Putting a leash on QR code payment giants

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PBOC has introduced regulation for QR code payments. It may be good news for the fast-growing market.

Editorial

On 27 December 2017, the People’s Bank of China (PBOC) issued standards to regulate QR code payments. Taking effect in April 2018, there will be a daily limit of RMB500 (US$76.5) per person for static QR transactions. For the real-time QR code payments, the daily cap will be RMB1,000 (US$154.3) per person. The regulations aim to reduce fraud.

PBOC also advocated tokenisation, risk monitoring, and anti-counterfeit measures for QR code payments. The new regulations will ask for merchants to get a permit to offer barcode payment services. Payment institutions will need to use the PBOC or another clearing house to process cross-bank transactions.

Concerns about QR code payments security

There are more than 520 million mobile payment users in China. 42.6% of these transactions use QR payment as the payment method. In 1Q 2017, the transaction volume for China’s QR payment was RMB580 billion (US$89 billion).

Source: Payment and Clearing Association of China

But there are security concerns about this popular payment method. Static QR code payments are one of the riskiest payment methods. Guangdong reported that QR code scams stole RMB90 million (US$13 million) last year.

In many cases, merchants display their QR codes on the cashier desk. Consumers only need to scan the static QR code to pay. Some scammers replace the merchants’ QR code with their own QR code. Users transfer money into scammers’ bank accounts by unknowingly scanning the fake codes.

Even worse, some scammers replace the original QR code with an illegitimate QR code. Consumers enter the phishing website by scanning the fake code. The website will prompt them to disclose their bank card information. The scammers then gain access to the user’s bank account.

The rapid emergence of the QR payment market has left many users under-educated. They cannot tell the fake codes from the genuine ones. They do not know how to safeguard their rights.

There should be more regulations for the QR payment market

PBOC is taking steps to regulate the QR code payments market. The daily cap will limit QR payments to small-scale micro-payments. Users will need to pay via bank cards for large payments.

But this is not enough. There needs to be a standardised technology for QR code payment. The government should also work with payment providers and merchants to improve the security of the payment system. There also needs to be strict punishments in place for those who commit QR code payment scams.

The future of QR code payments

The cap will have little impact on the current market share. Chinese mobile payment users are used to using the QR code payments. The payment system has already become entrenched in consumer habit. It would not be easy to unseat QR code’s as a popular and convenient payment option. Most of the transactions already processed via QR code payment are for small amounts. The RMB500 (US$76.5) cap will not affect many users.

Source: Payment and Clearing Association of China

PBOC’s will legalise the market. It will also promote the construction of a secure payment system. If successful, users will be more inclined to use the QR code payment service. This will be welcome news to established players like WeChat Pay and Alipay. Regulation is not a dirty word in the QR industry. It should be a welcome relief to a rapidly expanding industry that has long been vulnerable to abuse.