South Africa, like China, India and other emerging markets, has embraced QR codes as a convenient and low-cost method for mobile payments at the point of sale. But as these countries are finding, interoperability between rival, proprietary QR code payment schemes is vital to spurring consumer and merchant adoption.
Mastercard Southern Africa has partnered with South African mobile-focused fintech Entersekt to enable customers of Nedbank, a leading local bank, to make QR payments to merchants and billers using three domestic scan-to-pay apps — Pay@, SnapScan and Zapper — plus Masterpass. All of these operate through the Nedbank Money app's Scan-to-Pay feature. Users authenticate themselves using their password or biometrics.
The initiative means Nedbank Money users need to store their payment card data in just one app for all the main South African scan-to-pay schemes, representing a combined footprint of 115,000 retail points of presence and 800 billers. This means Nedbank Money users can use Nedbank Scan-to-Pay at any QR code-enabled South African merchant, including retailers which are not acquiring clients of Nedbank.
Mastercard’s strategy is to ensure interoperability between its Masterpass digital payments platform and South Africa’s other major mobile payments services. Over the last 18 months, Mastercard has enabled Zapper- and SnapScan-accepting vendors to accept Masterpass payments and enabled Masterpass merchants to accept Zapper and SnapScan payments in South Africa.
South Africa
“South Africa was an early adopter of QR code-based payments,” said Gabriel Swanepoel, vice president of business integration at Mastercard Southern Africa. “The first QR code app was introduced by SnapScan, a subsidiary of Standard Bank, in 2013.”
QR codes are a prevalent method of payment in South Africa.
“From a market size viewpoint, QR codes have been a success,” Swanepoel said. “There are around 115,000 retail locations that accept QR code payments.”
Mastercard plays the role of market organizer for QR codes in South Africa in order to create an interoperable landscape between the banks and proprietary QR code wallets such as Zapper and SnapScan.
South Africa has around 440,000 card-reading POS terminals in total. According to the Payments Association of South Africa’s 2017 annual report, combined payment card volumes rose by 20 percent in 2017 to nearly 2.5 billion in South Africa.
Offering QR code payments has helped to widen the digital payments acceptance base in South Africa, especially in the informal economy. A December 2017 Mastercard study found that over 51 percent of South Africa’s 1.5 million informal enterprises had encountered strong customer interest in paying by card, yet 96 percent of them are run as cash-only businesses.
Despite rural and township residents using cards for 60 percent of their transactions at formal retailers, only 4 percent of transactions are card-based at informal retailers, the study found. This is due to these small traders not offering card or mobile acceptance.
“For informal businesses like mom-and-pop stores, it doesn’t make sense to buy a US$400 POS terminal from an acquirer, even though they would like to accept card payments,” said Swanepoel. “QR codes aren’t going to replace contactless cards in environments like transit and Tier 1 retailers, but they are valuable for restaurant, taxi, gas station or remote payments such as delivery drivers.”
What do merchants want?
The Mastercard survey found that 59 percent of informal merchants and 69 percent of consumers interviewed have smartphones. Yet none of the informal merchants interviewed used smartphone-based card acceptance solutions.
When asked if they would consider using these solutions, merchants expressed great interest if the economics made sense, the study said. Twenty-two percent said they would be interested in using a QR-code system, 44 percent said they would be interested in mobile payments apps, and 40 percent said they would be interested in a POS or mobile POS card acceptance system.
The survey found that informal merchants who introduced card acceptance, reported an average increase in turnover of 50 percent, while those who introduced mobile payment acceptance via QR codes saw their revenues grow 10 percent.
Although Samsung Pay recently launched in South Africa, it’s early days for contactless cards and NFC payments apps in the country.
“Due to the size of South Africa’s informal economy, the volume of cash has remained quite stable,” said Chris Wood, a card issuing and payments executive at Nedbank. “However, the introduction of mobile payment initiatives aims to reduce the dependency on cash in order to drive a shift to more secure payment mechanisms such as cards or digital payments. Both NFC and QR code-based mobile payments are growing steadily month on month, but still represent a small portion of traditional card-based payment volumes.”
Should there be a standard?
While in China, QR code payments are dominated by two major players,
In India, where Paytm dominates the mobile payments market with its proprietary QR code-based Paytm Wallet, the Indian government launched its Bharat QR code
Singapore's standardized QR code payments platform is expected to be launched this year, while Bank Indonesia, the central bank of Indonesia, is working to ensure QR code payment interoperability,
In South Africa, Entersekt has supplied its Connekt platform to enable and integrate all the scan-to-pay services in the Nedbank Money banking app, through an API integration with Mastercard.
Swanepoel said that Mastercard provides card-on-file services for Nedbank Scan-to-Pay including the ability to store and process QR code payments for Visa, Diners Club and Amex.
Mastercard has worked out a deal with South Africa’s telcos to ensure that QR code payments don’t incur a data fee for smartphone users. Four South African banks offer Masterpass-branded wallets, Absa, Capitec, Standard Bank and Nedbank. Mastercard also provides APIs so banks can embed Masterpass in their own wallets.
Wood said Nedbank currently offers its clients contactless physical cards.
“We’re working on extending this NFC capability to a smartphone tap-to-pay feature,” he said. “Nedbank currently has over 2 million cards in issue that offer tap-and-pay at accepting POS devices. By April 2019, all cards in our customer base will offer contactless transactions.”
iKhokha
Durban-based iKhokha is a payments facilitator which enables small and mid-sized retailers to accept contact and contactless card payments using its mobile payment device linked to a smartphone or tablet. iKhokha’s 12,000 clients are also able to accept Masterpass mobile payments, as their iKhokha device generates a unique QR code for each Masterpass transaction.
Merchants who implement the iKhokha solution typically see an increase in sales volume, with many reporting at least 20 percent higher receipts, according to a Mastercard case study on iKhokha.
“I wouldn’t say it is quicker to accept payment via QR code for mobile devices rather than NFC/contactless mobile wallets, but neither is it materially slower,” said Matthew Putman, iKhokha’s CEO. “In the South African market, QR has been adopted in certain retail and hospitality environments, due to the early-stage marketing push from SnapScan and Zapper, which has driven consumer education for a few years now. Consequently, many consumers are comfortable with the QR payment process.”
Putman said that there is very little traction to date for NFC-based mobile wallets in South Africa.
“Also, contactless cards are only just starting to gain decent traction,” he said. “QR is still a small percentage of our overall digital payment volumes, but we expect to see a meaningful increase on the back of the Masterpass and Zapper integration, which will open up both ecosystems and bring us closer to an interoperable QR system.”
