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As the Reserve Bank of Australia (RBA) gets behind efforts to expand QR code payments, we ask whether a market dominated by debit and credit cards is open to change.
Last week, in a speech highlighting Australia’s shift towards electronic payments, a top RBA official committed to supporting the development of QR codes as an alternative payment method.
Luke Connolly, head of payments policy at the RBA, said that a move towards QR codes could help reduce costs and friction for merchants, and cited several other markets in Asia where such a move has already been achieved.
“While cards are currently dominant in Australia, when we look to other countries in our region, we can see alternative models of electronic retail payments that are less reliant on cards,” he said.
“In Indonesia, Malaysia, the Philippines, Singapore and Thailand, merchants are providing QR codes that their customers can use to pay them by account transfer through fast payment systems.
“These merchants and consumers have a fast and low-cost electronic alternative to card payments.”
Over the past 15 years, card payments have risen from less than a 30 percent share of transactions in Australia to an almost 80 percent share, while cash has undergone a mirror-image decline.
After making up 70 percent of transactions in 2008, cash made up about 15 percent of transactions in 2022.
According to the Bank for International Settlements (BIS), Australia also posted the highest number of card transactions per capita in the world in 2021, with a rate double that of other developed markets such as France, Belgium and Switzerland.
As such, Connolly said that the combination of card dominance and the rise of mobile payments has given the RBA a new perspective on reducing costs and increasing competition.
Going forward, the RBA said it will continue to focus on lowering card payment acceptance costs for merchants, but will also focus on integrating QR codes with the New Payments Platform (NPP), Australia’s instant payment system.
Launched in 2013, use of the NPP has increased at a faster rate than instant payments in any other developed market, as reported by VIXIO.
In Connolly’s view, such integration could “unleash” a wave of innovation in retail payments that would benefit merchants, consumers and fintechs alike.
Old habits die hard
Although the benefits of QR code payments are clear, payments industry professionals are divided as to whether a developed market such as Australia will warm to this low-cost alternative.
Zennon Kapron, founder and director of consultancy Kapron Asia, told VIXIO that having lived in China when QR code payments were rapidly gaining adoption, he is unconvinced that Australia is ripe for switching from cards to QR codes.
“I think it might be challenging because tap and go is so big in Australia and so common, and that’s become the most convenient way of making payments,” he said.
“With a QR code, you have to open up the phone, and you have to do all these things to bring up the QR code, whereas with tap and go, or with a mobile payment such as Google Pay, you just tap the device and don’t even have to unlock it.”
In 2006, when QR codes first launched in China using the Han Xin standard, it took at least 17 seconds to generate each QR code, and QR code readers had to be connected to the internet to accept payments.
Over time, however, these inefficiencies have been smoothed out, and following Alipay’s launch of a fast-generating, offline QR code payment method in 2011, use of QR code payments in China began to increase exponentially.
As Kapron pointed out, compared with cards, QR codes offered much lower friction for Chinese merchants and consumers, by removing the need for signatures, chip and PIN or expensive point of sale (POS) systems.
They also offered greater protection against fraud, for which consumers, rather than banks, are liable in China, and they were at least 20 basis points cheaper for merchants to accept.
However, as Kapron suggests, none of these factors apply in the Australian context.
In April 2020, in a move that further reduced friction for card payments, the Australian Payments Network (AusPayNet) doubled the contactless transaction limit from A$100 to A$200.
At the time, AusPayNet said the move was a “temporary” measure to reduce physical contact during the pandemic, but the old limit has never been restored.
Moreover, Australian banks are liable for fraudulent transactions if a customer’s card is stolen, so even with a high contactless transaction limit, security for the consumer is still relatively high.
In terms of costs, the RBA has spent years focused on lowering interchange fees for merchants, and has been relatively successful in this effort, particularly with regard to transactions using the low-cost eftpos network.
“I think moving away from the convenience of cards is going to be very challenging,” said Kapron. “Where QR codes have been successful is in markets where card penetration is relatively low, and where for many people the QR code is their only option for digital payments.”
Grant Halverson, CEO of Australian payments consultancy McLean Roche, told VIXIO that he shares the RBA’s enthusiasm for QR code payments.
He pointed out that the pandemic has led to a significant uptick in the use of mobile payments in Australia, and that, over time, this could evolve into wider acceptance and usage of QR code payments.
“QR code use is long overdue and has been resisted in Australia,” he said. “But the walls are coming down now, and it’s up to policy at Treasury and RBA to catch up.”
Although Western markets have invested heavily in POS systems and ISO 8583, the international standard for card-originated interchange messaging, Halverson said merchants could be better served, and competition could be better stimulated, through wider use of QR code payments.
“The key question is will it be a standalone payment — i.e. using the NPP — or will QR codes be added to existing payment options,” he said.
“When connected to the NPP, the QR code will allow much more data to be shipped, and it is mobile-friendly.”
