The adoption of digital payment systems by consumers and businesses has gained fast momentum over the last three years. As the start of the Covid-19 pandemic in early 2020 forced people to stay inside their homes for months, digital transactions took a giant leap. Backed by the increasing use of smartphones and other computing devices, consumers were fast to adopt digital modes of payments and online shopping to buy daily essential items. Primarily, the retail payment systems in Nepal consist of cheque-clearing, electronic fund transfer, card payment systems, QR code-based payment, e-money, and remittances. Digital payment instruments like mobile banking, cards, QR code, connectIPS, e-wallets, internet banking, POS machines, etc. have been extensively used owing to the fear of transmission of coronavirus from physical modes of payments such as cash and cheques. The usage of digital transactions also increased with licensed institutions working to modernize existing instruments and innovate new payment tools. The faster adoption of new payment systems has further acclimatized users to digital banking rather than branch-based banking. While payments through electronic modes have also taken a beating in this fiscal year due to a sharp slowdown in economic activities, there is no doubt digital payment will be the increasingly preferred mode of payment in the coming days.

Although the momentum in digital payments took pace in early 2016 and gained prominence in 2020, the foundational arrangements for modernizing the payment systems started in 2014. The National Payment Systems Development Strategy (NPSDS), 2014 was formulated to further develop the payment system.

A recent report by Nepal Rastra Bank (NRB) titled 'Payment Systems Oversight Report' shows there has been growth in the number of Payment Service Providers (PSPs), PSPs Agent, Wallet Users, connectIPS Users, and Interbank Payment System Members in the last three years. "There has been a rapid increase in the user base of e-wallets and connectIPS post-pandemic," states the report. According to NRB, the number of wallet users increased from 6.27 million in mid-August 2020 to 13.68 million in mid-July 2022. Similarly, the number of connectIPS users increased from 162,117 in mid-August 2020 to 896,341 in mid-July 2022. The number of Interbank Payment System members has also increased to 111 members. Post-pandemic, digital instruments like connectIPS, e-wallets, mobile banking, internet banking, QR code, and cards have widely been used as customers can use these instruments in self-service mode. Similarly, e-commerce and POS transactions have also gained prominence after the beginning of the pandemic. According to the report, the number and value of connectIPS transactions have grown by 109.3 percent and 127.1 percent respectively from FY 2020/21 to FY 2021/22. Similarly, QR code-based payment is the most widely used digital payment instrument in the country. The number and value of QR-based payments have surged by 382.8 percent and 366 percent respectively from FY 2020/21 to FY 2021/22. The retail payment systems in Nepal are mainly operated by Nepal Clearing House Limited (NCHL), which provides image-based cheque-clearing solutions and electronic fund transfer facilities to customers. Similarly, FonePay Payment Services Ltd. provides the platform for QR payments and mobile banking services to BFIs. Other major operators in the card payment landscape are SmartChoice Technologies (SCT) and Nepal Electronic Payment Systems (NEPS) Ltd. Internationally recognized institutions like Visa Worldwide, Union Pay International Company, and MasterCard Asia/Pacific are also operating as PSOs in Nepal. The central bank has distributed licenses to 37 institutions to operate as PSPs and PSOs. Of them, 27 are PSPs and 10 are PSOs. RTGS transactions value up by 105%  The Real Time Gross Settlement (RTGS) system has processed large value payments with 40.6 percent and 105 percent growth in the number and value of transactions respectively in 2021/22 compared with FY 2020/21. The central bank has been operating the Real Time Gross Settlement (RTGS) system for large value and critical payments since September 12, 2019. The RTGS is an electronic fund transfer system in which the transfer of funds between one bank/financial institution to another takes place in 'real time' and on a 'gross' (transaction by transaction) basis, without bundling or netting debit and credit transactions of a participant. The RTGS system has replaced the manual process to clear large value and critical payments in NRB’s General Ledger System with an automated and real-time payment process. ECC transaction value surged by 8.9% The number and value of Electronic Cheque Clearing (ECC) transactions have grown by 13.2 percent and 8.9 percent respectively in 2021/22 compared with FY 2020/21. Electronic Cheque Clearing (ECC) system allows the BFIs to accept and present interbank cheques for clearing and settlement. NCHL has been operating the ECC system, which offers high-value, express, and regular cheque-clearing options to customers. BFIs use the ECC portal to scan the cheques and present them for clearing and settlement. Use of cards for e-commerce declining While the usage of Point of Sale (POS) is increasing, a decline in e-commerce or online payments using cards has been seen. The number and value of online payments using cards have reduced by 39.1 percent and 46.8 percent in 2021/22 as compared with FY 2020/21. With many customers opting for cash-on-delivery options for e-commerce payments, there may have been a decline in e-commerce transactions through cards. Further, online sites have integrated wallets and instant payment systems for online payment, providing cardless digital payment options to customers. "A detailed study is required to identify the reason behind the decline in e-commerce transactions through cards," reads the report. NRB increases paid-up capital of PSPs and PSOs NRB has increased the paid-up capital of entities involved in the digital payment business. Issuing a new licensing policy in January, the central bank has increased the paid-up capital for payment service providers (PSPs) and payment system operators (PSOs). As per the new arrangement, the paid-up capital of PSPs operating devices other than payment cards has been fixed at Rs 50 million. The paid-up capital of PSPs operating payment cards and other devices has been fixed at Rs 250 million. Similarly, the paid-up capital of PSOs has been fixed at Rs 400 million, while PSOs handling payment transactions outside Nepal through payment instruments issued in the country have to raise their paid-up capital to Rs 800 million. NRB has set a deadline of 2028 for the existing PSPs and PSOs to meet the new paid-up capital requirement. The companies that have already obtained licenses from the central bank, have to maintain the paid-up capital as prescribed by the NRB by mid-July 2028," states the policy. Access on Payment Systems

Particulars	Mid-August, 2020	Mid-July, 2021	Mid-July, 2022
PSPs Agent	5,139	9,279	12,685
Wallet Users	6,274,129	8,885,914	13,675,993
connectIPS Users	162,117	534,615	896,341
Electronic Cheque Clearing Members	65	60	59
Interbank Payment System Members	85	103	111

Cards  

	Debit Card		Credit Card		Prepaid Card
	Number (in ‘000)	Growth (%)	Number (in ‘000)	Growth (%)	Number (in ‘000)	Growth (%)
Mid-July, 2018	5,544		105		97
Mid-July, 2019	6,709	21.0	123	17.1	67	-30.9
Mid-July, 2020	7,329	9.2	160	30.1	64	-4.5
Mid-July, 2021	8,840	20.6	192	20.0	68*	6.3
Mid-July, 2022	10,856	22.8	239	24.5	109*	60.3

  RTGS  transactions value up by 105 percent

Currency	2020/21		2021/22
	No. of Transaction	Amount (in million)	No. of Transaction	Amount (in million)
NPR	5,22,174	2,04,45,704.04	733,795	4,15,61,970.8
USD	10,364	688.04	14,774	828.12
EUR	702	161.09	1,098	222.83
GBP	426	3.23	582	4.96
JPY	175	1,891.12	348	75,633.62

Economic slowdown puts a brake on the speed of electronic transactions  With the sharp slowdown in economic activities, payments through electronic modes have also taken a beating in this fiscal year. The overall digital payments in the first six months of the current fiscal year declined by 0.54 percent. NRB data shows digital payments worth Rs 27010.414 billion took place in the first half of FY 2022/23 compared to Rs 27157.714 billion during the same period of FY 2021/22. There was a gradual decline in electronic payment transactions till the fifth month of the current fiscal. However, it improved in the sixth month (mid-December to mid-January) as electronic transactions increased by 12.12 percent. The monthly digit payments reached an all-time high of Rs 6,227.648 billion in the last month of FY 2021/22. However, electronic transactions have been on a decline every month in this fiscal year till mid-December. Electronic Payment Transactions (First Six Months)

Month	FY 2021/22	FY 2022/23
Shrawan	Rs 3612.083 billion	Rs 5688.626 billion
Bhadra	Rs 3920.982 billion	Rs 4926.715 billion
Ashoj	Rs 4705.105 billion	Rs 4605.317 billion
Kartik	Rs 4931.923 billion	Rs 3946.194 billion
Mangshir	Rs 4845.953 billion	Rs 3697.658 billion
Push	Rs 5141.668 billion	Rs 4145.904 billion
Total	Rs 27157.714 billion	Rs 27010.414 billion

Source: Nepal Rastra Bank