Report of RBI Committee on the Analysis of QR (Quick Response) Code – Interesting facts on digital payments

Buoyed up by the volume of 250 million digital payments using UPI QR on monthly basis, RBI was naturally very enthusiastic to set up an expert committee under the leadership of Prof. D.P. Pathak, Professor Emeritus, IIT, Mumbai to assess the scope for improvement in existing QR codes and suggest measures towards the adoption of Bharat QR as a convergent which would be future-proof. The committee submitted its report on July 10, 2020. Let us learn various information about QR Codes as analyzed by the committee and its recommendations which would change the dynamics of Indian digital payments phenomenally.

A copy of the report is appended below:

https://rbidocs.rbi.org.in/rdocs//PublicationReport/Pdfs/ANALYSISQRCODED11971A9B9874EAFA1A61478F461E238.PDF

The terms of reference of the committee were as under:

  • “To examine and review the current system of QR codes in India for facilitating digital payments;
  • Analysis of benefits arising out of a common QR code;
  • Assess the scope for improvement in existing QR codes and suggest measures towards the adoption of Bharat QR as a convergent which would be future-proof; and
  • Any other issue, germane to this area of reference.”

Before venturing into knowing the recommendations of the august committee which met three times in March 2020, before finalizing its report, let us learn the rudiments of QR Codes which would affect billions of digital transactions in the future.

I have made the initial part as a question and answer format for easier learning.

What is a QR Code? Can it be explained in detail?

The QR Code is a type of a two-dimensional bar code. It consists of black squares arranged in a square grid on a white background. Imaging devices such as smartphone cameras can be used to read and interpret these codes.

These codes are now used in a broader context for applications that involve item identification and tagging.

The study of QR Code was undertaken by the committee in relevance to digital payments only.

There are two types of QR Codes, namely, static and dynamic.

Can we explain the codes to understand better?

A QR code that cannot change and is mostly printed on paper is referred to as a static QR code.

A dynamic code is generated by the software and can include additional fields such as the amount etc.

Yes, QR codes have proved to be versatile, and are useful for every payment use case.

In India, the increased penetration of smartphones and high-speed internet connectivity has led to the increased adoption of QR codes for digital payments. Three different types of QR Codes have emerged – Bharat QR, UPI QR, and Proprietary QR (closed-loop, non-interoperable).

Being a high-powered committee, what was its perspective?

The Committee’s perspective revolved around enhancing efficiency, security, and transparency of QR based payments. It looked at the entire life cycle of the transaction and all the parties involved in it.

I understand In India, QR Code Payment Systems broadly support three different types of QR Code payments. Can we name them and talk about them?

They are Bharat QR, UPI QR, and Proprietary QR (Closed-loop).

Let us learn about these QRs from Chapter 2: Overview of QR Code based Payments in India of the report. Any technical reader from IT industry would enjoy this high-tech report immensely. Unfortunately, I am here to enforce some basic information for the reader so that he can enjoy using the QR codes himself/herself.

Bharat QR

To quote from the report:

“India has launched Bharat QR – the world’s first fully interoperable QR code payment system. Its specifications have been jointly developed by RuPay, Visa, MasterCard, and Amex.

It is a digital solution to increase the acceptance infrastructure in the country. A considerable amount of effort has been invested by banks (issuers and acquirers), in both technological and non-technological areas, to provide this mode of payment to its customers.

This included changes in the mobile banking app and the issuing and acquiring of hosts to comply with all networks.

What are the types of above QR in the market?

Bharat QR has two versions:

3. Bharat QR Version 3.0 & less – Only supports payment through Cards

4. Bharat QR Version 4.0 – Supports Cards & UPI payments.

As per RBI data, 2 million Bharat QRs have been deployed in the market by acquiring banks.

UPI QR

UPI was launched by the NPCI in August 2016. UPI enabled apps to enable a direct debit to the bank account, unlike the Bharat QR code where the payment is aligned with a debit/credit / prepaid card of the customer, linked to the mobile banking app used by the customer.

NPCI gradually enabled interoperable UPI QR code specifications used by Payment Service Providers (PSPs) as the de-facto substitute for acquiring smaller merchants at a very minimal cost, owing to its asset-lite acquiring model.

Can we learn some more about various versions of UPI QR, the most popular QR in the country?

UPI QR has three versions:

1. UPI Version 1.0 – Supports peer to peer and merchant payments using UPI

2. UPI Version 2.0 – Enhancement in security & new functionalities

3. UPI Version 3.0 (Work in progress) – New Functionalities like GST, Tips, International transactions (multi-currency).

Yes, it is pleasant news that Over 20+ million UPI QRs have been deployed in the market. The volume of digital payments using UPI QR is approximately 250 million on a monthly basis. Unbelievable achievement and it has kept the promise of the government to increase cashless payments alive and kicking as per their original promise. A proud achievement for our nation.

Proprietary QR (Closed-loop)

After demonetization, Quick Response (QR) codes have become a popular option for making payments at restaurants, grocery shops, and other bill payments. Wallet based companies authorized by RBI, as Prepaid Payment Instruments (PPI), pioneered the system of Proprietary QR codes.

The wallet providers expanded their merchant networks and strengthened their team to aggressively acquire new merchants. However, QR codes developed and deployed by wallet providers are non-interoperable.

If each retailer has a different application, the customer needs to have it to make a pleasant experience.

Documents Required for KYC Compliance as per Business Filing Status (BFS) has been detailed in the report on page 20 which can be referred by any serious reader who wants business information related to QR Code.

In case of QR code payments, remote access to the payment system is given through a QR code. The security of this payment mode is divided in three parts: 1. QR Code security, 2. App. Security and 3. Back end security and detailed coverage have been done on page 24.

Chapter 4 gives the implementation road map and detailed instructions for usage by various agencies to make the system a success and useful for customers.

Now, we are in a position to understand the various recommendations of the committee given under the head Chapter 1.0 Executive Summary & List of Recommendations, on page 9.

Let us learn some of the most important recommendations of the committee for which reason it was set up.

Recommendations

The Committee’s perspective revolved around enhancing efficiency, security, and transparency of QR based payments. It looked at the entire life cycle of the transaction and all the parties involved in it. The recommendations are based on four pillars, namely, 1. Interoperability and Scalability, 2) innovation, 3) Security, and 4. Customer Education and Awareness.

Some of the vital recommendations contained the following facts: (Directly quoted to enhance authenticity and inability of my knowledge to simplify further)

Interoperability and Scalability

  • Proprietary, closed-loop QR codes are a hindrance to an open, interoperable payments ecosystem. There should be a clear plan to phase out proprietary QR.
  • Considering the scale of the country, multiple interoperable QR codes should drive the acceptance infrastructure in the coming years. A common QR code or single QR across all payment instruments will create greater concentration risk.
  • RBI should encourage multiple interoperable QR codes like Bharat QR and UPI QR to enable faster onboarding of all types of merchants for digital payment.

Innovation

  • Standardization of apps (banks and non-banks) and network (common) QR branding to be assessed to deliver a consistent and seamless experience for customers.
  • Consumer presented offline QR code can be explored for low-value payments like transit, ticketing, etc. This will help to enable various use cases.
  • QR enabled apps can explore additional features such as ‘Save QR’, ‘Invoice relay through Dynamic QR’, ‘Setting up eMandate’ etc. for recurring payments.
  • The regulator may accept the existing bank account as a valid KYC for faster merchant on boarding.

Security (one of the most important features which involved a lot of discussion time with the Committee)

  • Signing requirements for Bharat QR codes may be evaluated. To enable UPI QR, the signed QR must be fast-tracked.
  • Consumer presented offline QR should preferably be a signed dynamic QR
  • Security test and security audit of the Application being used for QR Code-based payment must preferably be conducted by 3rd party entity

Customer Education and Awareness

  • All stakeholders should drive education and awareness campaigns for QR code adoption
  • Generic names like “Verified Merchant” or “Merchant” makes it difficult to build trust in the system and results in poor consumer & merchant experience.
  • P2M QR scans should provide meaningful, user-friendly names.
  • Government / RBI should allow a controlled interchange instead of zero MDR on QR code / UPI / RuPay Debit card transactions, as well as give tax incentives to merchants who accept payments through electronic mode.

Conclusion

Attracted by the news item that the volume of digital payments using UPI QR are approximately over 250 million on a monthly basis, I attempted to present the technical report prepared by highly qualified members of RBI committee on the Analysis of QR (Quick Response) Code and while explaining various facts presented by this committee, I have tried to quote from the main report which is of 28 pages long though presented in a simple language for a layman. The new recommendations when finally implemented would ensure the availability of the most secure and convenient way of making payments in all digital transactions simplifying our living in India a great pleasure. I encourage everyone to read this small report and appreciate their views on a complex financial subject.

These views are my personal ones and neither taxguru.in nor RBI is responsible for them. I have attempted to present some interesting facts on digital payments based on the RBI Committee report on the same for information purposes only. One can easily refer to the RBI Committee report directly for full knowledge.

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