The launch of the much-talked-about national payment switch slated for mid-October will mark a step towards a cashless society, Nepal Rastra Bank said.

The national payment switch will integrate multiple banks, digital payment vendors such as IPS, ConnectIPS, quick response (QR) code and other digital ecosystem players into one system enabling them to transfer funds.

Mooted a year ago, the implementation of the integrated digital payment system was formally announced by the Monetary Policy 2021-22 presented by Nepal’s central bank on August 13.

The government also plans to introduce its own payment gateway to reduce its dependency on MasterCard or Visa.

Central bank officials said that having Nepal’s own payment gateway will enable customers to make digital transactions without depending on Visa and MasterCard. The payment switch routes individual transaction settlement requests to a central switch, instead of being transmitted through multiple international card schemes.

Currently, customers using digital wallets cannot perform inter-wallet transactions. The national payment switch will enable the transfer of money from one wallet to another. For example, customers can transfer funds from eSewa to Khalti or vice versa once the system is implemented.

Nepal Rastra Bank Governor Maha Prasad Adhikari said while presenting the monetary policy last week, “We aim to celebrate the fiscal year 2022-23 as electronic payment transaction promotion year, thus developing essential infrastructure and raising awareness about cashless society will be our key focus in the current fiscal year.”

Nepal’s central bank has assigned the technical and functional work of the national payment switch to Nepal Clearing House, a public limited company established in 2008 to facilitate electronic payments and financial transactions within the country.

The company said it started work on the national payment switch three months ago.

Munni Rajbhandari, chief operating officer of Nepal Clearing House, said they were developing the system in three different phases. The first phase involves working on routing non-card transactions which will come into implementation in the first quarter of the current fiscal year.

All non-card transactions in the country that are done through mobile banking, e-banking, e-wallet or QR code will be routed through the national payment switch in the first phase.

In the second phase, according to Rajbhandari, the company will work on the national cards system. “In the third phase, all domestic electronic transactions will be routed through the national payment switch.”

Currently, domestic Visa and MasterCard transactions are switched through international payment gateways and are charged in dollars per transaction. “But with the implementation of the national payment switch, the card payment switch will be made inside the country which will reduce charges and make transactions faster and convenient,” Rajbhandari said.

Bhuban Kadel, executive director of the Payment Systems Department of Nepal Rastra Bank, said that the central bank had mooted the national payment switch in mid-May 2020 and passed on the technical and functional work to Nepal Clearing House which is developing the software.

According to him, the national payment switch will settle the account centrally and keep a central record of all electronic transactions that are done through banks, financial intuitions and digital payment service providers. “It will provide updated records of the mode of electronic payment and the transaction amount in real time,” he said.

“Similarly, the national card system will help to settle transactions domestically and prevent money from going out of the country,” Kadel added.

The 2020-21 budget statement also announced that arrangements would be made to enable all types of payments to be made through the national payment gateway.

The National Information Technical Centre, which maintains a data bank, said that the national payment gateway would come into operation in the first quarter of this fiscal year, but complained that the central bank was delaying its introduction.

Ramesh Prasad Pokhrel, assistant director of the centre, said the central bank had not been working actively on the national payment gateway.

“We are connecting the national payment gateway system with the Financial Comptroller General Office and banks and financial institutions, and the work will be completed soon. But the central bank is delaying the introduction of the system. It is yet to prepare guidelines for its implementation.”

Kadel said that the national payment gateway would also be integrated with the national payment switch and work related to the system was in progress.

Digital payment systems started gaining widespread popularity in Nepal after the government imposed a nationwide lockdown on March 24, 2020 ordering people to stay at home to prevent the spread of Covid-19.

The rising number of smartphone users and increasing internet penetration has boosted digital payments overall.