QR Codes in Payments

Recently there has been a noticeable increase in announcements to use QR (Quick Response) codes in financial services and payments context. Celent has already blogged about how the code can be used to buy a Starbucks coffee. Last week, Smart Transactions launched a loyalty card, where customers can check their card balances (and receive instant merchant offers) using unique two-dimensional QR barcodes printed on the back of each card. And perhaps most interestingly, eWise, a company promoting Online Banking ePayment solutions, such as Secure Vault Payments in the US and eWise payo in the UK, also said recently that it would be launching a QR-based application by the end of the year. QR codes are essentially two-dimensional barcodes, which when scanned are able to convey the encoded information. The technology is not new - it has been developed in 1994 and has become very popular in Japan and Korea, but its adoption in the West so far has been limited. There are many potential applications for QR codes, most obviously in marketing and advertising, especially with the smart phones gaining ground. As the user scans the code, he or she can be redirected to a site further explaining the product, enriching customer experience, and enabling social interactions. According to Wikipedia, in Japan, QR codes have even been used in cemeteries on grave markers as a way to share additional information and unite mourners. So, how likely will we see this technology becoming mainstream in financial services, and particularly payments? Given that QR codes are easy to print, even by individuals, they are likely to be handy in certain use cases, such as small mobile merchant payments, potentially as a cheque replacement. Of course, many issues need to be addressed in order to use QR in payments effectively, not least the security. QR codes can be copied and re-used for fraudulent purposes, so any application using QR to initiate payments, needs to have strong authentication and authorisation capabilities. Consumer education and awareness is another barrier. Are QR codes a threat to NFC? Not really. NFC roll-out in the developed world is not without its own problems (see Celent post on Isis announcement), but in my view QR codes are likely to complement rather than replace NFC. And I think they will be much more relevant in marketing than in payments in the foreseeable future.