Nepal Clearing House Limited (NCHL) has roped in global payments software firm ACI Worldwide to power its new domestic real-time payments system.

The first phase of the national payment switch, approved by Nepal’s central bank, came into operation in November 2021 by establishing a retail payment switch with the NCHL.

NCHL is now introducing the second phase.

In the second phase, after the infrastructure of the card payment switch system is built, banking and financial institutions will be able to provide their customers NEPALPAY cards instead of Visa, Master and Union pay cards.

This will keep the customers’ data within the country and also help in reducing service charges of the payment cards.

The national payment infrastructure benefits the whole payment industry—customers, merchants, service providers—and the government.

It lowers transaction costs.

As a direct intermediary between payment operators, the interoperable national payment switch infrastructure will bring much-needed efficiency in dealing with domestic payments, which until now requires a non-domestic intermediary. The national payment switch will charge much lower routing fees to operators who will pass on the benefits to their customers.

Similarly, the national payment switch will be a central payment infrastructure allowing payment service providers to connect to the system through low-cost direct interfaces. This will reduce the operation costs.

The national payment switch provides a level playing field for banking and non-banking operators to compete.

“The establishment of national payment switch infrastructure and rollout of NEPALPAY card is expected to become a significant stride in Nepal to reform and consolidate the entire payment ecosystem,” said Neelesh Man Singh Pradhan, chief executive officer of the NCHL, a company involved in multiple payments, and clearing and settlement systems.

“Our partnership with the ACI aligns with our mission to facilitate the development of secure and trusted new payment methods and technologies in Nepal. We are excited to bring seamless and convenient card payment services to Nepal."

The national payment switch initiative includes the retail payment switch for handling retail (non-card) transactions and retail instruments, which is already in place including the interoperable domestic scheme of NEPALPAY QR.

The national card switch and NEPALPAY are expected to be rolled out in the last quarter of 2024.

“We will build the central infrastructure and framework for the NEPALPAY card. Banks can then produce NEPALPAY cards which will operate in automated teller machines (ATM) and points of sale (POS),” said Pradhan.

Nearly a dozen bidders had shown interest in the establishment of the national card switch.

“ACI Worldwide was selected through a bidding process,” Pradhan said.

Globally, ACI covers approximately one-third of the countries that offer real-time payment services, reaching about 1.8 billion people.

At present, domestic Visa and MasterCard transactions are switched through international payment gateways and the cardholders are charged in dollars per transaction.

The NCHL is a public limited company established on December 23, 2008 under the leadership and guidance of the Nepal Rastra Bank.

It has equity participation from the Nepal Rastra Bank, commercial banks, development banks, and finance companies and has the objective to implement and operate multiple national payment systems.

Under the first phase of the national payment switch, payments were allowed from banks’ accounts, e-wallets and quick response (QR) for retail transactions, except cards.

Under this system, payment equipment including Nepal-Pay QR and Network QR as per Nepal QR Standard, Direct Debit Request-To-Pay and E-Mandate equipment, inter-connection between wallets, inter-connection through biller gateway for different payment and PSO settlement are available.

Being the prime infrastructure for retail payment, the switch provides real-time and non-real-time services and open banking API (application programme interface) which permits banks, financial institutions and non-banking institutions to share financial information.

Nepal's transition from a cash-based economy to a burgeoning digital payment ecosystem has been a remarkable journey with a positive impact on financial inclusion and economic development.

According to the Nepal Financial Inclusion Report 2023, the percentage of adults using formal financial services has surged from 61 percent in 2014 to 90 percent in 2022. Of these, 81 percent utilise banking services, and 9 percent opt for other formal financial services. This signifies an increasing adoption of financial instruments and a notable shift towards digital payments.

Nepal’s electronic payment transactions stood at Rs4.33 trillion in mid-December 2023 to mid-January 2024, increasing from Rs4.14 trillion in the same period the previous year.

The real-time gross settlement, however, decreased to Rs2.62 trillion in the review period from Rs2.70 trillion in the same period the previous year.

The ATM transaction increased to Rs84.42 billion in the review period, from Rs77.84 billion in the same period the previous year.

The wallet transactions increased to Rs23.08 billion from Rs18.26 billion.

Quick Response (QR) base payments increased to Rs38.59 billion in the review period from Rs17.03 billion in the same period of the previous year.

The point of sales transaction increased to Rs5.32 billion from Rs5.02 billion.

The e-commerce transactions using cards increased to Rs724 million in the review period from Rs488 million in the same period the previous year.