CONTACTLESS PAYMENT METHODS – THE REGULATION OF QUICK RESPONSE (QR) CODES IN NIGERIA

Introduction

A cashless world was hard to imagine in the 80s and 90s (at least for most of us). It was unimaginable for you to successfully make payments, without cash, a debit or a credit card. What exactly were you to use then?! Right before our eyes, the world began to change, the mobile phone became more than a phone, it became your everything; your notepad, your office, your camera and your payment device (with the use of Quick Response [QR] Codes and Near Field Communication [NFC] tags).

The use of QR Codes as a payment method was introduced by Alipay in 2011 and became a widely used method of payment in China. NFC tags (which are chips built into smartphones) were used in countries like the United Kingdom first.

In Nigeria, QR Codes as a payment method is gradually gaining traction. Fintech companies such as Paystack and Flutterwave now offer sellers and service providers the ability to receive payment by generating and printing or sending a QR Code to their customers even over social media platforms such as Facebook. Many of the traditional financial institutions (such as First Bank and Guaranty Trust Bank) have updated their mobile applications to enable Customers utilize QR Codes as a payment method.

To properly regulate the use of QR Codes as a payment means in Nigeria, the Central Bank of Nigeria (CBN) on January 13, 2021, issued a Framework for QR Code Payments in Nigeria (“Framework”). We have highlighted some salient provisions of the Framework below.

Who are the Participants?

The major participants to a QR Code transaction as stated in the Framework are:

1. The Merchant – this is the store owner, seller or service provider that has requested for payment through a QR Code.
2. The Customer – this is the individual who is to pay the Merchant using the QR Code.
3. The Issuer – this is the financial institution of the Customer.
4. The Acquirer – this is the financial institution of the Merchant.

What are their Obligations?

1. Where a Merchant elects to receive payment through QR Codes, he can only display QR Codes approved in Nigeria.
2. The Merchant is also expected to comply with all extant CBN regulations and the rules of the Acquirer.
3. The Customer is expected to use the QR Code application (provided by its financial institution i.e. the Issuer) without modifications and adhere to any security protocol of the Issuer.
4. The Issuer is required to provide the Customer, upon request, with a QR Code Payment application that complies with the QR Code regulations; and ensure that all Customers update the application within 14 days of deployment of an update or patch.
5. Issuers are also required to send a quarterly risk management assessment report to the Director, Payments System Management Department, CBN.
6. The Acquirer is expected to ensure the proper use of the QR codes at the Merchant’s location or platform; and ensure the technology and protocol used for QR code conforms with the QR Code payment regulations.
7. The value of each QR Code transaction must be delivered by the Acquirer to the Merchant within a day after the transaction.
8. Both the Acquirer and the Issuer are to ensure the security of their system in such transactions.
9. Where a switch or payment service provider is involved, they are required to facilitate interoperability between the Issuer and Acquirer and comply with the Framework and other CBN regulations on electronic payments.

Other Provisions of the Framework

The Framework adopts the Merchant-presented mode specification for Nigeria (as opposed to the customer-presented mode) which means the Merchant has to present the QR Code for buyers to scan in order to conclude the payment transaction.
Please also note that the Nigeria Inter-Bank Settlement System Plc (as the Payment Terminal Service Aggregator) is to certify QR Codes, the payment applications, updates and patches.

Conclusion

Payment with the use of QR Codes in Nigeria is gradually becoming the preferred choice for businesses in Nigeria as it is an affordable alternative to utilizing POS solutions. The issuance of the Framework is a positive step to encourage innovation in financial services and promote the secured use of QR Codes in Nigeria.