FIS Modern Banking Platform
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Feb 12, 2019
“Mobile payments” is a broad term. As the ecosystem has developed, various new technologies have emerged to change the way we act and transact in-store and, increasingly, online. Two technologies stand out in the mobile payment market: NFC (Near Field Communication) and QR (Quick Response) Codes. Proponents of NFC claim it is faster, easier and more secure. Proponents of QR Codes claim to reach a wider market since all smartphones can already read or present them, and that the technology to support them is cheaper and much less disruptive to retailers.
Importantly, the power of mobile payments lies not only in simplifying existing payment processes but in enabling new, enhanced, seamless buying experiences. Nobody likes waiting in line. For retailers, removing friction at the checkout is central to enhancing the overall customer experience. But is it just an either/or question?
NFC surprisingly predates QR codes by about a decade; the patent was issued in the early 1980s. However, it wasn’t touted as a payment mechanism until the late 1990s, and it is only in the last five years that NFC has become anything approaching mainstream. After an uncertain start, NFC has emerged as a leading proximity payment technology. The advent of host card emulation (HCE) significantly reduced the complexity for banks and retailers deploying NFC payment solutions, enabling users to make standardized EMV contactless transactions with their mobile device. The position of NFC within the ecosystem was cemented by the launch of the various Pay platforms (Apple Pay, Google Pay, etc.), collectively known as “The Pays”, which all use the technology.
As these platforms and mobile wallet solutions mature, NFC mobile payments are here for the long-run, supported by the wider proliferation of NFC-enabled smartphones and an expanding EMV contactless infrastructure willing to accept them (although it is often not enabled at the POS). However, it is the need to upgrade retailers’ POS terminals to accept NFC-based payments, or to certify the use of the technology at NFC enabled devices, that greatly slows its potential growth.
The predictions of NFC’s dominance are somewhat premature. While NFC is no longer the reserve of top-end users as we are starting to see NFC technology in ever cheaper smartphones, but the majority of sub-$200 phones don’t have NFC capability yet.
To summarize: NFC mobile payments provide more of a “card-like” payment experience but requires the inclusion of several non-traditional payment companies (Apple, Google, etc.) NFC is also more expensive in the deployment of hardware for both companies and users.
Originating in the early 1990s to easily track auto-parts in Toyota factories, QR codes took a long time to reach the payments industry – the first pilots didn’t start until 2011 and 2012. But since then, QR code mobile payment initiation has seen widespread usage. The advantages are plain. You simply need a smartphone camera, or to present a barcode on a phone screen, and a decent internet connection to conduct a payment.
A QR code-based solution means even a $60 Android smartphone can run mobile payment apps. In the U.S, the growth of QR code usage for mobile payments has come from merchant specific solutions. For example, the launch of the Starbucks app with the presentation of a QR code on the consumer’s phone for payment was the most successful mobile payment scheme for many years. More recently, users are more widely presenting a QR code, or scanning a code at cash registers. Walmart Pay and Target Pay have quickly spread across the U.S. making use of QR codes to facilitate the payment process mainstream. You simply log into the retailer’s app, enter your credentials or biometric, and scan or present the QR code at the point of sale to complete your payment. FIS’ Cardless Cash is also a QR code mobile payment solution, allowing a financial institution to provide its consumers a way to withdraw cash at participating ATMs using their mobile device.
Internationally, the growth in QR code usage has been largely driven from Asia with China and India witnessing impressive growth, essentially rendering cash obsolete in many urbanized areas. Consequently, many retailers across the globe are moving to leverage the simplicity and flexibility afforded by QR codes at the point-of-sale. The result has been an explosive growth in QR code-enabled payment apps such as AliPay and WeChat in China, BharatQR in India and Snapscan and Zapper in South Africa. More recently, WhatsApp has adopted QR codes as one payment option in India. Then there’s Sweden’s popular Swish payments app, launched back in 2012.
The QR code technology is improving too, as India leads the way for solutions like the BharatQR platform. The platform essentially seeks to unify the various payment gateways and services, providing one interface for the disparate services. In July of 2017, EMVCo published QR Code Specifications for Payment Systems, both merchant- and consumer-presented modes. Moves to standardize QR codes internationally have been slow though, leading to potential interoperability issues going forward.
To summarize: QR code mobile payments generally allow for a richer mobile commerce payment experience as the payment process is integrated into the mobile app allowing for ads, offers, and loyalty to be included. Members of the existing payments ecosystem, merchants or issuers, can create their own payment schemes without expensive hardware either for themselves or consumer and without reliance on phone manufacturers for access to secure elements. The challenge for QR code mobile payment solutions is that they are generally independent solutions.
NFC may be the more intuitive solution based on how payments are generally performed today, but if the major mobile solutions don’t offer more payment options, they simply risk losing emerging markets and associated market share. Just look at China, India, Kenya, South Africa and many other countries for proof. Many of the top payment solutions in each of these markets don’t use NFC chips at all.
QR codes are not as seamless as NFC-based solutions, but they are a simple, cost-effective alternative for emerging markets and budget smartphone owners. For NFC, customers simply wave the NFC tag near the reader, the tag and reader communicate with each other to transact, there is no need to open an app. The QR process is more involved as the customer must open a scanner app on the smartphone, hover over the QR code, and wait for the phone to analyze it and react to the code to transact. This solution has an advantage though of access to any cell phone, allowing broader customer access.
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