Why QR-Code (QRC) Payment is not a Thing in the West Compared to China?
A Comprehensive Analysis of QR-Code Adoption in Western Markets
1 Understanding the Context
While QR-Code (QRC) payments are a daily norm in China, their prevalence in Western countries, like the Nordics, is significantly lower, with perhaps only 10–20% of merchants adopting this technology or even less. This disparity raises questions about the difference in user behaviour and merchant acceptance between these regions.
2 User Preferences in the West
Friends of mine who get used to using QR-Code payments in China often find themselves frustrated with the payment methods available abroad. They laud the simplicity and convenience of just using a phone for transactions, a big contrast to the more traditional methods of cards and cash.
However, does this preference translate to users in Western countries?
Firstly, Apple Pay has gained significant traction.
In regions like the United States or the Nordics, Apple Pay or Google Pay has also offered a phone-based payment method that many find smoother and more user-friendly than QR-Code payments.
Secondly, there’s the aspect of transition costs.
For those accustomed to card payments, especially with the advent of contactless technology, the ease and speed are comparable to QR-Code payments. It’s challenging to definitively say which method is superior.
Lastly, and perhaps most critically, privacy concerns play a significant role in the West.
I recall a conversation with a Norwegian friend who expressed discomfort with the idea of being scanned by a cashier. It felt intrusive, as if he was exposing a part of his personal life to a stranger. This sentiment is particularly strong in regions where privacy is highly valued. In such contexts, QR-Code payments are often viewed as the least privacy-friendly among digital payment options.
3 Challenges for Merchants in Adopting QR-Code Payments
Implementing QRC payment systems presents a set of logistical and financial challenges for merchants. Whether it’s a user-scan or merchant-scan model, integrating QRC payments into existing cashier systems isn’t straightforward. It often involves acquiring new devices, upgrading systems, integrating with existing Enterprise Resource Planning (ERP) systems, and adjusting accounting and settlement processes. For larger retail chains or groups, this shift can represent a significant financial undertaking.
Moreover, if the anticipated volume of transactions through QRC payments is projected to be less than 1% of the Gross Merchandise Volume (GMV), the investment might seem unjustifiable. In the absence of a compelling need or demand for these new payment methods, merchants are generally reluctant to adopt them. This reluctance persists unless they are offered a comprehensive, easy-to-implement solution that addresses these challenges efficiently.
4 The Stance of Existing Players
The term ‘existing players’ in the financial sector primarily refers to traditional institutions like banks, payment processors, and credit card giants such as Visa and Mastercard. This category might also encompass newer FinTech companies, including various digital banks.
These entities already operate within a stable and profitable framework. Introducing QRC payments could potentially disrupt their well-established business models. These organisations have built robust networks and ecosystems centred around card payments, with each stakeholder benefiting from the existing arrangement.
Introducing QRC payments into this mix would equate to a fundamental transformation of their operations — a change that many might view as unnecessary or even detrimental. It’s akin to demolishing a well-fortified castle merely to experiment with new architectural styles. While there’s always room for innovation, completely overhauling a successful, time-tested system is often seen as an unjustifiable risk. These players are more likely to explore new technologies as supplementary additions rather than replacements for their core infrastructure.
5 The Challenges New Players Face
In the scenario where established financial players are hesitant to embrace QRC payments, the spotlight turns to new players, particularly startups attempting to replicate the success of QRC payments seen in China. Despite their enthusiasm and innovative approaches, these new players often face formidable obstacles that can lead to financial strain and, ultimately, failure.
Firstly, the business model relying on transaction commissions is typically unsustainable.
The costs associated with technology development, marketing, and operational management often far exceed the revenue generated from these small commissions. This imbalance makes it challenging for these companies to achieve positive cash flow before depleting their financial reserves.
Secondly, scalability across diverse markets poses another significant challenge.
China’s success with QRC payments is partly due to its massive, relatively homogenous market of over 1.3 billion people sharing similar cultural backgrounds, language, and regulatory frameworks. In contrast, the European market, despite the unifying presence of the EU, is fragmented with varying languages, cultures, and regulations, complicating the widespread adoption of a single payment solution like QRC.
Finally, new players in the QRC payment arena often struggle to penetrate markets.
Existing markets have dominated by established entities with deep-rooted customer bases and extensive merchant networks. Convincing both merchants and users to switch to a new payment system is an uphill battle. The formidable ‘moats’ built by existing players make it difficult for new entrants to gain significant traction. As a result, many startups find themselves in a vicious cycle, running out of funding before they can generate substantial revenue.
Therefore, the current market dynamics suggest that there is no clear product-market fit for QRC payments, be it for traditional financial institutions or new entrants.
6. Why Does it Work in China?
China’s remarkable success with QRC payments can be attributed to a unique set of circumstances that are not easily replicable elsewhere.
Limited Credit Card Penetration
A decade ago, credit card usage in China was less than 10%, and the card payment infrastructure was not extensively developed. Most transactions were conducted in cash. This scenario presented a ripe opportunity for introducing something novel like QRC payments. With QR codes, transactions could be digitised efficiently and cost-effectively, sometimes even cheaper than card transactions. This ease of adoption removed significant barriers for merchants to switch to this new system.
Growth of Mobile Payments with Internet Adoption
As the internet revolution took hold in China, mobile payments grew in tandem. At this time, traditional banks and regulatory frameworks were still adapting to digital payments. This gap allowed internet giants like Alibaba and Tencent to pilot their mobile payment solutions. These companies, now among China’s largest, were given leeway by authorities to innovate in this space, quickly capturing a significant market share.
Integrated Business Models of New Players
For these new players, QRC payments were not an isolated service but part of a larger business ecosystem. Alibaba, primarily an e-commerce platform, integrated its payment system as a component of its broader service offering. Similarly, Tencent leveraged its WeChat platform — central to daily communications in China — to introduce WeChat Pay. This integration meant that payments were a vital part of a larger business structure, serving as a supportive element rather than a standalone profit center.
In summary, the combination of these three unique factors — limited credit card usage, the rise of mobile internet, and the integrated business models of new tech players — created a perfect storm for the success of QRC payments in China. This specific blend of circumstances is challenging to replicate in other markets, where different economic, technological, and regulatory landscapes prevail.
7 Identifying Opportunities for QR-Code Payments in the West
Despite the challenges, QRC payments could still find their niche in Western markets under the right conditions. For instance, in Sweden, the Swish app has gained enormous popularity, with over 90% of Swedes using it. Developed and supported by Swedish banks, Swish faces minimal obstacles in merchant and user acquisition. This unique ecosystem has facilitated the adoption of QRC payments in Sweden, demonstrating that with the right product-market fit, such systems can thrive.
Another area ripe for QRC payment integration is the B2B2C sector, particularly in fields like employee healthcare and fringe benefits. In these domains, the focus is more on acquiring merchants rather than individual customers. Once businesses are on board, their employees automatically become users of the system, streamlining the adoption process.
An emerging opportunity is also seen in the collaboration between mobile payment companies across the Nordic region. The recent merger of Norway’s Vipps, Denmark’s MobilePay, and Finland’s Pivo into a joint venture hints at a future where a shared user and merchant network could facilitate the use of QRC payments across these countries. However, this model still faces challenges, particularly in ensuring profitability and positive revenue streams.
In conclusion, while QRC payments have not yet gained widespread traction in Western markets as they have in China, specific sectors and collaborative efforts present promising opportunities. Success in these areas hinges on finding the right market fit and addressing the unique challenges of each regional market.
