them used more often. Merchants that don’t, will need to up their game. Consumers expect merchants to accept all of the most cutting edge payment methods.
By adding QR code payments, you can offer multiple payment options that can also be used in multiple ways. QR payment options can really help you transform your business into more of an omni-channel experience as well. Scanning a QR code for purchase can happen in person in your store, but it can also happen anywhere. Meaning they work within your social media outlets and your email campaigns. This allows customers to buy from you wherever they are and however they’re interacting with you.
Bankcard Brokers is your source for legitimate solutions at transparent prices.
Merchants adapt their businesses based on customer demand. And in a post-COVID-19 market, customers will demand more contactless payment options and a carefree checkout experience.
At Bancard Brokers, we’re dedicated to bringing the most cutting edge solutions the industry has to offer to our clients. Each of our payments advisors holds ETA-CPP certification. We have the experience, education, and expertise to recommend the best solution for your business needs.
If you’re ready to add QR code payments to your suite of payment options for your customers, call us today. It’s time you see what it feels like to “Experience The Bankcard Brokers Difference!”