Visa QR Crossborder

Ingo Noka
QR, Visa
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In my last blog post on QR cross-border payments, I was wondering what it would take to build cross-border payment systems in Asia. My opinion was that one of the driving factors for cross-border payments for the Central banks would be to avoid a repeat of the quasi-monopoly that Visa, MasterCard and other international payment schemes enjoy.

I am therefore not surprised that the rapid growth of QR account-to-account payments and the rather sluggish uptake of traditional card payments outside the main cities of the emerging South-East Asian economies would spure Visa into action.

In a (1) published by PR News on November 6, 2024, Visa announced that they would enable cross-border payments at QR merchants, starting in Singapore.

In this article, I am speculating how such cross-border payments may actually be done. I have no direct knowledge or sources other than the Internet. However, I am trying to provide a reason for any assumption I am making.

Visa QR Cross-border Transactions - What do we know?

As usual, the press release is short on details and full of buzz words. It is therefore not so easy to tease out what Visa is actually planning to do. As far as I can see, these are the facts that were mentioned or implied:

  • They will use merchant presented QR codes. It is not clear whether this would include both static and dynamic QR codes, but I suspect they will need some transaction-specific information, so I assume it will be dynamic QR codes only.

  • The customer will use the QR payment application they got from the QR payment provider in their home country.

  • The sending QR provider will have to become a "QR connector." So far, Lakala in Mainland China, Touch 'n Go Digital in Malaysia, FOMO Pay in Singapore, LINE Pay in Taiwan, VNPay and Zalopay in Vietnam have signed up.

  • "Juspay" will provide the QR code related transaction processing, which I assume also includes the "QR connector" interface.

  • There is no mention whether changes in merchant front-end devices and customer QR payment applications will be necessary.

  • The press-release says that the pilot will start in Singapore only. Given that this is about cross-border payments, it stands to reason that some or all of the aforementioned other "QR connectors" will participate in the Singapore pilot on the sending ("issuing") side.

The press release from Fomo Pay (2), says "…​ FOMO Pay and Visa are collaborating to introduce Visa QR into the SGQR network, allowing merchants to accept Visa credit and debit cards through SGQR codes." This would require that a Visa account is involved somewhere. This means that either the customer initiates a transaction by creating a QR code that is scanned by the merchant; or the sending QR participant has access to a Visa account number on file for an authorization of the transaction amount.

Transaction Flow

  1. The merchant will likely show the exact same QR code for domestic and international transactions. It is conceivable that a "QR connector" has to change the POS application so that the merchant can choose the transaction type. However, I find it unlikely as it would increase the cost and operational overhead of enabling international QR transactions. Or, maybe the receiving QR provider will add additional routing information to the Merchant Account Information field of the QR code.

  2. In any case, the payment application and the sending QR provider would use the information in the QR code to work out where to send the confirmation that the money has been deducted from the customer account. While most national QR code standards are based on the EMV merchant presented QR standard, the merchant account information is usually proprietary. This means the QR payment provider or JusPay have to implement some logic to match merchant account information to the receiving QR provider. The other option is for the receiving QR provider to include Visa merchant account information for tags '02' and '03'.

  3. Let’s assume therefore that the sending QR provider will send all transactions that are initiated with QR codes that contain a foreign currency to JusPay. JustPay can then identify the receiving QR provider and establish a connection for the exchange of transaction messages.

  4. The receiving QR provider will create a pending payment transaction. At that point, it does not know which sending QR provider is involved as it does not know which application the customer has used to scan the QR code. Instead, it has to wait for a payment confirmation message coming through from any of the sending QR providers or QR payment scheme providers it has a connection to.

  5. Since the transaction amount is in a foreign currency, the sending QR provider has to work out how much to deduct from the customer account. The sending QR provider may be given a choice here to perform the currency conversion themselves. This way they could generate some revenue from the difference between the cost of buying the foreign currency and the exchange rate that is given to the customer. On the other hand, Visa is one of the biggest currency traders in the world and having access to this infrastructure may be one of the selling points of using Visa for QR transaction switching.

  6. If Visa is used as the source of foreign currency exchange, there needs to be an exchange of transaction messages to retrieve the amount in local currency that will be deducted from the customer account.

  7. Once the transaction amount is deducted, JusPay will be informed. JusPay would in turn inform the receiving QR provider who would continue to credit the merchant account and inform the merchant of the successful conclusion of the payment transaction. The sending QR provider would do the same with the customer.

  8. It seems to me that at some point in the transaction flow, the customer needs to be informed of the transaction amount in their home currency. The ideal time for this would be before the final approval of the transaction by the customer, but this would probably require extensive changes in the customer application. The second-best time would be to include the information in the success screen after the transaction has been finalized. The worst option would be to leave it to the customer to check their account balance or the transaction record to find out how much they paid in their home currency.

Conversion to Card Transactions

It is also conceivable that JusPay may fire off a card transaction every time a QR payment comes in. I can see multiple options to do this:

  1. Every QR participant gets an issuer and an acquirer BIN. JusPay would then assign a card number to the customer reference number that is included in the transaction request message coming from the sending QR participant.

    To avoid assigning CANs to all customer accounts of participating QR providers, JusPay could assign a number "on the fly" whenever a customer reference number is used for the first time. JustPay could also remember the assigned number to avoid assigning multiple CANs to the same customer account.

  2. The sending QR provider gets a card number from the customer and includes that number in their request to JusPay. JusPay then acts a card-not-present merchant and gets an authorization through their acquirer.

  3. JusPay offers a card-on-file service to QR participants, which would allow the QR participant to assign a card number to a customer without the overhead of PCI DSS and other compliance requirements associated with card payments.

In any case, JusPay would then use the assigned CAN to send a payment transaction to Visa, which would create all the data necessary for a standard Visa settlement process (either single message or via BASE II). On the QR sending side, (which is the card transaction receiving side), JusPay could take the authorization request coming back from Visa and send it to the QR participant. As the authorization request message likely includes the local currency amount, the sending QR provider could use the local currency amount to debit the customer account and return an approval if there was enough money in the account.

Settlement

For international payment transactions, it is unlikely that an actual money transfer will be conducted in real time. It is more likely that all participating QR providers will perform settlement at regular intervals. JusPay probably has the role of working out the net positions for each participant, and it is possible that the Visa settlement infrastructure is used. In the latter case, each QR Participant ("QR Connector") would probably receive a BIN.

Role of Visa

  1. Visa will have created rules that govern the acceptance of international QR payments. The rules will define the obligations and liabilities for settlement, security, dispute resolutions and so forth.

  2. Visa (or rather JusPay) would do the routing/switching of transaction messages between sending and receiving QR providers.

  3. Visa may perform the currency conversion.

  4. Visa may perform the settlement between the QR Connectors.

Is Visa really necessary?

I would argue that whatever Visa does with JusPay can be done without Visa, especially for payments that stay within a region such as South East Asia. For transactions between the traditional strongholds of Visa, such as North America, Europe and the emerging real time payment regions such as South East Asia, going with Visa might speed things up, but once everybody has to sign up with Visa for inter-regional transactions, the game is over for all other transactions as well.

The benefits of going with Visa

  1. Visa has a lot of experience with keeping control over a diverse club of participating organizations. Once a new participant has been inducted into the Visa ecosystem, all other participants can pretty much trust the new participant with settlement, security and the overall integrity of the payment system.

  2. Visa is probably one of the biggest currency buyers in the world and should be able to provide competitive exchange rates for cross-border transactions.

  3. Visa has an excellent track record for the availability and robustness of their processing infrastructure. Whether this will translate to a similar performance with JusPay in the middle remains to be seen.

  4. Visa has solutions to identify fraudulent transactions. However, such solutions likely depend on seeing lots of transactions from the same merchants and are tailored to the traditional transaction flow of Visa card transactions. How well this works with a completely different type of transaction and with only a small portion of transactions is not clear to me.

  5. Visa could also benefit from the tendency of the financial industry to err on the conservative side. After all, as we used to say in the IT industry, "nobody ever got fired for buying IBM."

The downside of going with Visa (or MasterCard etc.)

The traditional payment schemes would once again dominate the cross-border payment market. This would have the consequences we already know from card payments.

  1. The need to enable Visa, MCI etc. at all QR-accepting merchant locations, would over time make the payment instruments of the global schemes the norm for domestic transactions as well.

  2. The global schemes would have the power to cut off countries from international payments, including from intra-regional payments.

  3. The global schemes often come up with overly complicated and complex technical solutions (see EMV) that make everything expensive and slow down adoption.

  4. As we have seen with EMV, bureaucracy and ridiculously complicated and costly certification schemes make it as good as impossible to quickly develop and try new technical solutions.

  5. It cannot be ruled out that Visa is coming up with this cross-border QR payment solution to slow down other attempts to achieve international acceptance without them. For example, Alipay+ has been able to open up other markets for domestic RTP payment schemes very quickly and cheaply with little fanfare. With Visa making this announcement, financial institutions may now hesitate to adopt such solutions and instead of wait for the Visa system to be available.

  6. I have seen a couple of articles suggesting that the industry is now ready to move from QR to NFC. If NFC is simply a means to enable mutual authentication, that may even be a good idea. However, NFC could also provide a back-door to move back to the traditional transaction flow with all the unnecessary overhead of tokenization, point-of-sale data security (PCI DSS), delayed settlement and so forth.

References

(1) Visa, “Visa collaborates with QR payment providers to enable cross border payments across Asia Pacific.” Visa Worldwide Pte Ltd, Nov. 2024, Accessed: Nov 06, 2024. [Online]. Available: https://www.prnewswire.com/apac/news-releases/visa-collaborates-with-qr-payment-providers-to-enable-cross-border-payments-across-asia-pacific-302297247.html.

(2) FomoPay, “FOMO Pay partners Visa to expand digital payments acceptance for Small Medium Enterprises in Singapore,” Press Release, Oct. 2024. [Online]. Available: https://www.fomopay.com/news-media/fomo-pay-partners-visa-to-expand-digital-payments-acceptance-for-small-medium-enterprises-in-singapore.