Payment companies that have deployed proprietary Quick Response (QR) codes across their merchant networks must shift to the UPI or the Bharat QR codes by March 31, 2022, the Reserve Bank of India (RBI) has directed. Payment companies cannot issue their own proprietary QR codes any more.
Payment companies such as Paytm, Phone Pe, Bharat Pe and Google Pay had acquired retail merchants over the last five years and deployed QR codes that customers could scan with their corresponding payment wallets. But with the advent of the Unified Payments Interface (UPI) and its growing user base, the proprietary nature of these QR codes restricted interoperability. Interoperable QR codes allow customers of one payment company to scan and pay for goods via UPI at a merchant on a different payment network. Paytm, PhonePe, BharatPe and Google Pay have been deploying interoperable QR codes since last year though with the RBI’s recent direction, they would have to replace all proprietary QR codes across their network by March 2022.
The Bharat QR and UPI QR codes are interoperable QR code standards that can accept payments from any card and third-party UPI application.
Phatak Committee had recommended prohibiting proprietary QR codes
In its July 2020 report, a high-level committee constituted by the RBI recommended that payment companies should be directed to issue either the UPI QR or the Bharat QR code and that proprietary or closed loop QR codes were a hindrance to an open and interoperable payment ecosystem. The committee was headed by Indian Institute of Technology (IIT) Bombay Professor D.B. Pathak.
The committee stated that a common QR code or single QR across all payment instruments would create greater concentration risk within the system and had thus recommended that the regulator direct payment companies deploy either of the two interoperable QR codes. “While closed loop systems make the customer experience more convenient, they also require customers to acquire and manage a payment app. So, if a customer wants to use a phone to pay at 10 different retailers — each with its own proprietary system — he or she would need to manage 10 separate apps,” the report said.
Bharat QR code, which was developed by RuPay, Visa, MasterCard, and American Express, currently has two versions. The first version only supports card payments while the second supports both card and UPI payments. “As per RBI data, 2 million Bharat QRs have been deployed in the market by acquiring banks. The volume of digital payments made with Bharat QR is still very low. Multiple stakeholders have indicated that merchant on-boarding, lack of standardization of Bharat QR enabled apps and commercial models need to be looked at,” the report said.
On the other hand, there are three versions of the UPI QR code, which was launched by the National Payments Corporation of India in August 2016. A total of 20 million UPI QR codes have been deployed in the market with around 250 million transactions taking place every month through these QR codes, the report said.
- The first version supports peer-to-peer and merchant payments using UPI.
- The second version has enhanced security features and new functions.
- The third version, which allows Goods and Services Tax payments, tips and international transactions, is under development.
Phatak Committee’s other recommendations
- The Government or the RBI should allow a controlled interchange instead of zero merchant discount rate (MDR) on QR code transactions, as well as provide tax incentives to merchants and provide incentive schemes to popularise QR code transactions.
- As QR codes will migrate from the paper or sticker version to a dynamic version, payment company applications for merchants would need to enable accepting payments multiple interoperable QR codes.
- Standardise applications and QR code branding to deliver a consistent and seamless experience for customers.
- Encourage consumer-specific QR codes for low-value transactions.
- Payment companies should explore developing features like “Save QR”, “Invoice relay through Dynamic QR”, or “Setting up eMandate” for recurring payments.
- Extend Person-2-Merchant category for Bharat QR to enable faster and simpler onboarding of micro-merchants
- Create a common registry, either through a central trust or through blockchain, to enable payment apps to look
up and validate recipients.
- Improve requirements for signed Bharat QR codes and signed UPI QR codes and consumer-presented offline QR codes should preferably be a signed dynamic QR.