How the pandemic helped accelerate the shift to digital payments

Digital payments grew by 18% year-on-year in the last month of the last financial year to cross the Rs 6 trillion mark, which experts say is a sign that electronic transactions are gaining traction.

According to the central bank, digital payments for goods and services during the period from mid-June to mid-July 2022 amounted to 6.22 trillion rupees.

In the previous fiscal year 2020-2021, digital payments in the same one-month period totaled 5.26 trillion rupees, nearly double the 2.76 trillion rupees in fiscal 2019- 20.

Transactions normally spike in the final month of the fiscal year as businesses and individuals rush to pay bills and taxes.

The rise of the digital economy has been one of the biggest fallout from the Covid pandemic, which has changed the way Nepalis make payments as they have been forced to stay indoors, officials said. experts.

Nepal Rastra Bank said the number of transactions jumped to 71.42 million during the reporting period from 48.54 million transactions between mid-June and mid-July 2021.

“First, the Covid-19 pandemic has boosted digital payments. Now the central bank has launched various policies to promote digital transactions, and the result is becoming visible,” said Guru Prasad Poudel, Executive Director of Nepal Rastra Bank.

Payments made through the Quick Response (QR) system have increased sharply.

According to Nepal Rastra Bank, 4.28 million transactions were made through the QR payment system, with a total value of Rs 14.52 billion in the last month of the last fiscal year.

“The central bank has made clear provisions for wallets and internet banking. It has also facilitated the process of paying for utilities, which has spurred the demand for electronic payment systems across the country,” Poudel said.

“The central bank has established its own real-time settlement for retail payments.”

A separate department was created for the digital payment service in 2018.

Nepal Clearing House, an institution dedicated to digital payments, was also established to facilitate payment methods.

The central bank owns 10% of Nepal Clearing House while the rest of the stock is held by banks and financial institutions.

“We are seeing a strong transformation among people from traditional payment methods to digital,” Poudel said.

The government concept Digital Nepal Framework 2019 also supports internet payments to create the ecosystem, he said.

The national payment switch started operating in November last year after the Nepal Clearinghouse got approval for the operation from Nepal Rastra Bank.

The payment gateway brings together banks and digital payment providers allowing them to transfer money. As part of the first phase, 29 banks and financial institutions were affiliated to the national payment switch.

“Our goal is to quickly complete the work on the national payment change,” Poudel said. “A delay has occurred, but work is continuing.”

In the second phase, Nepal Clearing House will work on a national card system; and in the third phase, all national electronic transactions will be routed through the national payment switch, according to the company.

Currently, domestic Visa and MasterCard transactions are transferred through international payment gateways and are charged in dollars per transaction.

But with the implementation of domestic payment switching, card payment switching will be made within the country, which will reduce fees and make transactions faster and more convenient, according to central bank officials.

Upendra Poudyal, Chairman of Nabil Bank, said digital literacy has boosted the number of electronic transactions.

“But still, users need to be educated on how to make payments securely,” Poudyal said. “Banks and financial institutions also need to check their systems repeatedly.”

A breakdown of online payments shows that 81,817 transactions worth Rs 4.34 trillion were made through real-time gross settlement during the period mid-June to mid-July last fiscal year. During the same period of the previous financial year, there were 59,655 transactions worth Rs 3.1 trillion.

Real Time Gross Settlement or RTGS is an electronic form of funds transfer where the transmission takes place in real time.

After RTGS, interbank payments accounted for 1.32 million transactions worth Rs 275.75 billion. During the same period of the previous financial year, there were 1.16 million payments worth Rs 299 billion.

ConnectIPS accounted for 4.27 million transactions worth Rs 369.22 billion compared to 3.2 million transactions worth Rs 237.75 billion in the previous fiscal year.

Internet banking accounted for 318,598 transactions with a total value of Rs 15.63 billion. There were 329,523 transactions worth Rs 13.83 billion before.

Bankers say that due to the increase in mobile banking transactions, the number of internet banking transactions has dropped.

Mobile banking transactions amounted to 20.56 million, showing a total value of Rs 163.25 billion during the reporting period, a sharp increase from 13.70 million transactions worth 73, 72 billion rupees in the previous financial year.

The wallet system recorded 16.20 million transactions with a total value of Rs 17.75 billion, compared to 12.51 million transactions with a total value of Rs 12.79 billion previously.

The growing number of smartphone users and growing internet penetration have globally boosted digital payments.

According to the Nepal Telecom Authority’s Management Information System report, there were 38.13 million internet subscribers in the country as of mid-June 2022, with broadband penetration reaching 130.63 % of total population.

According to Nepal Rastra Bank, 1.17 million POS transactions worth Rs 5.18 billion were made in a single month from mid-June to mid-July. There were 635,599 transactions worth Rs 2.66 billion during the same period last year.

Nepalis made 68,944 e-commerce transactions worth Rs 504 million using cards.

“Nepal aspires to become a cashless society and will gradually strive to achieve this goal. It can take years or decades,” Poudyal said. “But a cashless society is not possible because there will always be people who only feel safe when they have cash in their hands.”

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