REPORT OF THE COMMITTEE ON THE ANALYSIS OF QR

Chapter 2: Overview of QR Code based Payments in IndiaSupport for QR code paymentsis growing within the paymentsindustry. In mid-2017, the globaltechnical body that managesEMV specifications - EMVCo,responsiblefordevelopingstandards used for chip-basedpaymentcards,publishedspecifications designed to ensureinteroperabilityof merchantbased and consumer-based QRcode transactions.consumer-presented QR code usecases.i.EMVCo officially announced therelease of two QR code paymentspecificationssupportingmerchant-presented QR code andBharat QR is based on EMVCoMerchant presented QR standards,which allows interoperability acrossbanks and card schemes. It supportsall card payment network credentialsand has provisions for domesticpayment methods such as UPI /proprietary payment methods.Although, Bharat QR is based oncard networks, it is not the only wayto make payments. It allows users topay through UPI payment address orthrough account number and IFSCcode. Bharat QR supports dynamicQR code generation which eliminatesthe need to enter the amount forpayment. Multiple cards can belinked to Bharat QR supported appsand any one of them can be selectedto handle transactions conveniently.With this method, there is no need toshare mobile number, account detailsMerchant-presented QR codes:These are unique QR codesoffered to businesses by a bankor payment service. Customersscan the QR code using theirsmartphone camera and enterthe payment amount and PIN.This initiates a payment tothe seller. Key advantages ofthis method are its low costand simplicity. Sellers do notneed additional point of saletechnology in this case and theycan simply print their QR codesfor scanning.or CVV with anyone. Currently, BharatQR is supported on Android and iOSdevices. Bharat QR has two versions:i.Bharat QR Version 3.0 & less Only supports payment throughCardsii.Bharat QR Version 4.0 - SupportsCards & UPI paymentsAs per RBI data, 2 million Bharat QRshave been deployed in the market byacquiring banks. The volume of digitalpayments made with Bharat QR is stillvery low. Multiple stakeholders haveindicated that merchant on-boarding,lack of standardization of Bharat QRenabled apps and commercial modelsneed to be looked at. The Bharat QRis fairly flexible for carrying additionaldata. However, any major structuralchange may require approvals fromEMVCo.15ii.Customer-presented codes:Customers select a productusing the seller’s website,app or other method. Thisgeneratesatransactionspecific QR code, which thecustomer uses to collectthe physical product fromthe store. Besides capturingadditional detail about eachpurchase, this method canalso be used to offer loyaltypoints. However, accordingto experts, the seller needsa special device to readthe customer’s transactionspecific QR code.b) UPI QRUPI was launched by the NPCI inAugust 2016. UPI enabled appsenable a direct debit to the bankaccount, unlike the Bharat QR codewhere the payment is aligned witha debit / credit / prepaid card ofthe customer, linked to the mobilebanking app used by the customer.NPCI gradually enabled interoperableUPI QR code specifications used byPayment Service Providers (PSPs) asthe de-facto substitute for acquiringsmaller merchants at a very minimalcost, owing to its asset-lite acquiringmodel.Since the launch of UPI, there hasbeen a paradigm shift in payments.People relied on it for fund transfers,leading to a significant rise in QRcode adoption by merchants and

Chapter 2: Overview of QR Code based Payments in Indiacustomers. UPI has also proved to be truly interoperable and is open to thirdparty applications. UPI’s ability to innovate at a faster pace, to meet localrequirements, has enabled various use cases.UPI QR has three versions:i.UPI Version 1.0 – Supports peer to peer and merchant payments using UPIii.UPI Version 2.0 – Enhancement in security & new functionalitiesiii. UPI Version 3.0 (Work in progress) - New Functionalities like GST, Tips,International transactions (multi-currency)Over 20 millionUPI QRs deployedin the market.The volume ofdigital paymentsusing UPI QR areapproximatelyover 250 million ona monthly basis.16c) Proprietary QR (Closed loop)Afterdemonetization,QuickResponse (QR) codes have become apopular option for making paymentsat restaurants, grocery shops andother bill payments. Wallet basedcompanies authorized by RBI, asPrepaid Payment Instruments (PPI),pioneered the system of ProprietaryQR codes. The wallet providersexpanded their merchant networksand strengthened their team toaggressively acquire new merchants.However, QR codes developed anddeployed by wallet providers arenon-interoperable.While closed loop systems makethe customer experience moreconvenient,theyalsorequirecustomers to acquire and managea payment app. So, if a customerwants to use a phone to pay at 10different retailers – each with its ownproprietary system – he or she wouldneed to manage 10 separate apps.

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Report of the Committee on the analysis of QR (Quick Response) CodeQR Code basedPayments:Opportunities andChallengesWith the growing penetration ofsmartphones in India, QR code basedpayments present the most cost-effectiveway of expanding the digital footprint.In India, cash is still king, but recentlythere has been a perceptible shift infavour of digitization. According to areport by telecom equipment makerEricsson, mobile subscribers in Indiamay touch 1.4bn by 2020. The growingsmartphone user base in India indicatesan immense growth opportunity fordigital payments.India still incurs a large expenditure inprinting and transportation of currencynotes. Digital payments provide anopportunity to reduce these costs.As compared to other modes ofpayments, QR codes present a viableand cost-effective option. Users havestarted to prefer cashless transfersdue to the large number of benefits.People can conveniently pay bills,shop, schedule transactions andmanage their finances using theirsmartphones at a time and place oftheir choice. However, there remainplenty of opportunities to grow anddevelop varied digital payment modes.18

Chapter 3: QR Code based Payments: Opportunities and ChallengesOpportunities:1. Encourage and grow multipleInteroperable QRInteroperability of payment systemsbenefit all participants in theecosystem. Interoperability canalso produce cost efficiencies andenable superior risk management.True interoperability should beoffered to customers by offeringthem the flexibility to use multiplepayment methods such as Bharat QRand UPI QR. Payment software canhandle multiple interoperable QRcodes, allowing complete customerchoice.Therefore, RBI shouldencourage both Bharat QR and UPIQR or any other interoperable QRthat may be developed in future.Interoperabilityandcustomerchoice are paramount for adoptionof QR Code payments. Bharat QR hasboth UPI account linked paymentsas well as card based payments.However, concerns related to itsflexibility and innovation capacitiespersist and networks may jointlywork to resolve such issues and maydepend on EMVCo for le QR system couldbe BBPS. BBPS currently catersto all utility billers like electricity,telecom, gas, water and DTH,wherein the billers are offered astandardized platform for thirdparty bill payments. A separateinteroperable BBPS QR will augurwell for billers to ensure fasteronboarding using existing systemsestablished with BBPS. It will offeran additional payment channel forthe biller as well as the customer.2. Simplified Merchant On-boardingQR codes bring a significantadvantageforinformalestablishments with low technologyadoption. As seen in the recent past,QR codes can be deployed veryquickly to improve digital paymentsacceptance, even in the remotestcorners of our country and canpenetrate all merchants. QR codesare a Do it yourself (DIY) solution,where any merchant can downloadan acquiring app and sign up,download and print the QR codeand display it at his place of businessand start collecting payments.However, the biggest hindrancefacedtoday,byprospectivemerchants and acquiring entitieslike the payment aggregators andthe acquiring banks is the delay inthe onboarding process due to KYC19formalities, document collection,verification and updation. It requiresthe same set of documents andKYC formalities that were alreadycompleted while opening the bankaccount. However, a repetition ofthe process leads to significantdelays in the onboarding process.For a QR transaction, a specificamount moves from the customer’sbank account through the acquiringbank / payment aggregator’sNodal/Escrow bank account tothe Merchant’s bank account.It is a Bank to Bank transfer andthere is no element of cash in thistransaction. The banks are alreadycomplying with various regulationsand have adopted best practices atevery level of merchant interactionto fulfil these antKYCprocedureswhilefollowingdue diligence for opening bankaccounts according to the RBIguidelines, which are updated fromtime to time.Regarding Merchant KYC, theGowri Mukherjee report dated 2ndJune, 2011 mandated that the setof documents must be procuredby acquiring banks and PaymentAggregators as a pre-requisite foraccepting electronic payments bymerchants.

Chapter 3: QR Code based Payments: Opportunities and ChallengesDocuments Required for KYC Compliance: As per Business Filing Status (BFS)Payment Aggregator/Acquiring BankCommonDocumentsDocumentsbasis BFS Business License / Registrationcopy Identity Proof of the Owners/Authorized Signatory Company Address Proof Cancelled Cheque/Bank LettersOpening and maintain a Bank accountby merchant Business License/Registration copy Identity Proof of theAuthorized Signatory Company Address ProofPartnershipPartnership Partnership Authority Letter Partnership Authority Letter Partnership Deed Partnership DeedHindu Undivided Family (HUF)Hindu Undivided Family (HUF) Declaration by all members of theHUFOwners/Declaration by all members of theHUFPrivate/Public Limited CompanyPrivate/Public Limited Company Board Resolution Board Resolution Certificate of Incorporation Certificate of Incorporation Memorandum of Association Memorandum of Association Articles of Association Articles of Association Company PAN Card Company PAN CardOthers(NGO/Government/Education/ Society):Others (NGO /Government/ Education/Society): Memorandum of Understanding/ Certificate of registration (forregistered trust only) & Copy ofTrust deed or Society Deed /Government Certificate. Memorandumof Understanding/ Certificate of registration (forregistered trust only) & Copy of Trustdeed or Society Deed / GovernmentCertificate. List of trustees / member/authorized signatory certified. List of trustees / member/ authorizedsignatory certified. Copy of Pan card of Trust. Copy of Pan card of Trust. Trust Resolution Trust Resolution20

Chapter 3: QR Code based Payments: Opportunities and ChallengesAs per the above observations,exceptfortheagreement,merchants are supposed to provideall the above KYC documentstoacquiringbanks/paymentaggregators. These documents havealready been collected by banksat the time of account opening asper the regulated KYC procedures.The money from the customer’sbank account flows through thePA’s Nodal / escrow bank accountto the merchant’s bank account.For all these accounts, the banksperiodically update informationfollowing all norms for KnowYour Customer (KYC), Anti-MoneyLaundering (AML) / Combating theFinancing of Terrorism (CFT), as perRBI regulations.Proposed process for SimplifiedMerchant On-boarding Process:India as a country, has anywherebetween 45 to 60 Mn merchantcommunity according to variousreports, that includes all mom andpops or small format merchants.It is necessary to have a simplifiedmerchant on-boarding process toget such large merchants base toaccept digital payments in next 36to 48 months in a cost-effectivemanner.Afterthoroughdeliberation,the following revised process isrecommended for merchant onboarding,1The merchant should be allowedto be on-boarded with theacquiring bank/regulated entitywith the online agreementsigning and the valid savings/current bank account.2 Merchant should also confirmin the agreement or with theseparate declaration with theacquiring bank/regulated entity,that he has updated his latestKYC with the settlement bankwhere he expects the acquiringbank to settle the transactionsacquired by the merchant.3 The merchant acquiring bank/regulated entity may strengthenthe KYC depending upon thevalue and volume processedby the merchant on monthlybasis with the board approvedpolicy and the limits for suchenhancements.4 All the liability of the merchanton-boarding and the KYC,other compliances shall remainwith the merchant acquiringbank/regulated entity and thesettlement account holdingbank shall assume no liability inthis process.3. Standardization of QR enabledAppMobile banking apps are embeddedwith various functionalities suchas Mutual Fund, Demat, Insurance,NEFT, RTGS, IMPS etc. Each bankperforms due diligence as pertheir internal compliance rules andpolices to ensure risk mitigation andprotection of their brand. Mobilebanking apps have been working toimprove their services in the pastfew years and have added Bharat21QR as an added feature. As perregulatory guidelines, 2nd factorauthentication is required for onlinetransactions. In case of Bharat QR,the 2nd factor authentication is metthrough MPIN, Debit Card PIN, OTPetc.Similarly, banks and third partyapplication providers are offeringseparate UPI apps. Some bankshave also integrated UPI in theirexisting mobile banking apps.To drive QR adoption, thereis a need to standardize userexperience on apps. This alsorequires standardization guidelinesto ensure consistent and seamlesscustomer experience for onboarding, prominent display ofQR option, branding, disputemanagement sections etc.4. Explore Offline QR Code usecasesOffline QR codes can be usedfor facilitating quick and simplepayments in various industries likeairlines, transit etc. Digital paymentcompaniesareincreasinglyexploring offline QR code basedpaymentstopenetratetheuntapped market. For bettercustomer experience and security,consumer-presented offline QRcode should be a dynamic QRcode. These are immensely usefulin places such as the mass transitsystem, where there is high footfalland quick authorization of anypayment mode is essential to avoidqueue build-up.

Chapter 3: QR Code based Payments: Opportunities and Challenges5. Strengthen QR Code propositionAdditional features such as ‘SaveQR’, ‘share QR in app from gallery’,‘Invoice relay through dynamicQR’, ‘Setting up eMandate’ etc. forrecurring payments will help QRcodes to compete with other digitalpayment products.Permission for multiple UPI IDs for asingle recipient will help to enhancecustomer experience. In the eventof failure to use a single UPI ID,an alternative UPI can be usedby the customer. This will furtherincrease customer confidence in QRpayments.Ensuring rapid on-boarding ofmicro merchants under Bharat QR(similar to P2PM category) will helpto improve the micro merchants’network.A decentralized QRgeneration process, transparentdissemination of QR codes andinclusion of a wider merchant basewill help in faster on-boarding ofmerchants.QR codes provide a means to interactwith consumers. Interactions andengagement create a kind of‘track record’ with consumers, andrepeated successful interactionsbuild trust, which in turn helps tobuild habits. Banks, Non-Banks andFin-techs need to get creative withtheir designs, provide meaningful,user-friendly merchant names tomake their QR codes an attractiveproposition.6. Encourage Non-Banks and Fintech participationIn recent years, India has beenat the forefront of paymenttransformation. The intersection ofmobile technology and financialservices have paved the way forincreased digital adoption. NonBanks and Fin-tech, in collaborationwith Banks, played a vital role todrive digital payment adoptionamong customers, with a continuousfocusonchangingcustomerbehaviour. The contribution fromall stakeholders i.e. government,regulators, banks and financialinstitutions,merchants,mobilepayment service providers andinvestors have become a key enablerto leverage the mobile paymentecosystem.The participation of non-banks andfin-tech will help to bring freshinvestment to the payments sectors,enable rapid growth of acceptanceinfrastructureandinnovativesolutions for banks, customers aswell as merchants.7. Multi-currency and multi-languagesupportAs India continues to expand itshome-grown payment network,QR codes should also be equippedwith multi-currency and multilanguage support for cross borderpayments. The prominent displayof transaction information like22Merchant Name, Tip & ConvenienceFee, Transaction Amount, TerminalID, Location or any optionalinformation in local language andcurrency will increase customerconfidence.Thisinformationwill also help the customer toverify transaction details as wellas merchant credentials beforemaking payments.8.CustomerEducationandMerchantIt is critical to build a strong brandfor common QR, by promotingits interoperability feature. Thiswill help build visual recall at amerchant location and encouragecustomers to use any applicationfor making payments.The merchants also have theright to choose, whether theywish to accept payments througha payment application, afterconsenting to the charges levied bythe payment application provideri.e. instrument selection, bank outetc.ToencourageQRadoption,banks should offer VAS as anoptional service to consumersand merchants. Media campaignsby all stakeholders including theGovernment,Networks,Banksand TPAP can help to improveawareness and knowledge aboutdigital payment methods.

Chapter 3: QR Code based Payments: Opportunities and Challenges9. Support from GovernmentZero MDR: The Committee on Digital Payments constituted by Department of Economic Affairs, Ministry of Financeunder the chairmanship

to facilitate mobile payments at the point-of-sale. In India, QR Code Payment Systems broadly support three different types of QR Code payments: a) Bharat QR a) Bharat QR India has launched Bharat QR - the world’s first fully i