The central bank has allowed “non-business licensees” to establish their own digital payment system.

Publishing a notice on July 10, Nepal Rastra Bank amended the licensing policy for institutions operating payment related activities, allowing non-business licensees like hotels, travel and trekking agencies, airlines, cargo agencies and retail stores, among others, to establish their own digital payment system.

They also can serve as a member of the board of directors of the payment system operator.

“Earlier, there was no provision for non-business licensees to sit on the board of companies operating payment systems,” said Guru Prasad Poudel, executive director of the Payment Systems Department at Nepal Rastra Bank.

“We have amended the provision based on demand from non-business licensees," he said.

But the central bank allows only non-business licensees making transactions in foreign currency to create their own digital payment system. There are more than 3,000 such entities.

According to the Payment Systems Oversight Report of 2021-22 published by Nepal Rastra Bank, the real-time gross settlement system has processed large value payments.

In 2021-22, the number of real-time gross settlements surged by 40.6 percent from 2020-21.

Similarly, the value of transactions increased 105 percent year-on-year.

The number and value of connectIPS transactions grew by 109.3 percent and 127.1 percent respectively during the review period.

Similarly, the number of quick response (QR) code-based payments, the most widely used digital payment instrument, in the country surged by 382.8 percent in 2021-22.

The value of QR-based payments jumped 366 percent.

The use of mobile banking, internet banking and digital wallets has been rising in recent years.

The central bank's statistics show that post-Covid 19, the use of fast payment systems like connectIPS, QR, e-wallets, mobile banking and internet banking has grown by leaps and bounds.

As digital financial services are proliferating, the use of cheques and electronic cheque clearing system is decreasing, the report said.

According to the central bank, the Nepali payment system consists of two types of instant payment systems—high value and retail systems.

Currently, two major networks facilitate retail instant payments.

Nepal Clearing House operates connectIPS and corporatePAY instant payment systems.

Fonepay offers instant payment through Fonepay direct and Interbank Fund Transfer systems.

These two networks link one bank customer with another through their instant payment system.

According to Nepal Rastra Bank, there were 10 payment system operators and 27 payment service providers in the country as of mid-June. There are 13,88 payment service provider agents and 18.64 million wallet users in the country.

However, electronic payment transactions have been dropping.

Nepal made electronic payment transactions totalling Rs4.40 trillion from mid-May to mid-June this year, down from Rs5.40 trillion during the same period last year.

As the country aspires to become a cashless society in the near future, it has been making agreements with different countries to permit online cross-border digital payment.

Nepal has signed an agreement with India, China and Sri Lanka for cross-border digital payment.

In January, the central bank opened the door to foreign investors to participate in Nepal's digital payment system by amending its policy.

Nepal Rastra Bank has also allowed payment service providers s to merge under the same policy.

The revised guideline issued on January 5 increased the paid-up capital requirement for firms engaged in digital payment systems.

The central bank moved to increase the capital requirement for digital service and system providers to ensure that they have adequate cash resources.

The revised guideline in January provisioned that telecommunications service providers can also operate as payment service providers through a subsidiary company.

Nepal Telecom operates Namaste Pay which has a paid-up capital of Rs400 million.

Nepal’s telecommunication service providers have been given permission to operate digital payment services because the scope of the work is related to technology and telecommunications, officials said.