African countries have from the start been out in front when it comes to adopting mobile payments. Following the success of SMS-based transfers, we are now seeing payment by QR code, a simple, proven approach that has taken precedence over contactless NFC technology in Africa.

QR code payments making strides in Africa

The mobile payments service M-Pesa has proved hugely popular in a number of African countries since its launch in Kenya in 2007 by telecoms operator Vodafone. Also in use today in the Middle East and India, M-Pesa is now estimated to have over 25 million active customers worldwide. This solution, simply requiring a user to send an SMS in order to make a payment, has proved ideal in countries where banking infrastructure is still notoriously inadequate. “Africa has a strong appetite for mobile payments and people were paying with their mobiles in Africa long before you could do so in France. The popularity of M-Pesa bears witness to this,” points out Laurent Nizri, Founder and CEO of Altéir Consulting.

Smartphones seeing rapid take-up in Africa

Meanwhile, in a bid to compete with M-Pesa, Mastercard has embarked on the rollout of an alternative solution, not based on SMS or cordless Near Field Communications (NFC) technology but on good old QR codes. Instead of having to enter in an SMS the payment account number of the recipient, a customer just needs to scan the merchant’s QR code and then confirm the payment by smartphone. Olivier Gabrielli, Head of Digital Services at Mastercard France, explains why Mastercard has opted for this technology, which is both more sophisticated than SMS and simpler than NFC: "The important thing to remember here is the geographical region in which we’re offering Masterpass QR. This solution has been designed so as not to force merchants to acquire a POS terminal. This promise is directly linked to the technology solution we have chosen.”

In a bid to counter M-Pesa, Mastercard rolled out its Masterpass QR code solution in Nigeria and Kenya, then in 33 countries in the Africa-Middle East region.

The system was first introduced in Pakistan in August 2016, before being deployed in Nigeria through a partnership with Ecobank Group. The two partners drew up an extremely ambitious marketing plan: to roll out Masterpass QR in 33 African countries with a view to achieving a 100 million customer base by 2020. The company claims that 100,000 Nigerian small traders are already using this mobile solution. Deployment in Kenya was initiated in February this year and the goal is to win over 150,000 merchants in the country by end-2017.

The proponents of the project underline that the main barrier to widespread deployment of the solution – the limited level of smartphone penetration in Africa – is now coming down. They predict that smartphone ownership is set to grow by 65% by 2020 and that 467 million smartphones will be in use on the African continent by then. "Smartphone penetration in these countries is growing ever more strongly and we estimate that this growth is faster than the rate at which merchants are installing dedicated payment terminals," says Olivier Gabrielli.

Laurent Nizri underlines however that there is nothing revolutionary about using QR codes as a means of payment. He points out: "QR codes have been in existence for 20 years and there are already plenty of QR code-based electronic payment solutions in Europe – for example the Wa! app deployed by French supermarket chain Carrefour in conjunction with BNP Paribas. The Lydia and Fivory solutions in France are also based on QR codes. In the UK, Yoyo Wallet has raised 15 million dollars equivalent to develop this type of system." While some systems use dynamic QR codes generated for each separate transaction, others stick with static QR codes attributed to each individual trader. This latter option has been chosen by Mastercard.

Favourable cost-risk ratio for emerging countries

If this technology seems a little backward now that the latest smartphones enable users to carry out transactions via Near Field Communications, it is nevertheless a fact that QR codes offer a favourable cost-risk ratio for quite a number of countries. “Even though they claim to be technology-neutral, Visa and Mastercard are pushing NFC technology harder in economically mature countries,” reveals Laurent Nizri, explaining: “In Europe in particular, payment security is now under the microscope. They’re trying to improve fraud ratios by fractions of a percent, which shows that you have to be very good and spend a lot of money to achieve that.”

QR codes are an easy-to-deploy, low-cost technology as they require no infrastructure other than the mobile phone network: an ideal solution for developing countries

In theory, Near Field Communications technology provides a higher level of security than QR codes and in France the use of QR codes for mobile payments is generally restricted to ‘closed loop’-type applications – i.e. to make payments at a university canteen, a hospital, or a store belonging to a retail chain. The most obvious example here is coffee shop chain Starbuck’s, which introduced QR code-based transfers into its payment solution back in 2008. The risk of fraud is quite low because the effort required to pull off a scam are prohibitively high in comparison with the sums that might be stolen. Explains Nizri: “QR codes offer the advantage of not being very costly to deploy – theoretically a bit less safe than NFC, that’s true, but it all depends on where you set your fraud risk acceptance ceiling. In Europe, we have a zero-fault culture in this domain but that’s not true for other regions, such as the United States, where most bank cards still don’t have an embedded chip. They treat this as an insured risk, which is why transactions are far more expensive than in Europe. And for the same reason, transaction costs are six to seven times higher in other areas of the globe where they have to take account of a much higher cost of fraud.”

India: a billion potential customers

Not only is QR code technology mature and inexpensive, but at the start of this year a number of electronic wallets became interoperable for QR code payment purposes. Visa, Mastercard and Indian payments operator RuPay agreed to draw up a common specification so that any QR code can be read and processed by the mobile apps of any of the three partners.

At this year’s Mobile World Congress Mastercard made no secret of its ambition to conquer India with its QR code payment offering.

The fact that Visa and Mastercard negotiated this deal with an Indian operator is no coincidence. Both card companies are looking to conquer a potential market of a billion users in a country where hitherto cash has been king, which also tends to keep crime levels up and facilitates opportunities for bribery and corruption. The recent withdrawal from circulation of 500 and 1,000 rupee notes caused chaos across the country and it looks as if the embattled Indian authorities now need to encourage a rapid switch to mobile payments. Olivier Gabrielli underlines: "India is an important country for Mastercard for a host of reasons, not least for our CEO [Ajaypal Singh Banga] from a personal point of view. We’re running financial inclusiveness programmes there, which are an extremely important part of our strategy. Aside from the purely business angle, we’re engaged in a real thinking process about how we can help countries like India to become less dependent on cash.”

By Alain Clapaud
Independent journalist specialising in the new technologies