The Rise of QR Codes

Quick Response (QR) codes, tiny black-and-white squares, can be read at ten times the speed of traditional bar codes; hence they were called ‘Quick Response’ codes or QR codes for short. They are two-dimensional black and white barcodes that can reveal a URL (web address) or other information with a scanning device. The QR codes we know today were invented in 1994, almost 30 years ago, for inventory management and production control in Japanese auto manufacturing by an engineer named Masahiro Hara at the Denso Company. They are now widely used including for payments.

The development of QR codes was helped by the patent being made open source resulting in firms across Japan adopting and developing them. Approval of an international ISO standard for them in 2000 ensured widespread use internationally with the low cost of QR code systems also making them affordable for companies in developing countries for industrial and retail uses.

A further boost for QR codes came in 2017 when the latest mobile phones no longer required a separate application to read QR codes. With iOS 11 in 2017, Apple added native QR code scanning to the iPhone camera app and Android devices were equipped with native QR code scanning with Android version 8, released in 2018.

QR codes provide a low-cost way for consumers and merchants in developing countries to make and accept mobile payments since there is no need for expensive point of sale (PoS) hardware. Merchants and consumers display or scan a printed QR code. This was particularly important before Near Field Communication (NFC) equipped devices were widely available allowing so-called mobile wallets to be used.

QR codes have become the dominant mechanism for initiating mobile payments in China and India. In China QR code initiated mobile payments have displaced the use of cash for most low-value transactions - from in-store purchases to paying for a taxi. QR codes have been widely adopted for remote e-commerce because they allow users to pay by scanning a QR code displayed online or on a poster displayed offline.

QR codes are also enabling the rapid growth of mobile payments in Southeast Asia, in countries like Indonesia, Thailand, Malaysia and the Philippines.

There is a growing industry focus on the potential for QR-code initiated payments in developed markets such as the US and Australia.

Privacy, crime and QR codes

QR codes turn analogue interactions, such as buying a pizza, into digital ones, which can be tracked and the data then used. The privacy issue with QR codes is the broader tracking apparatus the codes are part of rather than the codes themselves. QR codes also come with some security risks. There are a variety of risks - the malicious QR code in a high-traffic area trick, where a hacker sticks a QR code inside a phishing email designed to fool recipients into opening a malicious link or attachment, hackers bet on unsuspecting people pulling out their phones to scan, and apps claiming to be QR scanners that spread malware.

Civic Science recently wrote about QR codes including a poll by Gen Pop asking whether people like using QR codes to access information. Only 12% said yes, 30% no and 35% had never used them. The remainder had no opinion. It appears that for uses other than payments, QR codes may not be widely adopted.

PSP’s QR Ph system

The Bangko Sentral ng Pilipinas (PSP) has now fully rolled out the QR Ph person-to-merchant (P2M) payment facility working with Philippine Payments Management Inc. QR Ph is now the national standard for QR technology and code scanning for payments.

The aim of PSP is to allow small unbanked vendors to join the digital payments ecosystem. The PSP Governor said, ‘Because of its low cost and ease of use, QR Ph P2M can enable small unbanked vendors, such as sari-sari store owners and tricycle drivers, to participate in the digital payments ecosystem and allow them to build financial profiles which may eventually facilitate their access to other financial products and services that can help them grow and enhance the resiliency of their businesses’. Currently there are over 20,000 participating merchants in over 30,000 locations.

With the interoperability feature of QR Ph P2M, consumers and merchants do not need to maintain an account with the same bank or e-money issuer to enjoy its convenience.

Eventually, QR Ph P2M may also be used for bills payment.