Payment Systems in Nepal
Payment and Payment Systems
The action or process
of paying someone in lieu of something is known as payment. It is one of the
crucial functions executed by banks and financial institutions. Smooth
operation of the payment functions not only helps the bank and financial
institutions to ensure their swift operation but also that of the
counterparties.
Besides accepting deposit,
payment has been one of the crucial function that the banks and financial
institutions have been carrying out since time immemorial. In the modern era, use
of IT has been integral to simplify the complex mechanism of payment. As such
the infusion of IT in Payment to make the whole process simple and swift is
known as Payment Systems. More technically, a payment system is defined as an
arrangement which allows transfer of funds between the payee and payer. It
comprises of the institutions, instruments, people, rules, procedures, and
technologies that enables the funds to move from accounts maintained in one
financial institutions to another.
Rationale of Effective payment system
Payment systems is an
integral part of every country’s financial system. The status of the payment
system of the country can be taken as an indicator of the health/status of the
economy of the country.
A modern payment systems will not only reduce the cost
of commerce but also help to improve the government budget balance by increasing
tax revenue collection. As such there is an enormous role of payment system to
ensure the smooth functioning of the economy. A modern payment system is
beneficial for all concerned because of the following reasons:
1. An
effective payment system ensures the soundness of monetary policy
implementation and capital market development.
2. It
ensures that the cost of transfer of fund from one party to the other is
minimized, thus reducing the cost of business transactions.
3. It
ensures quick realization of revenue by business firms and the government.
4. A
well developed and regulated payment system ensures transparency and also helps
mitigate the money laundering process.
5. Enhanced
payments system also saves the users from risk of loss and theft.
6. It
also saves the central bank from the great deal of expenses required for
circulating of the physical cash to various parts of the country, etc.
Current status of
Payment Systems in Nepal
Payments
institutions and mechanisms are integral component of payments landscape. The
Payment System of Nepal is dominated by the banks and financial institutions However
to develop and strengthen payment systems in Nepal, Nepal Rastra Bank
established a Payment Systems Department on 2nd July 2015, in
accordance with the spirit of NRB Act and entrusted the department with the
sole authority of regulation, supervision and oversight of the entire payment
system in the country, including the non-bank financial institutions also.
In
Nepalese context payments tools like cards, internet banking, mobile banking,
e-wallets etc. are popular tools for the payment of retail value amount.
Similarly, the users are availing Electronic Cheque Clearance (ECC), Interbank
Payment System (IPS), SWIFT (Society for Worldwide Interbank Financial
Telecommunication), etc for the payment of transactions of large value.
Though it has
been quite some period of time that Nepal has been using the modern means of
payment systems, the volume of such use isn’t in significant number. However,
though slow, the number of such users is increasing.
One
key player in the payment systems domain of Nepal is NCHL (Nepal Clearing House
Limited) that was established under the leadership of NRB in 2008 to enable
electronic cheque clearing thus eliminating the need of physical routine of
paper cheques. NCHL as of now has been offering services such as Electronic
Cheque Clearance (ECC), which earlier was being manually handled by NRB. The
number of cheques being processed via NCHL has been increasing. It cleared
96,86,277 cheques in the FY 2074/75, with daily cheques of 40,756 being
processed and the average value of such cheques being Rs 26.6 billion. NCHL has
also been offering services such as IPS (Inter Bank Payment) and now with
Connect IPS which acts as a single platform for the users to initiate their
payment transactions via their bank accounts.
Nabil Bank introduced Credit Card for the first time in
Nepal in 2044 BS. Similarly Automated Tailor Machine (ATM) was introduced by
Himalayan Bank in the year 2047 BS. Likewise Internet Banking was introduced in
Nepal by Kumari Bank in 2047 BS, and it was Laxmi Bank that started SMS Banking
in the year 2061 BS.
The
use of mobile banking service offered by banks and financial institutions has
been increasing. Such services allows the customers to conduct financial
transactions remotely using a mobile device such as smartphone or tablet. Similarly
users are also availing internet banking, also known as online banking or
simply e-banking, which is electronic payment that enables the customer of
banks and financial institutions to conduct a range of financial transactions
through the website of the service providers. Likewise there has also been
significant increase in the number of users of the debit cards. The increase in
the outlets of ATM (2791 as of FY 2074/75) terminals along with the convenience
to use them in Point of Sales (POS) machine has increased the popularity of the
use of debit cards. The graph below depict the recent status of users of
mobile/internet banking and debit card users.
Existing Legal Framework
Development of a robust
Payment System has been one of the key priority of both the Government of Nepal
and the Central bank of the country, Nepal Rastra Bank. For example, the NRB’s second strategic plan
of 2012—2016 included payment systems and mechanisms as one of its seven
strategic pillars. Continuity to the second strategic plan, third strategic
plan 2017-2021 has focused on pillar as “Sound and Effective Payment
System".
The
role of NRB has been directed towards the developing financial market
infrastructures and promoting electronic payment systems. As one of the primary functions of the
Central bank as per NRB Act, 2002 is “to develop a secure healthy and efficient
systems of payments”, NRB has been performing in the same spirit.
In this connection, NRB
has established a separate Department on 2072/3/17 in the name of Payment
Systems Department. This department is the revamping of the earlier known as
Payment and Settlement Department, with power to regulate, inspect, and
supervise payment, clearing and settlement arrangement related activities in
Nepal.
Nepal Rastra Bank as of
now has formulated and implemented Banks and Financial Institution Act, 2073,
National Payment System Development Strategy 2014, Licensing policy for Payment
Related Institutions 2073, Payment Systems Oversight Framework 2018, Payment
and Settlement Bylaw 2072, Payment and Settlement Act is under review in
Federal Parliament, and it has also issued 7 different directives to guide and
direct payment systems related activities in Nepal.
Way forward
The overall ambience is
much conducive for igniting a take-off phase of payment systems in Nepal. The
internet penetration is 63% of total population as per date of October 2017, an
increase of 15.60% than that of the last year. Similarly the number of mobile
phone users in the country is 34% higher than the total estimated population of
the country as per data furnished by NTA on Ashad, 2075. Likewise the
development of Payment Systems has been on topmost priority of both Government
of Nepal and the Nepal Rastra Bank.
As development of an
efficient and robust payment systems is in top priority of the central bank of
Nepal, and also that of Government of Nepal, NRB together with stakeholders has
been introducing and implementing various alternatives for promotion of the
same.
NRB has been focusing
on the licensing of the institutions that intend to provide payment related
services. It has been providing license in two categories as PSP (Payment
Service Providers) and PSO (Payment Service Operators). As of date it has
provided license to 41 Banks and Financial institutions, and to 5 non-Banks and
Financial institutions, and has provided Letter of Intent to 25 institutions.
The number of such service providers is likely to increase in the days to come.
NRB has proposed a module
of National Payment System which consists integrated RTGS and CSD. Such a
system encompasses RTGS linked to the Ministry of Finance (MOF), Customs, and Inland
Revenue Department (IRD) via core banking. Similarly it has placed a full-fledged
regulatory framework and Payment System ACT is under review in the federal
parliament. NRB has also focused on the interoperability of payment systems and
tools so as to reduce the cost of using such tools and also to facilitate
convenience. As such the future is optimistic regarding moving towards a cash
less economy.
(The writer is
Assistant Director in Nepal Rastra Bank and the view presented in this article
is his personal one and doesn’t represent the view/opinion of the organization
to which he is related to)
Reference:
·
Sixty Years of Nepal Rastra Bank, NRB
Baluwatar, 2018
·
nrb.org,np
·
Nepal Clearing House Limited. Overview.
Nepal Clearing House limited website(online), 2011
·
NRB 2011 Second Strategic Plan
(2012-2016)
Published in "LakshyaYatra", an annual publication of Rastriya Banijya Bank Ltd, Employee Union, December-2018
