Nepal and India on Thursday signed a memorandum of understanding for cross-border digital payment, which is expected to ease digital transactions for business people, students, and tourists from both countries.

Neelesh Man Singh Pradhan, CEO of Nepal Clearing House Limited and Ritesh Shukla, CEO of National Payment Corporation of India (NPCI) International Payments Limited signed and exchanged the memorandum of agreement (MoU), on behalf of their respective organisations, in New Delhi, India.

Prime Minister Pushpa Kamal Dahal, said in a press conference that the MoU between the two agencies would ease the cross-border payments, much needed for the business people, students, pilgrims and travellers from both Nepal and India.

“We welcome the steps for financial connectivity between the countries through cross-border digital payment. This will benefit thousands of students, hundreds of thousands of tourists, pilgrims and people leaving for medical treatment in India as well,” Indian Prime Minister Narendra Modi said in a joint press statement.

“This is the initial agreement. The cross-border digital payment service will be available for both countries while travelling to each other’s country,” said Munni Rajbhandari, chief operating officer and information officer of Nepal Clearing House.

“As this is an initial agreement, we are yet to work out the details regarding instruments that can be used for digital payment, the methods of payment and the type of transaction,” said Rajbhandari. “We are working on the integration of Nepal Clearing House and the unified payment interface (UPI) of the National Payment Corporation of India. After the integration, Nepal Clearing House and NPCI will have a discussion and work on payment methods,” she said.

Nepal Clearing House Limited (NCHL) has a 10 percent investment from Nepal Rastra Bank and 90 percent from other different commercial banks.

The central bank handed the work of establishing and operating a national payment switch and operating a national payment card to NCHL.

Nepal’s central bank is optimistic about facilitating as well as enabling roles in the India-Nepal e-commerce and financial technology sector and said that it would work on the regulating part for cross border digital payment, said an official of Nepal Rastra Bank.

Last May, payment system operator Gateway Payment Service began a cross-border payment system for the first time in Nepal, based on interoperable and mobile-first technology.

The National Payment Corporation of India and its international arm International Payments had joined hands with Gateway Payment Service and Manam Infotech to deploy a UPI in Nepal.

The unified payment interface is a real-time payment system that provides person-to-person and person-to-merchant transactions simply, safely and securely in India.

Indian banknotes of denominations above Rs100 are banned in Nepal and this has made it difficult for Indian visitors as they have to carry money in bundles.

An overland Indian visitors’ survey conducted before the Covid-19 pandemic showed that the average length of stay of Indian tourists coming overland was 5.8 days. The average expenditure per visitor was Rs11,310.

According to Indian media reports, the advantage of travelling to Nepal, before the notes were banned, was that one did not need to change money.

Tourism entrepreneurs say that the launch of digital payment services will eliminate the hassle of carrying large amounts of cash for Indian tourists and businessmen in Nepal.

The system will enable payments for larger digital goods and boost interoperable real-time person-to-person (P2P) and merchant payment transactions (P2M)

Though India is a close neighbour of Nepal, financial transactions between the two countries are complicated.

According to Nepal Rastra Bank, there are 10 payment system operators (PSOs) and 27 payment service providers (PSPs) in Nepal as of mid-April. There are 13,706 PSP agents and 17.56 million wallet users in the country till mid-April.

Nepal made 4.35 million transactions worth Rs380 billion through ConnectIPS, the product of Nepal Clearing House Limited, in the month of mid-March to mid-April this year. Such transactions stood at Rs291 billion through the number of 3.6 million transactions.