Following demonetization, MasterCard is offering QR code-based payments for merchants through a solution called Masterpass, which it is rolling out with RBL Bank; mobile wallet OnGo, which is trying to bring digital payments to auto-rickshaws in Mumbai, will be the first application allowing customers to send money through QR codes.
- How it works: Essentially, Masterpass links a card issued by MasterCard to an application. Once activated, customers will have to scan the QR code to initiate a payment and the amount is deducted from the linked card. Masterpass allows card issuers to develop their own digital payment solution using APIs and SDKs, while merchants can use the same to enable checkout online and within mobile apps.
- Visa has something similar: its competitor Visa has a similar product called mVisa for QR codes and has tied up HDFC Bank, ICICI Bank, Axis Bank and State Bank of India. mVisa is available on a number of applications from the bank including PayZapp (HDFC Bank) and Pockets (ICICI Bank). Most recently, Visa has tied up with TransServ’s Udio wallet for QR code payments.
QR codes as an alternative to POS
Over the last week, card payments across the country have been failing with the increased load. Note that India has only around 14 lakh POS terminals for over 755 million debit cards as such card acceptance infrastructure is woefully low.
The appeal of QR code payments is understandable, Vijay Shekhar Sharma, CEO of Paytm explains:
Consumer has a dumb device called card, and what merchants carry is a smart device called POS with Internet connection. So, we are changing that structure. We are saying that merchant will not have a smart device or Internet connection, and consumer will have that. So payment happens via a QR code and the processing happens on the consumer side.
Paytm has been capitalising on this and has extended QR codes to 850,000 offline merchants while other wallets such as MobiKwik have been quick to follow. Meanwhile, Rahul Kothari , business head of PayUbiz, told MediaNama that the company is considering deploying QR codes in the short term for offline merchants to help ease the pain of doing business.
Why QR Codes work for merchants: Merchants would be happy to accept QR codes as a form of payment as it reduces their costs of maintaining a machine and ensuring that there is no downtime. Card payments at POS terminals also incur a significant cost in terms of merchant discount rate (MDR), an inter-bank exchange fee a merchant has to pay. Usually, merchants have to pay 2-2.5% of the transaction as MDR for credit card transactions while it is 1% or 0.75% for debit cards.
Meanwhile, wallet-to-wallet transfers to merchants, as in the case of Paytm, incurs no charges and recently Paytm has reduced wallet-to-bank account transfer fees to 1% (MobiKwik and FreeCharge have waived off this fee temporarily).