Digital Payments

RBI Streamlines QR Code mechanism for Digital Payment modes

Today we are living in the digital era and the entire economy is sustained with digital transactions. The Indian economy is having now gradually adapted the digitalized payment platforms, thanks to a great number of Payment System Operators (PSOs) thriving on the web. This article describes the RBI Streamlines QR Code mechanism for Digital Payment modes.

The significance of cashless transactions was triggered by the demonetization move of the Government in 2016.

Digital payment, especially the internet banking was prevalent in India since early 2000s, but that was hitherto confined to only sizeable transactions. Cash crunch had always been a big issue for the small traders. It was only after demonetization, that the Indian small businesses now realized the urgency to overcome the cash crunch problem with smart online payment modes available. The idea of cashless digital economy finally found its way into India.

With the springing up of digital payments portals, the infrastructure for acceptance of such payments i.e., the Quick Response (QR) codes has witnessed tremendous growth. Resultantly, QR based payments are now being used rapidly by every PSO.

RBI measures for Uniform QR based payments

Today, one can easily scan a QR code^[1] and pay his bills for fuel, grocery, food, travel etc. This acceptance infrastructure is a backbone for the digital payment portals in India. These days, every PSO uses its own proprietary QR code for accepting the digital payments.

In this regard, the Reserve Bank of India (RBI) had constituted a Committee under the leadership of Prof Deepak Phatak to review the current QR Code mechanism in India and to propose a method for more compatible Codes. RBI had notified the report of this Committee showing various recommendations.

After thorough analysis of those recommendations, the following decisions have now been taken by RBI:

• Currently, the 2 compatible QR codes – the UPI QR and the Bharat QR – shall function as at present.
• All the Payment System Operators (PSOs), which are currently using their own QR codes shall soon be asked to adapt to one or more uniform QR codes, once such uniform system becomes effective.
• The process to migrate to uniform QR codes shall be done by 31^st March 2022. Thenceforth, no proprietary QR codes shall be made or used by any PSO for accepting the online payment.
• Here, RBI shall play a consultative role for standardization and improvising of such interoperable QR codes. This is to install the salient features proposed by the Phatak Committee.
• Accordingly, the PSOs may also take an initiative to create awareness about such interoperable QR codes among their customers.

Note: The above mentioned steps have been proposed for reinforcement of more convenient payment acceptance infrastructure. This will enhance the user experience due to compatibility and system efficiency.

The recommendations for the uniform QR mechanism are based on 4 aspects:

1. Interoperability & Scalability
2. Innovation
3. Security
4. Customer Awareness

Before going into the depth of this report, let us first understand the basics about QR code.

Basics of QR

The QR Code is a kind of 2D barcode that comprises of black squares assorted in a square grid with white background. Scanning devices such as barcode reader or smartphone cameras can be used for reading and interpreting the QR codes.

There are basically 2 types of QR codes:

• Static
• Dynamic

1. Static: QR code which can’t be changed and is mostly printed on paper is called static QR code. It carries details about the payee, and the consumer must enter the amount after scanning.
2. Dynamic: The dynamic QR codes framed using a software and this can include more fields such as the price amount. 

Mostly, the proprietary QR codes used by the PSOs are based on closed loop mechanism that makes them non-interoperable with other payment portals.

To enhance the digital payment ecosystem in India, it is important to ensure a consistent user experience for all the merchants and the consumers. This objective can be achieved only if the cutting edge QR code technology reaches its maximum potential in Indian market. Hence, the RBI has now sought to remove all issues such as the lack of interoperability or compatibility of the QR codes, by recommending measures for streamlining of the QR codes.

We shall now understand in detail the 4 aspects of a uniform QR code mechanism.

Key aspects of a uniform QR mechanism

The RBI recommendations for a uniform QR mechanism are based on 4 aspects explained below:

Interoperability & Scalability

The Proprietary QR codes are based on closed loop mechanism. This poses a hindrance to the open, compatible payments ecosystem. Hence, RBI proses a clear-cut roadmap to completely replace the proprietary loop QR codes with the new open and interoperable ones.

• On the basis of the size of our economy, the interoperable codes require robust acceptance infrastructure.
• A common QR code for all payment portals would involve a higher concentration risk as compared to the individual Proprietary QR codes. Hence, RBI requires to boost the multiple interoperable QR codes e.g. Bharat QR or UPI QR to enable quick on-boarding of all kinds of merchants on digital payment platform.
• On the costing part, we see that paper based (Sticker) does not require any maintenance.
• The acceptance infrastructure to evolve as payer’s software can handle multiple interoperable QR codes. The QR codes will then shift from static to the dynamic version.

Innovation

RBI shall work on standardizing the digital payment apps.

• It will also assess the network for the common QR branding so that a consistent and seamless experience is achieved.
• In addition to that, the offline QR code may also be used for small payments like travelling, ticketing etc. This way these QR codes will become multipurpose in nature.
• QR apps can now have additional features such as
  • Save QR,
  • Invoice relay through Dynamic QR,
  • Setting up e-Mandate

• There is no need to open a new bank account for QR code on-boarding. Existing account shall be considered as a valid merchant KYC for swift merchant on boarding. The acquiring bank of the merchant (based on the size of payment) may be furnished. This can further strengthen the merchant KYC.
• The Bharat QR may also come with the P2PM (Merchant treated as person) feature, which will facilitate quicker and easier on-boarding of micro enterprises via their existing bank account.
• Bharat QR-specific measure: Inclusion of NBFCs and FinTech concerns may be done.
• UPI QR-specific measure: Multiple UPI IDs may be allowed may be allowed for one recipient.  If any UPI IDs is not working, then an alternate UPI–ID may also be used by the payer. Otherwise, the user mapping can also be done at backend.
• With the availability of 5G Wi-Fi network in India, the QR resolution shall begin from the backend using APIs.

Security:

Following measures may be taken for ensuring security of the payments:

• Sign-up requirements in case of Bharat QR codes might be evaluated. Payer presented offline QR should be a signed in for dynamic QR code.
• Security test and security audit of the Application being used for QR Code based payment must preferably be conducted by 3rd party entities.
• Resolution of the merchant’s name must be at the acquirer bank’s system.
• Framework to be formulated for revoking / rotating keys used to sign static QR codes.

Consumer Awareness:

• All the stakeholders should drive education and awareness campaigns for QR code adoption.
• Multi-currency and Multilanguage support can be explored to ensure customers in different countries.
• The online payment apps must give a clearer awareness about data security.
• Consumer awareness regarding safe Wi-Fi usage for digital transactions.

Documents required for the Merchant KYC

Given below are the documents required for KYC of the merchants and for the payment aggregators (PA):

Benefits of Uniform QR code

Here are the key advantages of a uniform QR Code mechanism in India: –

• Interoperability of various payment options with common QR will benefit all stakeholders of the ecosystem. this will also bring down the costs and enable efficient risk management.
• The best part is that the QR codes can be installed so quickly even in the remotest regions of the country and can reach to all types of merchants. They serve as a Do it yourself (DIY) solution. The merchant can simply download any payment app and sign up, thereby downloading and printing common QR code in order to display it at his business premise. He can then begin collecting online payments from his customers.
• Today various Mobile banking apps are integrated with various functionalities e.g., Mutual Funds, Demat accounts, Insurance, NEFT, RTGS, IMPS etc. Now, every bank conducts a due diligence as per its internal compliance norms. Here, a QR Code can act as a 2nd factor authentication for all the future online transactions.
• QR codes will also be equipped with the multi-currency and multi-language features for overseas transactions. Clear display of payment details like Merchant’s Name, Tip or Convenience Fee, Transaction Amount, Terminal ID, Location etc. in a local language and native currency will gradually boost the customer confidence. This will help to build a loyal band of customers with the interoperability feature of the QR codes.

Conclusion

Regulatory support is very essential for smooth and unhindered success of the Uniform QR code mechanism. In this regard, RBI is likely to extend the following measures to boost the unform QR code system:

• RBI may formulate a clear strategy to completely phase out proprietary QR codes in the favour of new open, compatible ones.
• Accordingly, the RBI may issue proper guidelines for the revised KYC process for quicker merchant on boarding.
• The Regulator may also issue new guidelines for the common registry to enable digital payments Apps to inspect and validate the recipients.
• Such a mechanism could be implemented by Government by allowing a less controlled interchange rather than reducing MDR charges on QR code to 0.
• Government may also offer some tax incentives to the merchants using the common QR code. This will also boost electronic transactions and promoting Digital India drive.
• Some schemes can be launched for improving the popularity of the new QR code mechanism in India.
• RBI may allow the Offline QR codes for various types of low value payments such as transit or travel bills, ticketing etc. This will further boost the QR code usage.
• Apart from that, a Security test and audit may be conducted of the Apps being used for QR code-based payment service provider (PSP).

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