Central bank enforces interoperability to promote digital paymentsInteroperability allows users of one digital payment platform to make payments to the users of other such platforms in a convenient, affordable, fast, seamless and secure way.
Nepal’s central bank has directed all digital payment service providers to implement interoperability within the next six months in what is seen as a key decision to compete with traditional methods of financial service delivery.
Nepal Rastra Bank issued a circular to this effect on February 4.
Interoperability enables people to make payments in a convenient, affordable, fast, seamless and secure manner via a single transaction account.
According to the World Bank, efficient, accessible and safe retail payment systems and services are necessary to extend access to transaction accounts to the 2 billion people worldwide who are still unserved by regulated financial service providers.
Guru Prasad Poudel, executive director of Nepal Rastra Bank, said that interoperability will make all retail payment mechanisms and instruments interoperable, meaning that a member of one service provider can use the service provided by another.
“Though the amount of retail transactions is still low, the volume of transactions is very high in retail and it is increasing as paying digitally has become convenient for customers and businesses as well,” Poudel said.
The implementation of interoperability will apply to digital wallets, mobile banking apps, and Quick Response (QR) codes created by payment system operators and payment service providers.
After interoperability, a user of eSewa can send the balance to Khalti or IME pay, and vice versa. So far users of one mobile wallet are not allowed to transfer money to another digital wallet.
The Retail Payment Systems in Nepal is mainly operated by Nepal Clearing House Limited (NCHL), which provides image-based cheque clearing solutions and electronic fund transfers.
The retail payment system consists of cheque clearing, electronic funds transfer, card payment systems, QR code-based payment, e-money and remittances, which are typically low-value payment systems.
IPS (interbank payment system), ConnectIPS, mobile banking, internet banking, wallets, QR codes are the major retail payment systems that are providing instant payment services in the country.
In an effort at payment systems modernization, the central bank had formulated a Retail Payment Strategy in 2019.
It does not cost service charge while doing wallet transactions of up to Rs1,000. For a wallet transaction of Rs1,001 to Rs3,000 a service charge of Rs5 is levied while Rs10 is levied on a transaction from Rs3,001 to Rs10,000 and Rs30 on a transaction of Rs10,001 and above.
At present, each person can make transactions worth up to Rs100,000 per day and to Rs1 million per month through mobile banking which includes the QR code payment system.
Similarly, per account transactions up to Rs1 million per day and up to Rs3 million per month have been allowed through internet banking while account transfer has been allowed for up to Rs1 million per day and up to Rs5 million per month.
As per the circular, the interoperability system will be implemented in the institutions that are affiliated with the retail payment system.
The retail payment system operators cannot make any rules or halt the use of technology that stops access to the payment systems of other payment system operators, the central bank said in a circular. “If access is halted then the operators need to inform the central bank immediately by mentioning clear basis and reasoning,'' the circular said.
The payment system operator cannot ban, make different rules between participating institutions or on the basis of institutions’ sizes and on the basis of the payment transaction to payment service providers, other payment system operators or payment service users, according to the circular.
The payment service operators and payment service providers need to keep the data of service users who take interoperability safe and secure. They also need to assure that the data will not be used for any other purpose, said the central bank in the circular.
The institutions licensed by the central bank can make agreements with each other to support interoperability.
According to the central bank, there are a total of 28 payment service providers (PSP) in the country while 10 payment system operators (PSO).
A PSP provides payment-related services to beneficiaries and also makes payments for goods, services, assets or other liabilities; transfers money within the country and abroad or conducts payment transactions electronically. PSO performs the payment-related operation, management and clearing.
Stating that with the rise in electronic transactions there have been complaints about online fraud, the central bank issued a notice requesting users not to share passwords, or other sensitive information to strangers through any medium. The bank has also asked users to change the password of their mobile phones and other devices including the apps and keep them secure and safe.
“The number of online transaction fraud complaints is rising in recent days,” Poudel said.
According to the central bank, 1.39 million digital transactions worth Rs147.89 billion were conducted between mid-November and mid-December last year.
The bank said that 2.89 million transactions worth Rs228.45 billion were made through ConnectIPS during a month-long period from mid-November to mid-December last year. The figure represents a sharp rise from 1.21 million transactions worth Rs90 billion during the same period in the previous year.
During a month-long period between mid-November and mid-December last year, there were 13 million mobile banking transactions totalling Rs88.53 billion, up from 8.38 million transactions totalling Rs30.28 billion during the same period in 2020.
The total number of transactions made through internet banking was 253,245 worth Rs12.73 billion during a month-long period between mid-November and mid-December 2021, up from 245,286 transactions worth Rs7.20 billion during the same period in 2020.
Wallet transactions during the period numbered 13 million with a total value of Rs15.52 billion, an increase from Rs8.98 billion recorded during the same period in the previous year.
According to the central bank, QR payments rose sharply during the period between mid-November and mid-December 2021 to Rs6.28 billion from Rs1.25 billion during the same period a year earlier.
The major reason for the growing customer preference for digital payments is the pandemic that made consumers avoid handling cash, the discounts offered by partner banks and e-wallets, and ongoing education on digitized payment.
Small traders who are operating both physically and digitally are coming with digital payment options due to customer preference.
“Customer apprehensions regarding digital transactions have disappeared, and they also found it more convenient but there is still a lot more to be gained,” said Poudel.