From petrol depots to butcher shops, a growing number of businesses display a small placard with a QR code on it, notifying customers that the outlet accepts cashless payments.

Digitals wallets like eSewa, IMEPay, Khalti and PrabhuPay have proliferated particularly this year, making aggressive marketing pushes into retail. But despite the number of cashless apps available to users, most consumers still prefer cash, according to service providers and vendors.

The growing user base of mobile banking in Nepal has led corporate houses like IME Group and Prabhu Bank to develop digital wallets, alongside existing tech companies such as Janaki Technologies’ Khalti and F1Soft’s eSewa.

According to Nepal Rastra Bank, the number of mobile banking users soared five-fold—from 1.75 million in 2016 to 8.34 million in 2019. That translates to around 29 percent of the total population. Data also shows that more than 52 percent of internet users in Nepal avail mobile broadband services.

But according to service providers, it could take some time for consumers to adapt to cashless transactions.

“The majority of our customers are either teenagers or young professionals and while teenagers are more tech-savvy, they do not hold bank accounts,” said Dipesh Bhattarai, a cashier at the Cityscape restaurant in New Baneshwor. “Young professionals sometimes opt to pay through digital wallets but not that often. Even customers who work at financial institutions and are fully aware of digital wallets prefer cash or debit cards.”

At Three Brothers Oil Store in New Baneshwor, proprietor Lileshwar Pradhan recently revamped the fuel depot’s look with billboards from IMEPay, even announcing Rs2 cashback on every litre of petrol.

“Despite the offer, transactions taking place through digital wallets are minimal,” said Pradhan. “The station sees an average daily transaction of around Rs5,000 through digital mediums and that is nominal, compared to the daily cash turnover.”

According to Pradhan, going fully cashless would rid the station of the hassle of counting cash and depositing it in the bank but due to queues at petrol pumps, digital wallets have not proved to be a convenient payment solution, despite loyalty bonuses and cashback.

Digital wallet users say they are perplexed by the range of options available and the utility of every digital wallet, as most vendors tend to accept a single digital payment platform.

“I pay for electricity bills, airline tickets and movie tickets through eSewa’s platforms as it saves me from the hassle of standing in long queues,” said Shreyanka Dwa, who runs a hardware distributor shop in Pokhara. “But different vendors have tied up with different service providers, making things confusing. I am unable to pay with a single mobile application at multiple places.”

According to Dwa, paying electricity bills through mobile applications is also not convenient as consumers have to wait for the meter reader to hand out paper bills and then update the amount accordingly on the electricity authority’s system before a digital payment can be made.

Ten years since Nepal saw eSewa, the country’s first digital payment platform, make its foray into the country, rigid consumer behaviour, trust issues and the failure to develop a large payment ecosystem mean there is still a long way to go, according to mobile wallet entrepreneurs.

“Only three percent of total transactions throughout the country are cashless and although the user base is expanding, it will take a lot more time to reach the cashless frontier,” said Amit Agrawal, co-founder of Khalti. “To boost digital payments, the government should gradually demonetise its revenue source points and service providers should invest prominently in the safety and security of payment systems before consumers begin to trust and use such mediums.”

According to vendors and service providers, announcing VAT refunds for digital wallet users will not boost the user base unless the offers are more lucrative, merchants operate under a transparent VAT mechanism, and the process to claim refunds is made easier.

The central bank, through its monetary policy for the current fiscal year, had announced a 10 percent VAT refund for digital transactions.

“When you do the math, the amount you get back is minimal because the refund is not for the full bill but only the VAT amount, which translates to just 1.3 percent of the total purchase,” said Bhattarai. “Even the process of claiming such a refund is cumbersome.”

Service providers also point to patterns of behaviour that are hindering the transition to a cashless society, despite central bank officials, including the governor, calling for the robust adoption of financial technologies and underscoring the need to go cashless.

“Our merchant base is expanding as we are focused on previously unspecialised sources, such as gas stations and grocery stores, but it will take time for the user base to grow,” said Suman Pokhrel, CEO of International Money Express. “We are in the infancy stage in terms of being a cashless society because consumers have yet to develop trust in digital wallets.”

According to Pokhrel, the government needs to promote the use of digital wallets at a source of revenue collection. The private sector too should invest heavily in building top-notch payment platforms and persuading users to choose digital wallets over banknotes.

But according to central bank officials, the growth of digital wallets has been hindered mainly because of the level of penetration of such services and awareness among vendors, consumers and the government.

“The user base of both vendors accepting payments through cashless channels and consumers willing to use such mediums is too low,” said Laxmi Prapanna Niroula, spokesperson at Nepal Rastra Bank. “In some instances, there are consumers ready to make a payment through digital wallets but the vendor has no system to accept it.”

According to Niroula, four forces—the government, consumer, service providers and vendors—should work in tandem if the goal is to move towards a cashless future.

“The economy would face fewer burdens, be more instant, transparent and productive,” he said, “while billions of rupees that go into printing or storing banknotes every year would be saved.”