Nepal’s journey towards cashless transactions

Inthissection,consultantMsAnushrutiAdhikaridescribeshow Nepalislayingthebasicinfrastructuretomovetowardsdigital payments in a society where cash has long dominated. To understand the context and opportunities for fintech in Nepal, consultant Ananda Raj Khanal takes a deep dive into Nepal’s policylandscapeinthefollowingin-depthreport.

Topics

1. Nepal’s journey towards cashless transactions

Nepal’s journey towards cashless transactions How it Started

In the last decade, Nepal has made great strides toward implementing digital banking services. Historically a country whose citizens are most comfortable using cash, the move to paperlessdigitaltransactionsisnowareality.Withaninternet penetration rate of over 72%121 – most of which can be attributed to internet use on mobile phones – the willingness and ability to use digital banking services is higher than ever. The year 2002 saw Nepal’s first e-banking services, followed soon by SMS banking services accessible on mobile phones in 2004. Despite slow-moving and often restrictive government regulations, there are now over 8 million mobile banking customersinNepal.122 The jump from digital banking to habitually using digital transactions has been painfully slow. Again, near-sighted governmentregulations,suchaspoliciesforcingalowmaximum limit for daily and monthly digital transactions, hindered the growthofdigitalpaymentsinmanysectors.Inadditiontothis, these services often only reach the young, urban population,

leaving those in rural areas with little to no options for digital bankingandpayments.

How it’s Going

Digital payments and banking companies have only in the last fifteen years emerged to become key players in Nepal’s developing payments market. Launched in 2009 by fintech startup F1 Soft, the mobile wallet eSewa123 aims to “simplify payments, promote digital payments and expand financial inclusion for Nepalese people.”124 Its license in 2017 from the country’s central bank, Nepal Rastra Bank, paves the way for other banking services companies. The platform is simple and easy,withusersmakingpaymentseitheronlinethroughtheapp or SMS or a registered eSewa agent. Other companies such as Khalti125 and FonePay126 have followed the same pathway to integration, presenting more opportunities for Fintech for HealthpartnershipsinNepal.

Digital Nepal Framework

One of the biggest barriers to digital payment companies has alwaysbeenlowadoptionrates,especiallyinruralareas.There is a general lack of trust due to recent data breaches and individual digital literacy remains low. To address these concernsandimplementconsistentnationalpolicies,Nepalhas createdthe2019DigitalNepalFramework. 127Thisframeworkis designed to enable Nepal to harness its growth potential by leveraging disruptive technologies and driving socioeconomic growth. The framework identifies eight key sectors – among them healthcare – on which government resources and focus willbe placedtounlockinnovative digitalsolutionstoaddress growingchallenges.

National Payment Gateway

The framework also serves as an overall roadmap for making government-related, and in time all payments, cashless in the near future. With the reins handed over to Nepal Rastra Bank (NRB), the implementation of the national payments system is slow-going and wrought with bureaucratic struggles.128 However,theinformationtechnologyinfrastructurehasalready beenputintoplaceandatleastfivemajorbankswillbelinked to the system. In addition, Nepal Clearing House has recently created ConnectIPS129 to enable government-related payments aswellasfundstransfers.Whileanationalsystemisstillinthe works and its reach to remote areas is expected to be poor, stakeholder engagement and buy-in are high and implementationofanationalgatewayisnowinsight.

The Impact of COVID-19

The ongoing pandemic shines a light on the necessity of digitization. Hit particularly hard by COVID-19, the Nepalese people have adapted to better function in our new normal by using more digital services. Both rural and urban citizens now use digital wallets for more than just ticketing and online payments,withwalletsnowseenasthesafestmethodofpaying forgroceries,courierservices,electricitybills,andridesharing. Sincethestartofthepandemic,eSewahasseena35%increase in users, bringing its entire user base to 3.5 million people.130 Another mobile wallet, IME Pay, 131 saw a growth of 25% betweenMarchandAugust2020,withmorethan60%ofthese newuserscomingfromsemi-urbanandruralpartsofNepal.

Opportunities Presenting Amid the Pandemic

Asseeninmanycountries,digitalpaymentshaveproventobea safe and easy way to transact when it comes to paying for everyday items and services. As a result of the pandemic, the easeofusingtheseplatformshasquicklyimprovedinNepal.For example,surchargesweredroppedforuseofATMs,RealTime Gross Settlement Services, ConnectIPS, and e-banking and mobile banking services. In addition, NRB has increased transaction limits for daily andmonthly mobile transfers in an effort to minimize health risks and make digital transactions a more normal way of life for the Nepali people. Stakeholders shouldcapitalizeonthesechangeswhichshouldremaininplace evenafterthepandemic.

Looking to the Future

InNepal,wearejustnowdiscoveringthemanyopportunitiesfor FintechforHealth.Inacountrystilldefiningtheparametersof digital banking and payments, the possibilities for healthcare entitiestocollaboratewithfintechtowardthegoalofequitable, affordable,accessiblehealthcareforallcannowberealized.As thepandemicsubsides,wecanseewhere–whentime,energy, focus, and finances are put to work – necessary and effective advancescanbemadetomakehealthcaremoreaccessibleand affordable.InalignmentwithDigitalNepalFrameworkandwith thepromiseofaNationalPaymentGateway,wehopeFintechfor HealthmovesforwardinNepalwitheagernessandexcitement.

Authors:

MsAnushrutiAdhikari,NepalInstituteforPolicyResearch MsValerieShelly,ACCESSHealthInternational