There are more ways to send and receive payments than ever before, but the added complexity isn’t always a boon for merchants. While emerging payment methods like instant payments offer significant benefits for businesses, there is no easy way for a consumer to pay a business instantly.
QR codes are the missing link for merchants to achieve instant payments acceptance, according to QR Codes & the Instant Payments Imperative, a new whitepaper from AWS and Matera. The report examines the instant payments landscape and details how QR codes can help bridge the gap in the U.S.
Greater Capabilities
Most consumer payments are already made directly from a bank account using check, debit card, cash, or ACH. To pay instantly from a bank account, consumers just need a way to share bank account credentials securely. Though consumers might be inclined to shift to instant payments, many businesses and financial institutions don’t feel they have the resources to offer instant payments. That’s where QR code technology comes in.
In countries like China and Brazil, using a mobile device to pay via a QR code is the prevailing way to pay at stores, restaurants, e-commerce platforms, and even public entities. In the U.S., consumers are familiar with URL-based QR codes which direct them to static information.
However, QR codes have far greater capabilities. Unique payment QR codes can be encoded with all payment instructions to send a payment without sharing bank account details or other personal data.
Once a customer scans a payment QR code at the point-of-sale or at online checkout, money is moved from their bank account to the merchant’s account in seconds. There are an endless number of use cases aside from retail—bill payment, events, transit, healthcare, university fees, and more.
Pushing Payments
Instant payments require consumers to authorize them, which is why they have been called “push” payments, as opposed to “pull” payments like credit cards and ACH transfers. Push payments don’t require third-party providers, payment networks, or processors—just two bank accounts.
However, the customer must know the correct account and routing number to send funds, which makes instant payments more secure. Customer authentication might seem like a point where instant payments would bottleneck, but payment QR codes can streamline the process by removing the guesswork for consumers.
In addition, QR codes can be compatible with the existing U.S. instant pay rails. However, to reach their full potential, a standard must be established that ensures each payment QR code is encoded the same way. A standard protocol means any organization or consumer can decode any payment QR code and process the transaction automatically.
There has been recent movement toward a payment QR code standard by the Accredited Standards Committee X9 (ASC X9), which sets standards for the financial services industry. That process is still in the early stages.
Accelerating Momentum
In the meantime, the accelerating adoption of near-field communication (NFC) technology may be the precursor to instant payments. Many consumers are already familiar with NFC as the tech that powers contactless mobile payments through digital wallets like Apple Pay and Google Pay.
Previously, Apple Pay only supported payment via card, but Apple recently announced that it will expand the digital wallet’s compatibility to include instant payments. That functionality will allow customers to make payments directly from their bank account using Apple Pay.
As consumers start to understand the benefits of instant payments, the NFC-powered model will gain momentum. However, NFC is merely the tech that connects a phone to a point of sale. QR codes can be printed out or displayed on a device at the point of sale, which gives them much more utility and flexibility for businesses than NFC-based instant payments.
In addition, many older mobile phones don’t support NFC, so QR codes will be more effective in reaching a wider audience.
The Perfect Mechanism
Instant payments offer palpable benefits for consumers and organizations. They are faster, more secure, and substantially less expensive than the alternatives. Consumers have proven that they will explore payments alternatives, and they are equipped to adopt instant payments—smartphones are ubiquitous among U.S. adults, and consumers are increasingly familiar with digital wallets and mobile payments.
Thanks to FedNow and RTP the U.S. is primed to join the instant payments revolution, and payment QR codes can be the perfect mechanism to make instant payments a part of everyday life in the U.S.
