RBI Committee’s Report on Analysis of QR Code

Ashish M. Shaji

25 Aug, 2020

Considering the high volume of digital payments using UPI QR (Quick Response) on a monthly basis, the Reserve Bank of India had set up an expert committee under the leadership of Professor DP Pathak to assess the scope for improvement in the existing QR codes.

The RBI committee submitted its report on 10^th July 2020. In this article, we shall look at the analysis of the committee and its recommendations. 

What was the objective of the RBI Committee?

The objective of the committee was as mentioned below:

• To examine and review the present system of QR code in India for facilitating digital payment;
• To analyze the benefits of a common QR code;
• To assess the scope for the improvement in existing QR code and suggest measures for the adoption of Bharat QR as a convergent that will be future proof; and
• Any other issue germane to this area of reference.

What is the QR (Quick Response) code?

A QR code is a type of two-dimensional bar code. It comprises of black squares arranged in a square grid on a white background. Imaging devices like smartphone cameras can be used to read and interpret these codes. QR codes have the potential to make payments simpler. QR codes reduce the need to input any transaction-related data, which is an attractive factor for the young generation, and it also reduces transaction-related errors.

These codes are used in a broader context now for applications that involve item identification and tagging. In India, there are three types of QR code payments-

1. Bharat QR;
2. UPI QR; and
3. Proprietary QR.

What is Bharat QR?

It is a digital solution to improve the acceptance infrastructure in the country. A significant effort has been put in by banks in both technological as well as non-technological areas in order to provide this mode of payments to its customers.

Bharat QRs has two versions, namely:

• Bharat QR version 3.0 and less- this only supports payments through cards; and
• Bharat QR version 4.0- it supports cards and UPI payments.

What is UPI QR?

UPI (Unified Payments Interface) was launched by the National Payments Corporation of India in 2016. UPI allowed apps to enable a direct debit to the bank account, unlike the Bharat QR code.

The National Payments Corporation of India gradually enabled interoperable UPI QR code specifications used by Payment Service Providers, as the substitute for acquiring small merchants at a low cost.

The amount of digital payments using UPI QR is close to 250 million on a monthly basis.

What is Proprietary QR?

QR codes became a popular option for making payments at restaurants, grocery markets, etc. after demonetization. Wallet based companies authorized by the Reserve Bank of India as Prepaid Payment Instruments (PPI) instituted the system of Proprietary QR codes.

Essential Recommendations of the RBI Committee

 The RBI committees’ objective revolved around enhancing efficiency, security, and transparency of QR based payments.

 The recommendations of the Committee are based on four main aspects-

• Interoperability and Scalability;
• Innovation;
• Security; and
• Customer Education and Awareness.

Now let’s discuss these aspects in detail.

1. Interoperability and Scalability

Proprietary, closed loop QR codes prove to be an obstacle to an open, interoperable payments ecosystem. There is a requirement of a clear plan in order to phase out Proprietary QRs.

A common QR code or a single QR across all payments instruments would create higher concentration risks. The Reserve Bank of India should encourage multiple interoperable QR codes such as Bharat QR and UPI QR in order to enable faster onboarding of all types of merchants for digital payments.

2. Innovation

The proper standardization process must be adopted by banks and non-bank apps to provide a consistent and seamless experience for customers. Consumer offline QR code can be explored for low-value payments such as transit, ticketing, etc.

QR enabled apps can explore extra features like Save QR, Invoice relay through dynamic QR, etc. for recurring payments. The regulator can accept the existing bank account as a valid KYC for quicker merchant onboarding.

3. Security

The RBI committee discussed this feature for a long time. It recommended that the signing requirements for Bharat QR codes can be evaluated. In order to enable UPI QR, the signed QR must be fast tracked. The consumer offline QR should preferably be a signed dynamic QR. The security test and the security audit of the app being used for QR code-based payments should be preferably conducted by a third party entity.

4. Customer Education and Awareness

The committee recommended that all stakeholders must drive education and awareness campaigns for the adoption of QR code. Generic names like verified merchant or merchant don’t instil trust in the system and cause poor consumer and merchant experiences. The government or the Reserve Bank of India should allow a controlled interchange instead of zero MDR on QR code, UPI, RuPay debit card transactions, and provide tax incentives to merchants who accept payments through the electronic medium. The government should provide incentive schemes with a view to popularize the QR code transactions among consumers in the country.  

Conclusion

Read our article:RBI Committee’s Report on Analysis of QR Code