Digital 2020Nepal’s digital economy will grow exponentially atop a robust digital payments layer
One of the most telling indicators of well-functioning digital ecosystems is the presence of “virtuous circles”—feedback-loops that consist of established businesses re-investing locally and, in turn, inspiring emerging entrepreneurs to create new businesses. Some of these start-ups succeed and continue the tradition of re-investing in their local ecosystems. Earlier this year, F1Soft, the company that I founded and help run, launched the “Digitial2020”—or “D2020”—initiative, as our way of giving back, and helping inspire future generations of entrepreneurs innovate solutions to Nepal’s most pressing challenges.
A digital ecosystem
At its core, D2020 is a stretch goal that challenges us to multiply the current level of digital payment transactions in Nepal by seven-fold (up to 20 percent of total payments) by the end of 2020. This goal prioritises the development of an inclusive and robust digital payments layer as a prerequisite to a functioning digital ecosystem. No entity on its own can achieve this goal. However, with a coalition of public, private and development partners working in unison, we believe that the target can be exceeded within the next 24 months and that eventually, Nepal can leapfrog traditional paths to financial inclusion.
D2020 is premised on the assumption that Nepal’s digital payments layer is primed for expansion. With the mobile penetration rate greater than 100 percent, declining cost per unit of mobile data, and high-speed internet solutions expanding into major cities beyond Kathmandu, Pokhara and Biratnagar, the required physical infrastructure is largely present (and expanding). Add to these attributes an estimated 50 percent internet penetration rate and the discussion shifts naturally to digital payments. D2020 is a multi-pronged approach involving all stakeholder groups, to shift the prevailing mindset decidedly in favour of digital payment platforms.
From a private sector perspective, D2020 aims to capitalise on the confluence of installed physical infrastructure, digital trends, and market competition to benefit Nepalis across the socio-economic stratum. The intent is to mobilise ecosystem participants—mobile network operators, payment platform providers, financial services entities, merchants, and digital startups—in pursuit of a singular objective: to exponentially increase the volume and stickiness of digital payments by 2020.
D2020 partners will deploy an array of incentive-based schemes, like cash-back on digital payments and volume discounts, to drive adoption among banked populations and increase usage among early adopters. Resources from corporate social responsibility budgets will also be called upon to design and deploy learning initiatives that benefit Nepalis who are currently outside of the formal economy.
In addition to committed participation by the private sector, D2020’s success will depend significantly on a leadership role that the Government of Nepal must assume. This role entails creating a conducive policy environment for digital payments to grow and for startups to thrive; mandating the conversion of at least 50 percent of government transfers to digital channels by 2020, and explicitly endorsing Nepal’s digital economy as an official priority in conversations with donor agencies and development finance institutions.
Nepal’s government should also intervene to address gaps that the private sector is ill-equipped to tackle—specifically, on issues related to financial inclusion where the commercial potential is too distant or, in some cases, absent. While the private sector can support the government’s efforts by innovating custom-built solutions, it will be up to the government to sustainably mobilise the required resources at scale.
D2020’s design—at the initiation of the private sector, with the government leading, backed by donors and other partners—is deliberate. This approach aligns incentives by creating space for the private sector to fulfil its fiduciary duties, the government to serve in the public interest, and donor agencies and development finance institutions to intervene in line with their respective missions. In other words, D2020 allows stakeholders to participate on terms that are acceptable to each group individually while benefiting the collective.
F1Soft International Pvt. Ltd., through F1Soft Foundation, has already earmarked resources in support of D2020. The company’s leadership has held multiple rounds of dialogue with key international payment providers, securing some soft commitments in support of the campaign. A number of partner financial intermediaries and merchant networks have been working on incentive schemes, some of which have been tested in select markets. Based on the lessons learned from these pilots, F1Soft will modify future D2020 interventions to better cater to hyper-local tastes and preferences. Following preliminary rounds of engagement and discussions with government entities, we have been energised and look forward to transforming the words into action. With the government leading, we can support the socialisation of D2020 as a national priority among all of Nepal’s development partners, help mobilise resources, and provide supplementary execution capacity.
Despite our bold commitment to this complex undertaking, the one risk that we envision is paralysis by analysis—an outcome that Nepal can ill-afford. Our intent is to keep pushing D2020 at all levels till at least 20 percent of payments in Nepal are in digital format; and when we hit this milestone, we intend to keep pushing forward.
We can be confident that the commercial benefits of D2020 will be measured not in terms of how market share is split but how rapidly the addressable market grows; short-to-medium term impacts will be most visible in terms of enhanced (digital) financial inclusion, while the longer-term impacts will be manifold. Nepal’s Digital Economy will grow exponentially atop a robust digital payments layer, resulting in the creation of a new breed of technology and technology-enabled businesses, right here at home.
Dhakal is the founder of F1Soft Pvt. Ltd.