Empowering Retail Payments: UNSW's work in Nepal

Between 29 May and 9 June, Louise Malady and Cheng Yun Tsang worked in Kathmandu, Nepal, representing the UNSW Digital Financial Services (DFS) Research Team. This Team is assisting the country’s central bank, Nepal Rastra Bank (NRB), carry out a stocktake of retail payment systems and identify regulatory gaps and barriers preventing those systems from flourishing. NRB plans to develop a national retail payment strategy drawing upon the UNSW DFS Team’s findings. The Team’s work in this area is supported by an ARC Linkage Project in partnership with the United Nations Capital Development Fund’s Mobile Money for the Poor program.

Cash is still the primary method of payment in Nepal, however, digital payment services are becoming more popular. The use of debit, credit and prepaid cards, and innovative e-wallets are on the rise enabled by the rapid growth in mobile phone usage and a young tech-savvy population enjoying rising incomes, supported by remittances from a growing number of Nepalis working abroad. However, the retail payments market is fragmented, with well over 100 banks and a complex payments infrastructure. Not all consumers can easily pay bills or send money to each other – it depends on the bank they use. Furthermore, not all ATMs and POS machines are interoperable, and fees are relatively high and not always transparent, causing confusion among users. Third party payment service providers have grown to fill the infrastructure gaps between financial institutions and customers. These providers offer user-friendly interfaces but represent a duplication of services resulting in low network effects as competing systems struggle to gain traction.

The central bank is working to address these issues. It has promulgated regulations for payments providers and operators and created a division focusing solely on payments system oversight and supervision issues. As of June 2017 the first license for a payment service provider was issued. Further licenses are expected to be issued providing greater certainty and clarity for providers and operators about the regulatory environment in which they will operate.

While in Kathmandu, the UNSW Team assisted NRB to bring together industry stakeholders for a series of Focus Group Discussions to highlight areas of concern and identify opportunities for the development of retail payment systems. The Team is now working with NRB and UNCDF to synthesise the findings of the stocktake.