QR code payments pressure American banks to adapt | PaymentsSource

QR codes are heavily used in Asia and other parts of the world, but they haven’t yet caught on as readily in the U.S. for payments. That’s slowly changing, and industry experts say banks should pay attention or risk losing ground to competitors. 

QR codes can be used in several ways, such as to download an app, facilitate opening a bank account, access an ATM or for desktop authentication from a mobile device. They are also gaining popularity as a payment method, for businesses and consumers. 

While most in-person payments in the U.S. currently involve a credit card, debit card, cash or check, consumers are becoming more digitally savvy and have shown a willingness to pay using smartphones and other internet-connected devices. QR codes can also be used for payment, and that’s where a large part of the growth is expected.  

Merchants like CVS, Amazon and Walmart have already embraced QR code technology for payments, and industry watchers expect others to follow. What’s more, the U.S. Faster Payments Council recently created a QR code work group charged with “examining ways QR codes may facilitate adoption and usage of faster payments.”

Given their slow start out of the gate, many banks have questioned whether they should invest in ways to promote QR code technology, but for several industry participants, the answer is a resounding yes. It’s important for financial institutions to be forward-thinking, said Dylan Lerner, senior analyst in the digital banking team at Javelin Strategy & Research. “If you can think creatively about it, you might be able to find a use case that’s really going to benefit your customers.” 

Banks need to stay on top of this technology, especially since it appeals to younger generations, said Eli Goodman, co-founder and CEO of Datos.

QR codes are particularly popular for payments in Asia. Most people there have smartphones and many businesses don’t want to pay for POS technology due to the cost, said Peter Ryan, senior research director who covers banking and financial technology for Gartner. It’s far easier to print out a QR code that customers can use to pay, he said. 

There are other use cases, as well. In the Netherlands, QR codes can be used to make invoicing more efficient. And Visa recently partnered with QR code firms to support international payments in China, Malaysia, Singapore, Taiwan and Vietnam. 

Regulators are also taking steps to protect consumers and businesses. The European Payments Council has approved guidelines for initiating payments via a QR code and standards are also being developed in the U.S., as announced in August by the Accredited Standards Committee X9. 

“The new standard will establish the content of a QR code for payments, emphasizing interoperability, in order to process a payment digitally, and will include both merchant-presented and customer-presented QR Codes,” the group said in a press release.

There are other efforts afoot in the U.S. to broaden the use of QR codes. Zelle, for example, offers a QR code function for payments. Users can generate the code on their phone and someone else can scan it with the camera on his or her phone. The advantage is the ability to make a payment seamlessly, without sharing information with a merchant for an in-person payment, Ryan said. Venmo and PayPal also offer a QR code option for business and personal use. 

A lemonade stand operator, for example, can print out a QR code for customers to scan and pay using Venmo. “That’s how businesses in a lot of emerging markets in Asia use QR codes,” Ryan said. 

To be sure, QR codes may be a harder sell for U.S. consumers, where NFC is already in use for mobile payments and at some ATMs, and many consumers are growing more comfortable with the technology. QR codes aren’t as familiar and that’s a sticking point, Ryan said. “You’re asking people to scan something with their phone. They don’t understand the technology. There’s a lot of reluctance there.”

However, financial or other incentives could potentially improve adoption. Fintechs, for example, could offer incentives for merchants to offer QR codes, who could then pass on the savings to customers, Ryan said. In this way, they could potentially bypass a bank altogether, he said.

In some cases, embracing QR codes may become a defensive play, similar to how some banks reluctantly adopted Apple Pay. “If ABC bank doesn’t allow me to enter my card in Apple Pay and I want to use Apple Pay, I will have a little bit of a bad taste in my mouth,” said Manish Upasani, head of product at Utimaco, a provider of IT security solutions. “It’s about giving customers choices.”