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The Indian digital payments industry is growing at a 10x rate which is perhaps going to touch the 10 trillion mark by FY 2026¹. Among others, QR code payments have also led to the trend of cashless payments.

Much of this growth is attributed to the introduction of many digital-led initiatives the Indian government has taken. These include the introduction of UPI, Aadhaar Pay, BHIM, and more. ‘QR Code Payment’ is another such initiative launched to encourage and increase the acceptance of cashless transactions across the country.

What are QR Code Payments?

The NPCI (National Payments Corporation of India) launched the QR code payments. For example, one can make direct bank-to-bank transfers/UPI payments by scanning UPI QR codes.

This mode of payment brings along innovation, interoperability, and security as the three primary pillars to transition India into a cash-lite society.

In this blog, we’ll take a deeper look at the following –

What is a QR code payment?
How QR code works?
Types of QR codes supported India
Benefits and challenges associated with QR code payments

Let’s start by learning about the basics…

What is a QR Code?

Quick Response Codes are commonly known as QR codes. QR code meaning is that it is a two-dimensional code ideally used for identification and tagging purposes. These codes are checkerboard-like scannable squares arranged in a unique manner and distinctive to their purpose.

While their applications are diverse, for instance, being used for instance marketing and information sharing. They soon became a popular mobile payment collection and disbursal medium, especially after the announcement of demonetisation in 2016 in India².

QR codes are also quite similar to barcodes except for the fact that the former is a highly refined version of the latter and offers many additional benefits to the users.

The basic characteristics of a QR code are as follows –

Interoperable in nature
High-capacity data encoding
Printable, readable, and scannable in small sizes
Dirt and damage resistant
Readable regardless of the scanning angle
No or low-cost infrastructure
Remote management by merchants and customers

Types Of QR Codes

At present, Indian merchants use two types of QR code systems to accept and disburse payments – static and dynamic. Let’s learn about them in detail.

Static QR Code

As the name suggests, it’s a code that remains static in its nature. Once a merchant generates it, the customer or any third party cannot change/alter the embedded content in the QR code. They’re an excellent payment method for single usage or personal usage purposes.

For instance, a static QR code would be highly beneficial for a grocery shop. Once generated, the shop owner can simply stick the QR code onto their counters and receive payments from multiple customers via the same code.

Dynamic QR Code

Contrary to static QR codes, dynamic QR codes can be changed at any time to suit business needs. Merchants can personalize them to receive or send specific payments to customers and vendors respectively.

For instance, a customer doesn’t need to enter a payment amount in this case. They come auto-filled with such detail. This reduces churn as well as eliminates friction in the payment process.

These codes are also highly comparatively versatile. They enable users to track useful data like the number of scans, locations, operating systems used to scan the code for making payments, and so on. They’re ideal for all types and sizes of businesses.

Given below is a comparative analysis of static vs dynamic QR codes.

What is QR Code Payment?

In layman’s language, when merchants and customers use QR codes as a mode of payment collection and disbursement, they qualify as a QR code payment system.

This system works like a POS terminal (however, the only easiest POS terminal out in the market). A customer can use any imaging device such as a smartphone or tablet camera to scan the QR code and complete the transaction right away.

In fact, many wearable device manufacturers including Apple, Fitbit, etc. are developing infrastructures that will help merchants accept NFC-based and QR-code-based payments from wearable devices³.

With a payment service provider like Cashfree Payments, merchants can easily create unique dynamic QR codes and accept payments without investing heavily in any kind of hardware or committing to daunting contracts.

How Do The QR Code Payments Work?

Typically three parties are involved in a QR code payment process –

Acquirer
Issuer
Transaction processing engine

Issuer – An organization such as a bank where a customer’s money lies.

Acquirer – It’s the bank, payment service provider, or payment aggregator partner of the merchant who disburses the payments.

Transaction Processing Engine – It’s the end transaction routing engine that helps complete the QR code-driven transactions. In India, NPCI is the transaction processing engine.

Here’s an illustration example of how a QR code payment process takes place when a merchant ties in with a bank or payment service provider like Cashfree Payments.

First, the merchant has 2 options to accept such payments –

Open a merchant account with a bank
Partner with a payment gateway/payment aggregator.

Once done, they’ve integrated with a bank or payment gateway and are ready to accept payments.

Thereafter, here is what the payment flow looks like –

A customer scans the merchant’s QR code using a scannable app on their mobile phone
The scan then redirects the customer to a payment page with multiple payment options to choose from, including cards, UPI, Net banking, BNPL, etc.

Considering the customer decides to pay via a card, here’s how the rest of the payment process flows –

The payment gateway encrypts and tokenizes the payment details
These details may be a card number, VPA in the case of UPI, CVV number, etc.
The payment gateway then forwards the payment information to the Acquiring Bank
The Acquiring Bank further sends the information to the respective card network (VISA, Mastercard, Amex, RuPay, etc.)
The card network then runs a fraud check and sends the report generated to the Issuing Bank
In the information is found authentic, the Issuing bank authorizes the payment
The card company relays the message to the Acquiring Bank, which further requests a fund transfer from the Issuing Bank
The Payment Aggregator receives the funds in their account and transfers the same to the merchant’s account ideally in T+1 days.
Funds are debited from the customer’s account and deposited into the merchant’s account.

The entire payment process takes place in not more than 2-3 seconds.

Types Of QR Code Payments Supported In India

At present, three types of QR code payments are supported in India. These are as follows –

Bharat QR
UPI QR
Proprietary QR

Bharat QR

The NPCI developed and launched Bharat QR in association with RuPay, Visa, MasterCard, and Amex. It is one of the world’s first fully interoperable QR code payment systems.

As a digital payments solution, Bharat QR has significantly improved the acceptance infrastructure in the country.

Bharat QR,

Is based on EMVCo Merchant-presented QR⁴ standards
Ensures interoperability across banks and card schemes
Support all the necessary card payment network credentials
Enables users to pay via multiple payment modes including UPI, cards, net banking, wallets, etc.
Supports dynamic QR code generation which eliminates the need to enter the payment amount
Enables customers to link multiple cards and make payments instantly
Is supported on Android and iOS devices

UPI

UPI or Unique Payments Interface is another platform that enables such payments. The NPCI launched it in 2016 where it directly debits payable amounts from a customer’s bank account.

Since its launch, UPI has brought about a paradigm shift in the payments industry. People today heavily rely on it to make various payments. As of September 2021, the number of UPI QR code payment transactions was INR 11.98 crore⁵.

UPI is also interoperable in nature and is open to third-party applications as well. UPI’s capability to rapidly innovate and meet both merchant and customer requirements has made it one of the go-to payment tools in the country.

Proprietary QR

Since demonetization in India, QR code payments have become one of the most popular options for all types and sizes of businesses. Be it small Kirana shops, cafes, restaurants, departmental stores, or delivery service providers, everyone can leverage the QR code payment system to accept and disburse payments.

In fact, wallet-based along with prepaid payment instruments (PPI) companies such as Paytm, PhonePe, etc. have, over time, perfected the art of QR code payments.

They’re helping anyone and everyone running a business generate their unique QR codes, paste them on their counters or on website checkout pages, and start accepting payments right away.

At present, proprietary QR codes are non-interoperable in nature. However, the Government of India has recently issued a mandate to bring proprietary QR code issuers into the arena of interoperability.

Benefits Of Using A QR Code Payments System

On-the-spot Payments

Not only do QR code payments enable instant payments, but they’re also quick, compared to other digital methods.

A customer simply needs to open the QR code payment application, scan the QR, and pay. The entire payment process takes less than a couple of seconds to process end-to-end.

On-the-go Payments And Payouts

The beauty of QR codes is that customers can scan from an image as well.

So, for instance, you’re on your way home and you’ve ordered groceries from a local shop near your residence. You don’t need to visit the shop to complete the payment. The merchant can simply send you an image of their account-linked QR code on your WhatsApp. You can scan the image using a QR code payment app such as Paytm, GooglePay, etc., and complete the transaction.

Meanwhile, as a merchant, if you have to make a payment to a vendor, you can send them a dynamic QR code prefilled with the order amount. The vendor will scan the code and receive payment in their account instantly.

This payment method has become a go-to payment mode, especially due to the current social distancing scenario.

No Overhead Charges

It is one of the most cost-effective payment methods. In fact, you can turn your existing POS machines to accept payments via QR codes.

This means that if you’ve already invested in a POS machine, you can leverage that technology and even integrate a QR code payments system to it to make it multi-functional in nature.

Meanwhile, this payment system is a readily available solution. It significantly reduces the need to enter any transaction-related data making it a highly hassle-free solution, especially for merchants.

Secure Online Payment

A QR code payment system is highly secure. All information transferred via QR codes is encrypted. This helps minimize data loss and security breaches.

Easy-to-set-up

It’s extremely easy to set up this payment system. All a merchant needs to do is generate a QR code unique to their business, print it on paper, and paste it onto their countertops.

Online and SaaS merchants can partner with a payment aggregator to accept these payments.

Every payment collected via QR code directly gets deposited into the merchant’s bank account. This means, no middle-man cost, no third-party application needed, and no hefty infrastructure cost.

Highly Reliable Solution

Comparatively, these payments are foolproof in nature and eliminate the probability of errors and security breaches. The checkerboard-like black squares contain unique data which increases the reliability of the QR code payments.

Faster Payment Helps Serve More Customers

As established, they enable faster checkouts and payments. This means, as a merchant, you can serve more customers than before.

This is especially beneficial in the case of grocery stores and fast food joints. Multiple customers can scan the QR code at the same time and pay while letting you serve other customers and fulfil their orders on time.

Collect and Disburse UPI Payments using Dynamic QR Codes

Challenges of Using a QR Code Payment System

With many benefits, the QR code payment system brings along a couple of challenges as well. Let’s take a look at them.

Security

Although QR code payments are secure in nature, only when the merchants generate the codes through an end-to-end encrypted PSP.

Meaning, many free tools on the internet allow merchants to generate QR codes for their business use. However, it’s always advised to get QR codes from government-authorized and approved issuers only. This eliminates the risk of security breaches and fraud.

Usage Limitations Of a Dynamic QR Code Payment

Merchants can use dynamic QR codes for accepting payments in only a limited number of cases. For instance, they’re highly recommended for accepting online payments. However, since they’re not printable in nature, merchants cannot them at physical store locations.

Fraudulent Activities

Data encryption is one technique to ensure a secure payment process. However, what if someone manipulates QR codes placed in public places? Anyone scanning the code runs the risk of being directed to a problematic URL. Moreso, it’s difficult to identify if someone tampered with the original QR code, at first glance.

Only when the scans don’t go through is when the security breach can be identified.

Future Scope And Growth In India

In India, cash is still the king. However, many recent events have led to a perceptible shift towards digitization. According to an article published by Business Standard, India recorded 9.36 billion transactions accounting for about INR 10.25 trillion in Q1 of 2022.

Of these, the total number of Bharat QR code payments registered in March 2022 was 4.97 million registering a 39% growth compared to March 2021.

Meanwhile, UPI-based QR code payments stood at 172.73 million showing an increase of 87% compared to March 2021.

Looking at the numbers, it’s no surprise that merchants, as well as customers, are accepting QR code as a payment system and harnessing it to their leverage in all respects. Merchants can conveniently set up the payment mode and spend almost nothing in exchange for an excellent acceptance experience.

However, there remain plenty of opportunities that the QR code payment system is yet to unfurl and innovate the Indian payment industry further. Glueing all eyes on the future.

Frequently Asked Questions

Which QR Code is best for payment?

Both static and dynamic QR codes are ideal for accepting payments. Static QR codes are an excellent choice for merchants running brick-and-mortar stores or engaged in delivery services. Dynamic QR codes, on the other hand, are perfect for online stores that want to offer a personalized customer experience.

Who brought the QR code payment system to India?

National Payments Corporation of India first introduced the concept of QR code payments via Bharat QR in India. It launched the concept in 2016 soon after the announcement of demonetization in the country.

Bharat QR ensures seamless transactions across all authorized banks for all cardholders and UPI users. It works on a simple motto – One QR platform – Universal payment solution.

Is the QR code payment system better than Tap and Pay?

Both ‘QR codes’ and ‘Tap & Pay’ are distinct modes of payment. Each comes with its own list of pros and cons.

However, in a couple of stances, the QR code payment system is better than Tap and Pay. Here’s why –

Tap and Pay payments can only be made in close proximity which is not the case with QR codes. In situations like the pandemic, QR codes have proved to be better
QR codes do not need any infrastructure set up. Tap & Pay may need some additional devices like NFC-enabled smartphones and cards
Evidence shows that QR Code payments have higher transaction success rates as compared to Tap and Pay

What is the QR Code Payment Limit in India?

As of now, there’s no defined QR Code payment limit. The NPCI has left it for the banks and wallet companies to define the limit in case of respective transactions.

Meanwhile, any QR code-based transaction made via Bharat QR has a limit of 20 transactions per day⁶. Similarly, payment made via the BHIM app comes with a limit of INR 10,000 per transaction and a total spend of INR 20,000 per day.

Who Invented the QR Code?

In the late 1990s, a Japanese company called Denso Wave invented the QR code system. These codes were ideally used in the automotive industry to map production, track goods and shipments, etc. However, with the evolution of time, QR codes got adopted by other industries. They were soon being used for item identification and marketing purposes.

Many experts claim that QR codes weren’t a huge success as expected in the initial years of their launch. However, in some countries like China, they played a critical role in their rapid growth and development. They enabled businesses to accept digital payments via QR codes without investing in any hardware such as a POS machine.

Come 2022, QR codes have turned into one of the primary modes of payment across all industries worldwide.

Where is the QR Code in Paytm App?

Each Paytm account has a unique QR code linked with it. To find a QR code in Paytm, follow the below-mentioned steps.

Open the Paytm app
Click on the 3 horizontal lines in the top left corner with your name’s initials
You will see the QR code icon with the Share QR button
Click on the button and share it with anyone you want