Closer Look: Decoding PBOC's Move against QR Code Mobile Payments
(Beijing) – The central bank has said handling payments by scanning quick response (QR) codes is not safe and should be stopped.
The order regarding QR codes – those blotches of black and white that can be scanned using a phone's camera – came in a document the bank sent to third-party payment handler Alipay on March 13.
The central bank's order shocked Net firms like Zhejiang Alibaba E-commerce Co., which runs Alipay, and Tencent Holdings Ltd., whose popular messaging app WeChat was just beginning to handle payments using QR codes. Companies have invested heavily to get offline businesses to handle QR code payments.
The move by the People's bank of China raises two questions. First, are QR code payments safe? Second, who is the winner in the PBOC's decision?
Letting consumers make payments with mobile devices linked to phone cards is not new to China. China UnionPay is the dominant banking card industry association in the country. Its network of ATMs and card readers is used for millions of transactions every day.
It also handles mobile payments via near field communication (NFC) technology. This allows consumers to make payments by waving their smartphones near a point of sale (POS) reader.
Qiao Xin, an executive at state-owned telecom company China Potevio Co. Ltd., says NFC and QR technologies are simply ways to send data. Whether or not they are safe depends on the software used to encrypt the data.
In fact, the encryption models for all mobile payment technologies – UnionPay's NFC or the QR code method preferred by Alibaba and Tencent – are similar, Qiao said. Hence, both methods are only as safe as their encryption software.
A source in the payment industry echoes this, saying neither technology is immune to fraud. The only real difference between the QR and NFC methods, the source said, is that the former is preferred by Net companies who have not settled on standards for transmitting information, but this in itself is not a security flaw.
Regulators should really focus their attention on pointing out the safety problems to the industry and spurring it to set standards.
Which brings us to the second question: Who wins? The short answer is UnionPay and the state-run banks it represents.
One very good way to improve the safety of mobile payments is to add chips to smartphones, but the readers they would connect with are in UnionPay's territory.
UnionPay, which was established in 2002, has worked hard to see its NFC technology adopted in recent years, and had 1.47 million NFC-capable POS readers in use by the beginning of the year.
Qiao says it is doubtful UnionPay will give Internet companies permission to develop chips compatible with its POS terminals. Last year, Alipay tried to develop its own POS services by collaborating with banks to process payments, skipping UnionPay and the commission it charges. But Alipay abandoned the idea, and UnionPay was seen as defending its turf.
The QR code method of payment has been growing faster than the NFC version because users like it better, partly because users do not have to open an app like their have to do with the latter.
Businesses also like the QR code method because they do not have to pay commissions to UnionPay for each transaction. This is a significant loss of revenue for UnionPay, Qiao said.
Alipay also charges a commission that it splits with banks, but it is less than what UnionPay charges.
Because of the better user experience and lower costs, analysts had said the future of QR codes was bright. While the central bank's move has ensured UnionPay and its banking partners their profits, it has also thrown the mobile payment industry into disarray.
(Rewritten by Niu Muge)
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