Quick Response Code as Pathway to Greater Financial Inclusion


Obinna Chima writes that the adoption of Quick Response Code will strengthen the country’s drive for financial inclusion

In order to ensure that a greater fraction of the country’s population carry out seamless transactions and enjoy banking services, the Central Bank of Nigeria (CBN), the Nigeria Interbank Settlement System and banks, have over the years continued to design initiatives aimed at encouraging financial inclusion.

Financial inclusion refers to a process by which individuals and businesses can access appropriate, affordable, and timely financial products and services.
Today, all Nigerian banks boast of products that support financial inclusion initiative.
The federal government had inaugurated a National Financial Inclusion Strategy, which was designed to increase the number of Nigerians that have access to financial services.
Globally, this is a social problem that is also attracting greater attention.

The Central Bank of Nigeria (CBN) had unveiled the National Financial Inclusion Strategy designed to ensure that at least 80 per cent of Nigerians have access to banking and other financial services. It had noted that about 36.8 per cent of eligible Nigerian adults currently do not have access to financial services, adding that the figure indicated a significant improvement over the 41.6 per cent exclusion rate recorded in 2016.

Although, reports have shown an uptick in the number of those in the banking system in the past two years due to the aggressive campaign by the bankers’ committee, experts have argued that the introduction of Quick Response Codes (QR) for financial transactions would be a pathway to greater financial inclusion in the country.
QR Codes are a kind of matrix barcode representing information presented as square grids, made up of black squares against a contrasting background, which can be scanned by imaging device, processed and transmitted by appropriate technology.
These codes can be used to present, capture and transmit payments information across payments infrastructure. The technology further enables the mobile channel to facilitate payments and presents another veritable avenue for promoting electronic payments for micro and small enterprises.

From restaurants and hospitality, to government and safety information, QR codes have empowered anyone with a smartphone to easily access information and content. In addition, QR codes have also become a way for companies to tell brand stories, from packaging, luxury, fashion, artists, among others.
In 2020, Ghana launched a universal QR code payment solution, which made it the first African country to introduce a universal QR code.
The harmonisation of QR codes on a national level meant Ghanaians could make payments to merchants from multiple funding sources – mobile wallets, cards or bank accounts – on any platform.
The importance of QR codes when it comes to digital and cashless payments is why some payments companies have been working over the years to increase its adoption across the world, for both merchants and consumers.

Quick Response Code Framework
Acknowledging the significance of this solution, the Central Bank of Nigeria in January 2021, unveiled a framework for QR code payments, directing all issuers, acquirers, switches, processors and other participants in the country to ensure full interoperability of the schemes.
The CBN stated that the guidelines were in furtherance of its mandate to ensure the safety and stability of the Nigerian financial system, promote the use and adoption of electronic payments and foster innovation in the payments system.
The framework provides regulatory guidance for the operation of the scheme and aims to ensure the adoption of appropriate QR code standards for safe and efficient payments services in Nigeria.
The apex bank, in a circular titled: “Framework for Quick Response (QR) Code Payments in Nigeria,” stipulated the acceptable QR code standards for implementing QR payments in Nigeria; interoperability of QR payments; roles and responsibilities of participants as well as risk management principles for QR code payments.

The CBN, however, warned that it will sanction any party that fails to comply accordingly with the QR regime, adding that all consumer complaints shall be resolved in accordance with the CBN Consumer Protection Regulation.
The guidelines provide that issuers and acquirers shall clearly define risk management policy and guidelines for the operation of the QR code scheme.
It stated: “QR codes shall, at a minimum, be encrypted (AES) and/or signed; QR codes payments applications, updates and patches shall be duly certified by the Payment Terminal Service Aggregator (PTSA); issuers and acquirers, shall agree minimum due diligence guidance for merchant on-boarding without prejudice to the KYC/AML requirements of the bank; issuers and acquirers shall ensure that only PTSA certified QR code shall be utilised; issuers and acquirers shall ensure behavioural monitoring and fraud management systems are implemented to prevent, detect and mitigate fraud and money laundering.”

Benefits of QR Codes
The Drum in a recent article pointed out that in Singapore, QR codes played a significant role in the fight against Covid-19.
According to the report,QR codes have become a ubiquitous mechanic for customers’ brand engagement in Asia Pacific but as the pandemic increased digitisation, the use of QR codes became more prominent.
“Billions of daily users rely on mobile payments through Alipay, WeChatPay, GrabPay, who have seamlessly integrated e-commerce, social media, and mobility services amongst others into their super apps.
“Not only can they trace where their consumers have been, they understand their purchasing patterns through QR codes.
“That’s the big promise to brands, marketers, and advertisers spending in their media ecosystems to influence the purchase journey,” it added.
Furthermore, a report by CGAP, noted that transactions using QR codes are cheaper and simpler for both acquirers and merchants.

With this solution, acquirers benefit from lower operating costs because they do not need to deploy a point-of-sale (PoS) terminal for every merchant. On the other hand, retailers save the PoS cost because they can use the smartphone they already own as a QR code payment acceptance terminal; for those without a smartphone, a printout of the merchant’s QR code identifier pasted on the shop’s wall will suffice.
QR codes are already stimulating growth in acceptance networks.

In addition, QR codes provide an elegant solution to the card distribution challenge.
“Delivering debit cards presents providers with a major distribution challenge. Card and PIN must be mailed to recipients through two separate mailers. “This is complex and expensive when targeting low-income customers, who often lack a proper street address.
“When a customer uses a QR code to make a payment, his or her smartphone replaces the card, removing the need for the multi-step physical mailing process,” it stated.

Furthermore, QR codes offer a user experience at least as good as cash, if not better.
With this solution, users do not need financial education to use QR codes for payments.
They simply launch an app, scan a QR code and enter their e-PIN. If using a printed QR code, they also enter their transaction amount.
“The fact that a user’s phone vibrates when a transaction is completed, and that he or she gets a visual receipt on their phone, adds immediacy and physicality to the payment experience in a way a card purchase never could.
“And the effort required of the merchant to complete a transaction is close to zero. Merchants simply need to show the QR code to the customer using their smartphone or a printout.
“They can serve another customer while processing a QR code payment like they do during cash transactions. This is an important requirement for small merchants in developing countries,” the report by CGAP stated.
Clearly, these factors make QR codes a potential game-changer in retail proximity payments, and this may have real consequences for large-scale adoption of digital financial services among financially underserved populations.
Given their frequency, retail payments have greater potential to get people into the habit of using digital financial services.

QR code transactions connect the virtual and physical world in a novel and involving way.
Such easy and widespread opportunities to make digital payments — the promise of QR codes — can bring lasting and profound behavior change among low-income customers and merchants, making formal payments a part of their everyday lives.
Over time, transaction histories and alternative data trails can bring access to credit and other formal financial services, creating a gateway to financial inclusion.