Consultative Workshop on Digitizing National Retail Payments Systems

Nepal Rastra Bank invites DFS Stakeholders to discuss digital payment strategies

A three-day workshop conducted by Nepal Rastra Bank (NRB), the central bank of Nepal, convened participants from mainstream financial institutions, non-bank payment service providers, infrastructure actors and government ministries and regulators. The purpose of the workshop was to discuss the status of adoption of retail payments in the country, particularly digital payments, and the gaps that persist in the market that relate to customers, providers, infrastructure and policy.

The workshop, led by NRB and co-facilitated by the United Nations Capital Development Fund programme Mobile Money for the Poor and UNSW Sudney [1], supported a larger objective of NRB regarding payment systems. With the establishment of a payment system department at NRB, the central bank is spearheading the development of a National Retail Payment Strategy. The strategy will internally guide its policymaking objective and will serve externally as a tool to communicate NRB’s policy priorities. The strategy sets out NRB’s vision as the custodian of payment systems in Nepal, and what it aims to achieve in the coming years[2] :

• Promote the development of a secure, healthy and efficient system of payments
• Reduce barriers for retail payment services and other retail financial services
• Level the playing field and provide flexibility in the market to promote innovation
• Ensure an effective yet proportionate approach to consumer protection
• Achieve sustained rapid growth and large-scale volumes[3]

On the first day of the workshop, participants from commercial banks and other banking institutions, such as development banks, spoke about their support and inclination towards digital financial services (DFS). It was clear from the first round of discussions that, despite having a positive view of DFS and mobile banking platforms, certain segments of customers (mainly rural and above the age of 45) are still unwilling to shift from using cash to DFS. However, there was a strong consensus from bankers to work cohesively to address this reluctance and to build a digital system that is not only for young, well-educated urban Nepal but for Nepal as a whole in order to achieve the main goal of DFS, which is financial inclusion for all.

The second day of the workshop hosted non-bank payment service providers. The main theme of discussion was the need for more lenient and liberal policies and regulations from the central bank for providers in Nepal. One participant expressed his perception of the current situation by saying, “Fast-pace regulations around DFS in Nepal would help companies like us to forge and foray into the digital revolution that the financial sector of Nepal is open to.”

The third day of the workshop saw the meeting of regulators and government ministries, which included representatives from NRB, Ministry of Finance and Nepal Telecommunications Authority, among others. The main theme of the final session was to address the queries raised by commercial banks and providers regarding the policies and regulations that at times inhibit the scalability and scope of DFS. The officials addressed the matter by saying that their respective organizations are focused on aligning their internal strategies to enhance the outreach of DFS in Nepal. This alignment will translate through refined policies that will pave the way for banks and other agencies to deliver DFS at a simpler but much larger scale.

July 2017. Copyright © UN Capital Development Fund. All rights reserved.

[1] The workshop was conducted by the DFS Research Team from the Law Faculty at UNSW Sydney. The research was co-financed by the Australian Research Council and UNCDF.

[2] These are only general outcomes that every regulator aims to address and are not specific to this context. The outcomes are based on the following sources:

European Central Bank, ‘Harmonised oversight approach and oversight standards for payment instruments’ (Frankfurt, 2009). Available from https://www.ecb.europa.eu/pub/pdf/other/harmonisedoversightpaymentinstruments2009en.pdf ;

Harish Natarajan and others, Developing a Comprehensive National Retail Payments Strategy: Consultative Report(Washington DC, World Bank, July 2012). Available from https://siteresources.worldbank.org/FINANCIALSECTOR/Resources/282044-1323805522895/Developing_a_comprehensive_national_retail_payments_strategy_consultative_report(8-8).pdf; and UNSW Sydney, ‘Regulatory Diagnostic Toolkit for Digital Financial Services,’ 21 September 2016. Available from https://clmr.unsw.edu.au/resource/digital-financial-services/regulatory-diagnostic-toolkit-for-digital-financial-services-

[3] Since all retail payments by nature are high-volume, low-value transactions, the transition to electronic transactions can only be achieved if the business case for such a transition exists for different stakeholders. Since a large part of this transition depends on the level of trust by the customer, which builds over time, and since the relative cost of setting up the infrastructure is high, the economy of scale is an important factor that drives this transition to sustainability.