QR payments in simple words. How QR-ing Works and Why It’s Crowding Out Other Payment Formats

If you, a respected Russian Apple user, do not want to switch to Android, carry cards or stick stickers on your favorite gadget, then there is only one way out – to pay via QR. In some countries, it is through “quaring” that most transactions take place. Today we will analyze how QR payments work and why their share is growing by leaps and bounds.

If you decide to pay for udon at a Shanghai diner with a card (even if that card is Union Pay), then it is very likely that Uncle Liao will make a surprised face and hand you a card with a QR code. Indeed, in China, almost all everyday payments are made by scanning black and white squares.

Instead of a price tag

I see Uncle Liao with a cardboard box like this. But in the picture he is not selling udon, but some unknown Chinese curiosities. But I think he also sells udon.

Yes, China is the undisputed leader in QR payments. But many other countries are also actively getting used to them. Quaring is especially developed in Asia – for example, in Thailand, South Korea, India, Uzbekistan and other countries. But in other regions, it is far from dead and is actively growing. In Russia, QR-payments also feel good: the Russian Central Bank has developed them before as a feature of the Faster Payments System, and in the last year and a half, for obvious reasons, their share is completely flew up into the sky.

A variety of analytical offices (for example, this one) predict that in a couple of years more than 2 billion people around the world will use qar payments on a daily basis.

So, it is likely that payment via QR will become the dominant payment format in the near future, pushing cards into the background (I do not guarantee, but there is a big chance).

So, how does QR-ing work in general, what it is, and how it is better or worse than other methods. Let’s sort out.

1. Why does a QR code get along well with payments?

I would like to start with one simple thought:

A QR code, also known as a Quick-Response Code, is just some kind of information, but encoded as a set of black and white particles.

This information can be anything, for example:

• The history of some statue in the museum. Then we draw a kuar on the nameplate and glue it next to the pedestal.
  
• Information about your covid vaccination. In this case, the black and white ornament will appear in a special section on gosulugs.
  
• Or, for example, your bank account details.
  

In the latter case, we will talk about QR-payments (or, as it is sometimes called, “quaring”). But in absolutely all cases, the QR code will remain only a way to transfer information. In other words, QR payments are not some super-unique technology, but just the use of the most common QR codes in one particular area.

But it just so happened that the QR code has several valuable features at once, making it an ideal technological basis for a whole galaxy of new payment services. And here are the features:

• First, a QR code is an extremely undemanding thing. To display a QR code, you only need a screen, and to scan it, you only need a more or less tolerable camera. Simply put, a simple smartphone, which everyone has in the modern world, is quite enough. African tribes and Amish communes will be put out of brackets. However, no one forbids showing a QR code on a piece of paper. You can even attach a payment QR code to a cat – and then you get a payment QR cat (I hope you will forgive me this joke).

In China, there is a cafe where cats dressed in T-shirts with QR codes walk around. By scanning the cat, you can pay the bill or leave a tip. Agree, attaching a payment terminal to a cat will be much more problematic.

• Secondly, QR codes offer a huge number of combinations. The number of unique combinations of black and white squares is so titanic that I will not give it here. Just to mention that Chinese WeChat uses more than half a trillion (!) Kuars every year, and this is not even 0.001% of all possible combinations. In short, no matter how much the Chinese buy udon, we will have enough unique QR codes for a long time to come.
  
• Finally, over the past few years, everyone has learned to use QR codes. I think even grandmothers in the village have heard at least something about it (unlike these NFCs of yours).

Add to the above the fact that global payment systems (Visa, Mastercard and others) at one time forgot to cover the payment coir market, and you will get a suitable alternative tool for payments.

It is not surprising that in the last 5-15 years (depending on the country) it has been adopted by operators of national payment infrastructures and fintech services of digital ecosystems (more on this below).

Also, the QR code is beautiful. For example, a couple of months ago, a Chinese craftsman learned how to make artistic QRs using Stable Diffusion. In terms of functionality, it is no worse than usual.

2. What kind of payment QR codes are there?

So, although the QR code itself is an absolutely ingenious thing, it would not turn out to be called rocket science. Of course, there are also technological differences between the coirs – for example, the ways of encoding information (numeric, alphanumeric, byte, etc.).

But in this article, we will not dive deep into this – if you are interested, you can google 100500 technical articles about the technical nuances of these things.

Now we are talking about QR payments. And here, too, there are differences:

• The first is the source of QR. Who shows the QR code, and who scans – the seller or the buyer.
  
• The second is the saturation of the QR code with information. You can make a basic quarry containing bank account information. You can add some additional information to it – for example, the purpose of the payment. And also a specific amount, but here we are already moving on …
  
• … to point number three: the dynamism of the QR code. Perhaps this is the main technological difference. A QR code can be static or dynamic, and here we need to dwell in more detail.

A static QR simply contains the bank account details of the seller or buyer. In this case, after scanning, you will have to enter the amount yourself.

This is an unnecessary action for the client (i.e. complicating the client path, which is always not very good), but such a code can be pasted somewhere near the cash register and sending customers to pay with a slight movement of the hand.

Dynamic QR code is cool and advanced. But there is a nuance – if the seller wants to generate dynamic quarries, then you won’t get off with a cardboard box. You will have to buy additional equipment that can handle this very dynamic.

For example, here is a dynamic QR screen that integrates with cash register equipment. Such a thing costs about 6-7 thousand rubles. The store can afford it, but our conditional uncle Liao is unlikely.

There are also several intermediate modifications. For example, when a static QR code leads to a dynamic web page. In this case, the QR code can be printed and not changed, but the payment chain will be extended by an extra load.

Or another option – a static QR contains a link to a dynamic page, from which, when scanning, the actual data is pulled into the payment application. As a result, a nipple system is obtained, when the QR can be left unchanged, but the buyer does not need to open an extra page either. True, the likelihood that something crookedly pulls up is growing.

A few words should be said about the source of quar. In the vast majority of cases, the QR is created by the seller (then it is Merchant presented QR), and the buyer reads it.

But there is also the reverse mechanics – the buyer opens the QR code of his bank account, and the seller scans it, thereby debiting the required amount. In my opinion, this is the most convenient way for the buyer (although not the safest – more on that below), but the seller will need a little more functional equipment.

Customer presented QR-code. The scanner can be a separate device or built into the payment terminal. Apparently, as the penetration of quaring grows, terminals with QR scanners will become more and more popular.

3. Are QR Payments Perfect?

In fairness, it must be said about the shortcomings of quaring. They are like this:

• The first is “Internet addiction”. Card payments can exist without the Internet. If it does, then payment terminals can read data from a card or NFC, store it in their memory, and when they turn on the Internet, transfer it to the payment system. QR without the Internet turns into a pumpkin from the word “absolutely”. So, if your store is located in the basement with a poor network, then quartering may be contraindicated for you (the buyer will stupidly not be able to load the page after scanning).
  
• The second is: some security questions. The crooks are not asleep here either. Let’s say you show a QR with your account details sewn in at a small stall, the seller of which turns out to be a scoundrel. He quietly takes a picture of your code, and your money cried. Or another option – while the seller is gaping, the scammer will stick his scammer kuar over the real one. As a result, the money will not be spent on paying for your goods. However, scam is possible with bank cards. So, I will assume that quaring is not much inferior to him here (unless crooks use other methods).
  

Nobody canceled the classic scam, when after scanning you get to a phishing payment page that for some reason asks you to enter card details. However, QR here is just a redirect tool, and by no means the main culprit.

• The third disadvantage is that QR payments require quite a lot of gestures. You need to take your phone out of your pocket or purse, then open the quaring application, then the camera will start to blunt during the scanning process… Then you will press the “translate” button, and the Internet will turn off, and the confirmation will hang. As a result, you stand in front of the cash register like a fool and think: “Have the money been written off, or do you need to do everything again?” It is because of such a hell of fine motor skills that many people initially spit on these coirs of yours and simply pay with a card.
  
• In addition, often there is no cashback for QR-ing, or it is significantly less than for cards. Such alignment, for example, in the Russian Federation. The reason is that the commission for QR is lower than for cards, which means that banks have nowhere to take budgets for cashback. However, this is not the case in all countries – in some, all fat cashbacks, on the contrary, are in QR payments (depending on how the size of commissions correlates in a particular country). However, this is not such a minus. Or rather, for whom it is like – a minus for the consumer, but a huge plus for business.
  

4. Why is QR-ing is especially preferred in Asia?

QR-payments are highly developed in many countries, but guys from Asia (including, of course, the main fans of quaring – the Chinese, as well as the founders of the technology: the Japanese) and residents of some other so-called. “developing” countries.

Why is that? I suppose that the explanation lies in the competitive situation in the markets during the years of the emergence and initial development of technology.

In the USA and Western Europe, by the beginning of the 21st century, card payments were already highly developed. Local banks actively issued Visa, Mastercard, AmEx and other cards, and the population was already accustomed to their daily use. Therefore, it was much more difficult for any exotic payment methods to squeeze out a share of the payment market.

But in all sorts of Thailand, Korea, Brazil and India, this was easier:

The penetration of cards is much less; for a significant proportion of the population, payment cards were still exotic at that time. Consequently, most merchants (perhaps, except for large chain stores) had no incentive to spend money on purchasing payment terminals. But everyone could put a sign with a QR code next to the cash register.

In China, QR-ing dominates so much that many street musicians and beggars offer them to donate in this way.

Then the classic “circles on the water” began. Business began to offer customers QR payment → The population began to taste it and slowly realize that the new payment method is generally not bad and works in many places → Demand for quaring from buyers has increased → Business began to introduce quaring even more actively. And so on in a circle.

It is worth noting that this spiral of growth would not have been possible without the active involvement of two important players:

• Firstly, national payment infrastructure operators (mainly based on local central banks). They found out that the method is quite working. So, you need to ride this wave. Well, you know, in order to reduce the share of cash (and, on the contrary, increase taxes), squeeze the market for all kinds of Visas with Mastercards …
  
  And in general, with the help of quaring, increase the share of domestic payments under your direct control. As a result, the states began to saw national payment QR services. Here is the Indian UPI, and the Brazilian PiX, and the Thai PromptPay, and, of course, our SBP. By the way, this logic may partially explain why quaring has become especially popular in countries with active state participation in the economy.
  
• Secondly, consumer ecosystems that have begun to actively adopt quaring. As you know, the core of any self-respecting ecosystem should be a payment service that enhances the flow of client activity between different products. You know, so that the user of an online cinema has a financial incentive to try food delivery or a taxi aggregator (or whatever else ecosystems usually have).
  
  As a result, in countries with strong national ecosystems, QR payments have become an important payment method. Here are the Korean KakaoPay, and the Kazakh Kaspi, and of course, the Chinese WeChat and Alipay.
  

Typical Chinese market be like. The main thing here is not to miss.

Both “national” and “ecosystem” quarings had their own trump cards up their sleeves. State services set reduced acquiring commissions (much lower than card fees), funded from the budget.

Ecosystems, on the other hand, perfectly crossed quaring with their other advantages – for example, they accrued cashbacks that could be used in their other products. It was also easier to teach users of popular ecosystems to open the application for scanning – after all, the native interface is familiar and familiar.

As a result, QR further strengthened its position in the payment markets of these countries. Yes, if you do not take China into account, then kuaring is still difficult to call the main way. Rather the first among the alternatives. But its share is growing. And who knows what will happen next.

Friends, if the article came to you, then be sure to like it and send it to a friend who is fond of payments / fintech / banking.

Soon I will write the second part, where I will analyze in more detail the key QR services in different countries – SBP, Chinese WeChat and AliPay, Indian UPI, Thai PromptPay and many others.

If you like it, then subscribe to my channel Disruptors. There is enough content like this, where I break down all sorts of complex things in simple words and with a pinch of cakes. And there are also many analyzes of key business events and innovations, written in a lively, non-boring language.

By the way, here is a link to my channel in QR format. Well, since the article is about quarries)))
I also recommend to look at my articles about card payment systems(one and two), if you are interested in the topic.