Going cashless faster with QR code payment
Lim Cian Yai 
“Banks will have to open up to allow third-party access to their account holders’ information for instant and faster fund transfer.” – Chan

The implementation of Quick Response (QR) code payment is expected to boost cashless payment transactions in the country. China, for example, became a cashless payment powerhouse following the introduction of QR code payment as the most populous country faces low credit card usage.

Digital payments are processed real-time by scanning QR codes at the point of sale which links to the customer’s bank account.

In Malaysia, the development towards a cashless society received another boost with the introduction of Interoperable Credit Transfer Framework (ICTF) by Bank Negara Malaysia (BNM) last month.

The framework aims to promote greater collaboration between banks and non-bank e-money issuers at infrastructure level by leveraging on a shared payment infrastructure platform. They also need to ensure interoperability of their respective credit transfer services.

The framework sets to dismantle walls between banks and non-banks, and the two will have open access to a common system that settles payments or facilitates transactions.

The implementation of QR code payment is crucial to speed up and facilitate real-time transactions.

QR code is a two-dimensional code made up of black and white squares that can be read by smartphone cameras, point-of-sale (POS) readers and other devices.

Axiata Digital Services regional head of digital financial services and Boost Malaysia CEO Christopher Donald Tiffin believes ICTF is a positive development for consumers as it will make cashless payment more efficient as it leverage on a shared infrastructure.

However, he says, the offering of a standardised QR code requires collective effort. An interoperable QR scheme and a common QR code are critical to encourage industry stakeholders and consumers to participate in a shared payment infrastructure.

“Existing operators who have invested in rolling out their own QR codes and the streamlining of this would definitely be a challenge,” says Tiffin.

Meanwhile, Boost – an e-wallet application developed by Axiata Digital – is already operating on a QR code payment platform for merchants and will soon be available to end-users as well.

Tiffin explains different types of QR are used in the e-wallet. They come in the form of static, dynamic and hybrid within the two categories.

“Depending on when Boost is required to transfer to the unified QR code, the development work will vary between the various technology stacks in place.

“Android and iOS app development will also create additional development work based on the APIs (Application Programming Interfaces) used for these standardised QR code payloads and how extensive the proposed QR code specifications are,” he explains.

In fact, BNM has started the groundwork to drive the implementation of QR code payment.

Payments Network Malaysia Sdn Bhd (PayNet), of which BNM is its single largest shareholder, has initiated the creation of an in-country QR code that will not only enable real-time person-to-person (P2P) payments, but also acceptance at merchants.

However, it is not certain if the QR standard developed by PayNet is part of the ICTF announced by the central bank.

Globally, efforts similar to BNM’s are being made. EMVCo which developed the EMV standards for the payments industry issued guidelines last year on the use of QR codes for mobile payments, focusing on consumer-presented and merchant-presented QR codes.

EMVCo’s specifications will enable merchants to accept QR code payment solutions from various providers in a standardised manner. Consumers in turn will benefit from greater convenience and familiarity.


Are we QR-ready?

GHL System Bhd group CEO Danny Leong Kah Chern’s concern about QR code payment lies with adaptability of consumer and merchants’ acceptance of this new mode of payment.

At the moment, most of the cashless transactions in Malaysia are made via Electronic Funds Transfer at Point-of-Sale (EFTPOS) terminals.

As of end-2017, the number of EFTPOS terminals installed nationwide increased by 24.68% to 407,111 from 326,507 in 2016. This is equivalent to 13 terminals per 1,000 inhabitants.

The central bank has a target of 25 terminals per 1,000 Malaysians (or a total of 750,000 for the current population of 30 million) by 2020.

BNM has anticipated some challenges in achieving the 2020 targets for POS terminals and debit card transactions of 30 per capita versus five as of last year, despite a declining merchant discount rate (MDR) that has encouraged greater use of debit cards.

The average MDR remains relatively higher for credit cards at 1.33% versus 0.56% for domestic MyDebit cards and 0.89% for international debit networks.

“For some merchants, this may continue to be a barrier to accepting payment cards. Additionally, certain market segments such as lower-tier merchants which are more cost-sensitive, may still prefer to accept cash, which is often perceived to be cost-free despite the hidden economic costs,” BNM said in its Financial Stability and Payment Systems Report 2017 released recently.

Besides expending RM600 to RM1,000 for each physical terminal, there is the MDR to pay to the issuing bank for processing transactions.

iPay88 Sdn Bhd executive director and co-founder Chan Kok Long agrees it is an investment to deploy EFTPOS terminals.

Assuming it costs RM600 per terminal, businesses need to plough in at least another RM205 mil to install the devices on their premises, so as to achieve BNM’s 2020 target.

Hence, Chan is confident the QR code payment method will accelerate Malaysia’s migration to a cashless society.

The terminal installation cost also helps explain why tier-1 and tier-2 businesses (with higher turnover) are in a better position to conduct cashless payments.

“The margin for banks from providing the infrastructure to micro businesses could barely cover the cost of the terminal given their low transaction volume and value. When terminals are not widely available, it means fewer card transactions, hence a hurdle to achieve a cashless society,” says Chan.

He explains the cost of setting up QR code payment is lower than for the EFTPOS terminal.

“QR code payment normally operates from an app, the cost of which comes from payment application development. There is no unit cost like physical terminals,” says Chan, adding that this will provide an alternative for tier-3 and tier-4 merchants to go for cash-free transactions.

But since smartphones alone suffice to transfer funds directly from a bank account to a merchant under the QR-code platform, would it challenge the business of third-party acquirers like GHL Systems?

GHL’s Leong stresses that not all merchants wish to accept QR code payment only.

“For larger purchases or payments, some consumers will opt for credit or debit cards. A terminal-based infrastructure remains relevant as our new generation ‘all in one’ terminals will cater to all forms of e-payment, whether in cards, QR or NFC (near-field communication).”

It helps global card schemes, e-wallet issuers, telcos and billers to acquire merchants to process electronic payments which are done mostly via EFTPOS terminals.

Leong adds the company is prepared for this modus operandi as it has deployed the solution for merchants in Thailand, Malaysia and the Philippines since 2016. As of Dec 31, 2017, it has 33,362 EFTPOS terminals deployed at merchant outlets to accept card payment products and services.

“For merchants that sell low-margin (2-3%) products, MDR alone eats into half the profit.” – Chua

From retailers’ point of view, Malaysia Retail Chain Association (MRCA) president Datuk Seri Garry Chua applauds the framework, saying QR code will make transactions faster and more convenient.

“We are aligned with BNM’s objective to evolve into a cashless society,” he says, adding merchants are optimistic about the lower cost of transaction upon implementation of QR code payment, versus an average 2% MDR paid by its members currently.

He reckons there are some merchants, not MRCA members, imposing surcharge on consumers in card payments so as to pass on the cost of MDR, which created some brouhaha recently.

Depending on the industry and product, not every merchant has the capability of deploying a terminal. “For merchants that sell low-margin (2-3%) products, MDR alone eats into half the profit.”

He also says not all merchants could pass on the cost of the MDR by raising product prices. The 2% increase is significant for big-ticket items, and consumers nowadays tend to compare prices before making a purchase.

Meanwhile, iPay88’s Chan says ICTF will open up both the banking and non-banking payment services industries.

“Banks will have to open up to allow third-party access to their account holders’ information for instant and faster fund transfer. They will have to be more efficient and user-friendly, otherwise users could simply go to other operators,” he says.

He foresees the QR code framework will bring more advantages to non-bank players than banks.

This means banks will have to up their ante in the cashless payment game.

RHB Bank Bhd group retail banking executive vice-president and acting head Nazri Othman agrees banks have no choice but to pursue a similar payment technology.

Its peers like Malayan Banking Bhd and CIMB Bank Bhd have partnered with Ant Financial Services Group, an affiliate of Alibaba Group Holdings Ltd, to provide contactless payment services for AliPay users making purchases at selected merchants in Malaysia.

Tencent, the company behind popular instant messaging app WeChat, has also inked an agreement with Hong Leong Bank Bhd to provide WeChat Pay services.


Room for only 3-4 operators

The e-wallet certainly is not a game that RHB Bank can afford to lose out on. “As far as e-wallet is concerned, we are already talking to two parties. We can’t name them but definitely we hope to come out with something, sometime this year,” says Nazri.

He explains that RHB has the option of partnering established players like Tencent or Alibaba, or any player licensed by BNM. A total of 35 companies have received e-money issuing licences from the central bank but not all have issued their own e-money instruments.

In a market of 30 million population, it is not economically sustainable to have more than three or four operators, says Boost’s Tiffin. His strategy is to make using Boost a daily habit for users.

Over time, a few dominant players will emerge with niche positioning in the consumer segments they are targeting. That means industry consolidation is unavoidable and it will be tough for players who are not financially strong or do not have wide merchant and user bases.

This article first appeared in Focus Malaysia Issue 279.