Prospects and Challenges of Digital Payment in Nepal
March 21, 2024
Introduction
In recent years, Nepal's financial ecosystem has undergone a remarkable shift, driven by the transformative impact of the COVID-19 pandemic, and shifting consumer behaviors. This transformation has driven digital payments to the forefront, with projections indicating a substantial growth trajectory. According to Statistic shows that by 2024, Nepal is expected to witness a total transaction value of US$3,621.00 million, with a further surge to US$6,105.00 million by 2028 with a 13.95% annual rate (CAGR 2024-2028). This increasing rate indicates that the digital payment landscape has been transforming more towards digital economy. Notably, QR code-based transactions have risen, marking an unbelievable increase of 189.53% in FY 2022/23 compared to the previous fiscal year (Payment Oversight Report, NRB, 2023), evidence to the rapid adoption of digital payment solutions in Nepal.
Read this blog to explore the prospects and challenges of digital payment in the Nepalese context.
Let’s get started!
Prospects
1. Smartphone Penetration: As per data of Nepal Population and Housing Census Statistic report (2021) the use of smartphone penetration rate stands 72.94%, which means smartphones have become universal in Nepal, making digital payment platforms more accessible, particularly among the younger population.
2. Cost of Connectivity: The reduction in connectivity costs from USD 2.25/GB in 2019 to USD 0.46/GB in 2023 has made digital transactions more affordable for a broader segment of the population.
3. Government Support: The governmental of Nepal has initiated a program "Digital Framework Nepal" with a motto to foster a digital Nepal by 2030. This governmental initiative provides a favorable environment for digital payment adoption and encouraging further innovation and investment in Nepal.
4. Indigenous Fintech Startups: Local companies such as eSewa, Khalti, IMEPay and Namaste Pay are driving digital payment adoption by offering fast, convenient, and secure alternatives to traditional banking services.
5. Cross-Border Transactions: The collaborative efforts between the "National Payment Corporation of India (NPCI)" and “NCHL” and “Fonepay” has anticipated the commencement of digital payment gateway between Nepal and India has further impose the possibility to surge digital payment in Nepal.
6. Remittance Solutions: according to the current macroeconomic and financial situation of the NRB report (2023/24), the significant increase in remittance inflows, as indicated by a 27.1% increment in FY 2022/23 compared to the previous year, underscores the potential of digital payment platforms to offer cost-effective and efficient remittance solutions, bridging the gap between senders and recipients.
7. Emerging e-Commerce growth: Moreover, Nepal's position as the 79th in global e-commerce rankings, with forecasted revenue of US$679.7 million by 2024 (eCommerce Market Nepal), presents a profitable opportunity for digital payment service providers to cater to the growing online market.
Challenges
Despite the opportunity, several challenges threaten the possibility of digital payments in Nepal.
1. Cybersecurity Concerns: Cybersecurity and data privacy concerns pose significant threats to the integrity of digital payment systems, with instances of financial fraud highlighting the imperative need for robust security measures for digital payment.
2. Lack of digital skills and financial knowledge: Most people in remote areas lacks financial knowledge and digital skills posing a significant challenge for the digital payment companies in Nepal.
3. Political Instability: Due to unstable government in Nepal, the policy and regulatory often get change time and again which create ambiguity for digital payment service providers hindering their ability to make plan and invest in the long term.
4. Interoperability Issues: Interoperability between different digital payment platforms remains a challenge in Nepal due to standardization and compatibility issue, it hinders the convenience and utility of digital payments.
5. Limited Infrastructure: Nepal has a limited infrastructure and technology. People in rural areas still have a poor internet connection and unreliable network coverage which hinders the ability of digital payment service provider.
6. Regulatory Framework: Nepal’s digital framework is in infant stage. There is outdated and unclarity in framework that restrict the efficiency of digital payment in Nepal.
7. Cultural and Behavioral Barriers: Still most people in villages prefer cash as a mode of transaction. Thus, their cultural attitude and behavior may hinder the adoption of digital payment in Nepal.
8. Long-term Sustainability: Minimal revenue streams are adversely affecting the operational efficiency and sustainability of digital payment companies over time in Nepal. Due to the minimum merchant discount rate (MDR), commission rate and low transaction fee impose challenge to digital payments companies for their existence in long-run.
Conclusion
While Nepal's digital payment ecosystem has the potential to drive innovation and economic progress, challenges such as cybersecurity, financial inclusion, and regulatory compliance must be addressed immediately. By encouraging stakeholder collaboration and investing in education and infrastructure, Nepal can pave the road for a safe, inclusive, and revolutionary digital future.
Reference
eCommerce Market Nepal: Data and Trends | ECDB.com. (n.d.). https://ecommercedb.com/markets/np/all
Kemp, S. (2024, February 23). Digital 2024: Nepal—DataReportal—Global Digital Insights. DataReportal: Global Digital Insights. https://datareportal.com/reports/digital-2024-nepal
Nepal Population and Housing Census. (2021). Census Nepal. Retrieved March 21, 2024, from https://censusnepal.cbs.gov.np/results/downloads/national
PAYMENT SYSTEMS OVERSIGHT REPORT. (2023). NRB. Retrieved March 15, 2024, from https://www.nrb.org.np/contents/uploads/2024/01/Payment-Oversight-Report-2022-23-1.pdf