Curbing Illegal Payment

Curbing Illegal Payment

The first quarter of 2019 showed a whopping increment in the flow of tourists by 15 percent. This is supportive to the Government of Nepal (GoN) aim of having 2 million tourist inflows by 2020. Traditionally India, China, Sri Lanka, etc. have been the major sources of tourists to Nepal. Last year showed a strong increment of Chinese tourists by 46.8 percent. During four months of the current year, China tops the tourist source with the inflow of 64,578 tourists, followed by India.

Though tourist inflow is increasing, the average daily expenditure of tourists hasn’t increased on a proportionate basis. Such spending has reached $44 per day which is lowest in the last seven-year. This has resulted in lesser earning for the country. Inflow of low-end tourists followed by huge amount of money not entering into the national accounts because of use of unauthorized means of payments by the tourists accounts for lesser income.

Alarmed by the presence of unauthorized Chinese digital platform giants like Alipay and WeChat, Nepal Rastra Bank (NRB), the central bank of the country which also regulates non-bank payment institutions, issued a circular prohibiting unauthorised payment means, and warned users and service providers to refrain from such services. 

With the inflow of Chinese tourists to Nepal and abundance of Chinese businessmen in major tourist destinations running hotels, restaurants, and other businesses, the transaction is being made via such Chinese payment platforms which causes the transaction to be booked in Chinese Yuan in China. Such transaction is not recorded in Nepal causing losses of foreign exchange earnings and loss of revenue on the earnings repatriated. A similar case may also be found of users availing digital wallets from other neighboring countries.

The news of the ban has created a stir in China as both of the wallets are leading payment service providers in China. Alipay has registered a user base of more than 1 billion in 40 countries and WeChat has 900 million-plus global users in 49 countries. China is the second-largest tourist source it is a matter of fact that there is huge earning potential from this tourist base. And with GoN preparing for Visit Nepal Year 2020, these issues should be sorted out beforehand.

To amicably solve the problem in our favor, GoN in the short term should take up the issue with Chinese Government who in turn should be generous enough to ask Alipay and WeChat to track and block all those illegal payments via GPS tracking, and in the long term should create environment to legalize those digital wallets. With regulatory authority (NRB) having Licensing Policy and another legal framework in place, licensing of such wallets doesn’t seem to be a difficult task. 

Legalizing such digital wallets means that GoN will be able to collect the foreign exchange earnings and tax on the transactions and also encourage Chinese tourists to visit Nepal as they will be able to make the transaction via their favorite homegrown digital wallet without having to worry about any legal repercussions.

(Dhungel is an Assistant Director at Nepal Rastra Bank)  

Published in The Rising Nepal, May 30, 2019 

Digital banking in Nepal: Focus on infrastructure, security

A banking service involves a customer’s presence at an outlet to perform a transaction. This has compelled the banks and financial institutions (BFIs) to open large numbers of branches across different geographical areas. They are now opening branches across the 753 local levels, as directed by the regulatory authority.

Winning over customers traditionally meant extension of the bank network and offering suitable products and services at a competitive rate. However, with the advent of modern alternative channels of banking, the concept of physical outlets has started to look less relevant. As Bill Gates said in 2008, “banking is essential, banks are not”. The use of internet technology to provide bank services has changed the way banking is done, and will change the banking industry as a whole in the days to come. As such, digital banking refers to the process of facilitating various banking activities using electronic channels, like Automatic Teller Machines (ATM), Point of Sales (POS), telephone, mobile phone, the internet and SWIFT transfers.

It was as early as 1990 that Nepali banks started adopting means of digital banking. The medium of digital banking for the payment of retail transactions in Nepal are cards, internet banking, mobile banking, e-wallets, POS machines and Point of Transactions (POT) machines. Similarly digital banking tools that the users are availing for the transaction of large volumes are Electronic Cheque Clearance (ECC), Interbank Payment System (IPS) and SWIFT (Society for Worldwide Interbank Financial Telecommunication). From mobile top to utility bill payment; from ticket booking to money transfer – banking users are gradually adapting themselves to digital banking in both remote as well as urban areas.

The number of cash-based transactions has been decreasing every year. NRB has been discouraging cash-based transactions by reducing the limit to such transactions. For instance, a banking transaction is now limited to Rs 1 million from Rs 3 million. Similarly the volume of Electronic Cheque Transactions has been increasing through the NRB-promoted Nepal Clearing House Limited (NCHL). Similarly, an increase in the number of ATM outlets (2791 in 2074/75) along with POS machines has enhanced the popularity of debit cards.

However, going digital is no piece of cake. The SWIFT hacking of NIC Asia Bank the previous year, thefts in a number of ATMs and the recent theft from Esewa have increased concerns about the reliability of digital banking in Nepal. Despite the internet’s access to 63% of the total population, access to digital banking among the same mass is really low. This is because people still regard digital banking a complicated procedure. And although they know that a wide range of transactions can be done through their mobile phones, people hesitate to make use of them. A regulating system is being developed, which has created confusion for the service providers. Time and again update on the threshold for mobile payment is another confusion.

Inability to maintain robust infrastructure has been a hindrance to the development of digital banking in the country. We lack standard IT tools, a dearth of skilled manpower, poor infrastructure and the use of pirated software is high. Security is a big concern. The National Cyber Security Index 2018 ranks Nepal 92th out of 100. This means that Nepal’s ability to prevent cyber threats and manage unintended cyber incidents is poor.

Though an increasing number of people are using digital banking services, most people still prefer traditional banking practices. For a country like Nepal, with a literacy rate of 64% and 60% of the population still without a bank account, it is a challenge for the regulators and market players to promote digital banking.

So as to promote digital banking in Nepal, the central regulatory authority, Nepal Rastra Bank, established a Payment Systems Department on July 2, 2015, with the sole authority of regulation, supervision and oversight of the entire payment system in the country, including licensed non-bank financial institutions. At present NRB has been providing license to non-banking financial institutions as Payment Service Provider (PSP) and Payment Systems Operator (PSO).

Nepal Rastra Bank has formulated and implemented a number of acts and laws and by-laws and issued directives to guide payment systems-related activities in Nepal. A Payment System Act is under review in the federal parliament. NRB has also focussed on tools to reduce the cost of using such tools and also to make it convenient. The overall ambience is conducive for igniting a take-off phase of payment systems in Nepal. The internet penetration is 63% of the total population as of 2017. Similarly the number of mobile phone users in the country is 34% higher than the total estimated population of the country. Likewise, the development of Payment Switch has also been topmost priority of both the government and the NRB.

The era of digitalisation has already entered Nepal as it can be seen in every sector – from local governance to transportation and Inland Revenue Department. The future looks optimistic about moving towards a cashless economy.

Dhungel is Assistant Director at NRB and Regmi Assistant Manager at Rastriya Banijya Bank

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A version of this article appears in print on May 20, 2019 of The Himalayan Times.

Online Business Surge in India and its Future Prospects

If you study the recent trend in the online business in India, you can easily find out three major market players. Namely: Flipkart, Snapdeal and Amazon. For traditional India where online purchasing was a taboo and thus was limited to few online tickets booking, these companies together have introduced a new culture of online business culture in India. A business that is forecasted to grow from sales of $ 2.3 billion (As of 2014) to $32 billion (as of 2020).

For Flipkart which is largest internet company by its market value of $7 billion, it went through rough ways to arrive at this position to bust the myth that consumers like to see and feel the product before buying. Reluctance of customers to give details of their credit cards, fear about the delivery of the product, suspicion to get exact product etc. were of paramount amount which pioneers like Flipkart had to go through. 

These companies are at the verge of cut-throat competition as they have been going with massive marketing strategy to boost the sales. Recent humongous sales made by e-tailers like Flipkart of $100 million in 10 hours as "Big Billion Sales day" and Snapdeal retaliating the same with sales of a crore per minutes proves this. As such there is a humongous sale that these companies have been able to make. And thus large amount of profit. While the competition is tough over a small profit margin, these companies are also facing challenges. The recent challenge is not because of the competitors in online commerce, but because of the competition/conflict between these e-tailers and brick and mortar models. It should be understood that it is until recently that brick and mortar business have been dominant in doing business in country like India. But this culture is changing rapidly. 

Challenges to Indian e-tailers:

1) Tough competition from competitors who are coming up with innovative strategy to increase sales.

2) Problems from top brands having brick and mortar outlets like: LG, Sony, Samsung etc. who are accusing the e-tailers of making predatory sales (selling below cost), thus damaging their sales and brand names.

3) The customers in Tier-I cities like Mumbai, Delhi, Bangalore etc. who prefer see-feel-buy approach in contrast to online modes. Luring them for online business might be relatively difficult.

4) New entrants in the industry which might reduce the price of product offerings sharply in contrast to the old market leaders. Similarly, it is also more likely that manufacturers and brands might offer product offerings via their own online sites. 

5) Another possible challenge would be large brick and mortar group like: Reliance Industries, Future Group, TATAS group planning to go online to expand. etc

Brighter side:

It can be seen evidently that Indian e-tailers have been inspired from Chinese mega online internet retailer: Alibaba's success, which raised record high of $21.8 billion IPO. The statement of Flipkart CEO and Founder Sachin Bansal to make Flipkart a $100 billion club member in upcoming 5,10 or 15 years provides a hint that they are planning for a rapid growth of company business in near future. 

Now lets us put light on the basic facts that hints us about the brighter aspects of growth of online business in India.

1) Online retailers selling product-offerings in a cheaper price as they save on rent and other infrastructures are sure to attract large untapped customer segment in future.

2) Online markets are growing rapidly in Tier 2 and Tier 3 cities where physical outlet are absent or are few. They will penetrate the market deep enough before physical outlet set-up there and start to attract the customers.

3) Indian is a country with population of 1.2 billion out of which the population of age group of 18-40 is 40% (as of census 2011). And this is the chunk of population on which online retailer have been finding a dip in sales. This trend is supposed to increase even more. 

4) The service that these companies offer is almost flawless. Delivery before the delivery date, free delivery, 30 days replacement period, etc. will lure more customers to try these sites.

5) The online market has moved towards growth phase of business cycle in which the startup has dried up in recent years as investors are focusing more in larger companies. Thus the prospects of larger companies to grow are even more.

6) Proliferation in the use of smartphones in Indian market which have enabled large base of customers to go online regularly and thus have access to these sites will increase the sales even more in near future.