Nepalis’ wait to scan and pay in India isn’t over yet.

The central bank in mid-July allowed Nepali payment system operators to deal with digital retail payments in any country on purchasing goods and services through person-to-merchant (P2M), but none of the Nepali operators has shown an interest, except India.

This provision allows the Nepali payment system operator to agree with any PSO in any country to launch the quick response (QR) code payment system for the citizens of both countries to make purchases.

Nepal’s Fonepay, a PSO, has partnered with India’s NPCI International Payments to launch the cross-border payment service using QR codes in a few months.

“We have estimated a time of around a month and a half to complete all the technical processes before launching QR code payment service in India,” said Paras Kunwar, chief operating officer (COO) of Fonepay. “We have finished the trial, but before going live, the Indian and Nepali banks must be ready.”

“We [Fonepay] and the banks are working on two technical parts of QR code payment. One is complying with the transaction limit, and another is geo tracking.”

The central bank has set some conditions before giving approval to launch the service.

As per the rules, Nepali citizens are not allowed to transact more than IRs100,000 in India per month. The banks need to comply with such restrictions for QR code payments.

“The banks are currently working on setting a limit on transactions,” Kunwar said.

Kunwar said the banks are also working on location tracking to ensure that the person is making transactions from India.

“The banks are all set for the launch of the QR code payment for Nepali citizens in India. Our trial transaction has been successful,” said Gyanendra Prasad Dhungana, immediate past president of the Nepal Bankers’ Association.

Dhungana, the CEO of Nabil Bank, said they conducted the trial transaction in Mumbai, India, last week.

“So, we are ready to go live anytime if PSOs and the central bank signal the go-ahead.”

According to the central bank's monthly payment systems indicator report, QR code payments increased by 104.81 percent to Rs61.73 billion from mid-June to mid-July compared to last year.

The number of transactions also increased to 20.82 million from 9.76 million during the review period.

On March 1, Indians in Nepal were allowed to make payments through their mobile phones.

The development was hailed as a milestone in cross-border digital payment between Nepal and India, facilitating the students and people going to India for medical purposes.

The QR code system has become a boon for tourists, especially those from India.

It has reduced the hassle of carrying cash as the Nepal government has banned all Indian notes above the denomination of 100.

With the Fonepay service available in Muktinath and trekking areas connected to Pokhara, Indian tourists are increasingly scanning and paying.

The central bank issued a circular on June 27 allowing a merchant-to-person payment (M2P) system. This system allows PSOs to make agreements with PSOs in any country and start the service.

However, before signing a memorandum of understanding, the PSOs need the central bank’s approval.

Over the past decade, Nepal has witnessed a surge in digital adoption. According to the central bank report, the 4G/LTE services now cover 739 of 753 local units across 77 districts in Nepal. The smartphone penetration rate is 72.94 percent, and 38 percent of households have access to Internet services.

The cost of connectivity has also dropped significantly from $2.25 per gigabyte in 2019 to $0.46 per gigabyte in 2023.

Thus, as digital technologies become accessible and affordable, the digital divide, especially the rural and gender divide, is gradually narrowing.

The central bank report said that opportunities still exist for digital innovators, as 50 percent of adults from rural areas and 40 percent from urban areas still lack an account at a financial institution.

Nepal has experienced many innovations, especially in the digital payments industry, after the Covid-19 pandemic.

New payment instruments have evolved in the payment system, changing how people transact and bank. Such instruments are Quick Response (QR) codes, connectIPS (Instant Payment System), Cardless Withdrawal, Smart Point-of-Sale (POS), Contactless Cards based on Near-Field Communication (NFC) technology, Virtual Cards, Digital Lending.

Nepal has further operationalised the Retail Payment Switch (RPS) to settle retail payment transactions within the nation, and the development of the National Payment Switch (NPS) is in progress.

The central bank said that physical banking has transformed into phygital banking, and the nation has gradually been marching towards a fully digital banking landscape.

As of mid-July 2023, 37 payment institutions were licensed. Of these, 27 are PSPs, and 10 are Payment System Operators (PSOs). In addition, all 20 commercial banks, 16 development banks, 15 finance companies, and seven microfinance financial institutions have obtained the licence to operate as PSPs from the Nepal Rastra Bank.