Powering Retail Payments: UNSW Digital Financial Services Team’s Work in Nepal

Louise Malady and Dr Cheng‑Yun Tsang recently worked in Kathmandu, Nepal, representing the UNSW Digital Financial Services (DFS) Research Team. The Team assisted the country’s central bank, Nepal Rastra Bank (NRB), do a stocktake of retail payment systems and identify gaps and barriers preventing those systems from flourishing. NRB plans to develop a national retail payment strategy incorporating the DFS Team’s findings. The Team’s work in this area is supported by an Australian Research Council (ARC) Linkage Project and the United Nations Capital Development Fund (UNCDF) Mobile Money for the Poor (MM4P) program. The Team used its Regulatory Diagnostic Toolkit to guide certain parts of the stocktake.

Cash is still the primary method of payment in Nepal, however, new digital payment services are becoming more popular. The use of debit, credit and prepaid cards, and innovative e-wallets are on the rise enabled by the rapid growth in mobile phone usage and a young tech-savvy population enjoying rising incomes supported by remittances from a growing number of Nepalis working abroad. 40% of Nepal’s population are aged between 16-40 years old. There is a definite energy in the air from this youthful population and entrepreneurship is evident throughout the capital city of Kathmandu. The future of digital payments looks bright.

However, the retail payments market is currently fragmented, with well over 100 banks involved, and a payments infrastructure which is opaque. Not all consumers can easily pay bills or send money to each other – much depends on the bank they use. ATMs or POS machines could operate more efficiently, fees are relatively high and not always transparent, and confusion exists among users. Third party payment service providers have become prominent in Nepal’s payments landscape as they fill infrastructure gaps between financial institutions and customers. These providers offer user-friendly interfaces but duplicate services resulting in low network effects as competing systems struggle to gain traction.

The central bank, NRB, is working to address these issues. It has promulgated regulations for payments providers and operators and created a division focusing solely on payments system oversight and supervision issues. NRB has commenced licensing payment service providers. NRB is seeking to provide greater certainty and clarity for providers and operators on the regulatory environment in which they will operate. Another exciting development is the new e-mapping system which uses a geographic information system. This will provide substantial data to drive policy developments in this sector.

While in Kathmandu, the UNSW DFS Research Team assisted NRB to bring together industry stakeholders for a series of Consultative Workshops to highlight areas of concern and identify opportunities for the development of retail payment systems. Next steps for NRB include articulating a retail payments strategy for Nepal.

Originally Published: 
30/08/2017