Cashless Nepal: Sour grapes or sweet lemons?

Nepal has achieved incredible success in mobile penetration with it reaching 131.3 percent in January 2021. According to Nepal Telecommunications Authority, as of June 2021, 27.76 million people have access to the internet which is 91 percent of the country’s population. As of mid June 2021, 65.68 percent of  the total internet user population were mobile internet users.  Most of the internet users are limited to media consumption which is evident with the rapid growing popularity of social media platforms such as Facebook, Youtube, TikTok, Viber etc. Social media is also a significant cause of internet adoption in Nepal. Nepal currently ranks second in social media penetration in all of South Asia. According to the 2019 Digital Nepal Framework, by 2025, Nepal’s penetration rate of internet and mobile connections are predicted to be much higher than its neighboring countries – India and China.

However, having a strong mobile penetration does not guarantee that all benefits are equally availed by people across the country. In 2020, digital payments only accounted for 30% of the total transactions outside the Kathmandu Valley. Even in areas where e-commerce is popular, digital payment gateways like eSewa, IMEPay and others only serve about 10 percent of all e-commerce transactions as people still use cash on delivery. Admittedly, this number has seen changes due to the pandemic. As said by Lino Ahlering, the Managing Director of Daraz, “Digital payments had accounted for about 40 percent of the online sales in November 2020 in comparison to 2019 when it was only 13%.” But to no one’s surprise, digital payments dropped as soon as stay-home orders were loosened up. According to NRB, digital payments dropped by 12 percent toward the end of the last fiscal year.

Nepal Rastra Bank (NRB) has also set limits on daily transactions — daily limit on transactions through mobile phones is Rs 200,000, merchant payment through internet is Rs 2000,000 and fund transfer through internet is Rs 2,000,000. Keeping limits on transactions can sometimes defeat the whole purpose of using the digital wallet for payment in the first place.

There is difficulty in cross-border transfer because of capital account restrictions. Even though NRB has recently allowed Nepali banks to issue prepaid dollar cards for national and international online transactions, it is limited to USD 500 annually which in foresight is beneficial as with this new facility, people will be able to make payments from Nepal for online purchases of goods or services. But in hindsight, a limitation of USD 500 is not a sufficient amount for all yearly transactions for individuals and businesses. 

Having said all of this, positive steps taken by the government cannot be overlooked, like how NRB started a modernized payment system, formulated a Nepal Payment System Development Strategy, Payment and Settlement Bylaws, 2072 along with the establishment of  Payment and Settlement Department and Payment and Settlement Act, 2075 which are responsible for a breakthrough in digital payment in Nepal.

The Ministry of Communications and Information Technology has made an ambitious “Digital Nepal Framework” which encompasses 80 digital initiatives. It lacks commitment and implementation strategy now, but with better administration, it will guide Nepal toward attaining the dream of becoming a digital state.

Introduction of the Inter-bank Payment System (IPS), operated by Nepal Clearing House Ltd (NCHL), has been a revolutionary step in the inter-bank payment system. It permits direct debit or direct credit. According to Payment Systems Oversight Report (2076/77), the total number of transactions that FY was 2,849,964 which is a 1431.90 percent increase from the previous FY. Along with IPS, Connect IPS, was launched in Shrawan 2075 and operated under the NCHL. It is an instant payment system that allows bank customers to initiate their payment transactions directly from their bank accounts. The bank can provide alternate digital channels to its customers through which the bank customers can use the services of online fund transfer, e-commerce payment, creditor/biller payments including government tax, Loksewa application fee, Office of Company Registrar payments, Citizen Investment Trust loan repayment, Social Security Fund payment, credit card bill payments, mobile wallet top-up, capital market-related payments, among others.

Similarly, mobile banking and internet banking services have also been provided for remote financial transactions like electronic fund transfer, QR payments, utility payments, direct debit and direct credit. NRB is encouraging QR code-based payment and accordingly developing QR Code Standard and Guidelines.

In an effort to modernize, NRB has licensed 53 banks and financial institutions and 14 non-BFIs as Payment System Operators/Payment System Providers to operate retail payment. Banks provide e-money and online banking services to their customers. The central bank formulated a Retail Payment Strategy for better coordination with all authorities to deepen the digital retail payment systems along with introducing a national payment switch to enable world-class payment functionality.

Nepal still has a long way to go for achieving a cashless economy, but the future of digital money seems hopeful as the pace of digital payment is increasing. The divide of digital payment services between the population living outside the Kathmandu Valley and inside the Valley must be lessened. For that, digital payments must be taken as a legitimate and better alternative monetary system by the citizens in all parts of the country. This can be done by increasing digital literacy and awareness among the people using advertisements, campaigns or through in-person campaigns by following all COVID safety protocols. Cashback schemes and the general health and safety concern can give people the push to use digital payments rather than physical money. Nepal still lags behind in infrastructural developments and even with fierce mobile penetration, there has not been an equal percentage of internet connectivity and adoption. The Nepali people are still accustomed to using cash for payment so for this we need to conduct campaigns to encourage more Nepali people to opt for digital payments. With this, the government also needs to demonstrate the willingness and level of commitment to fulfill the vision of Digital Nepal. The proposed smart cities and e-governance will definitely make Nepal more open to digitalization and will further roll out digital technological advancements on a larger scale. If the government takes steps to ensure a digital space for payment and e-governance, the citizens will be aware, motivated and enthusiastic about advancing towards e-commerce as well.

This article was originally published in Republica by Anjila Shrestha on August 21, 2021.