E-Payments in Nepal: Evolution and Perspectives

1. E-Payment MukundaMahat Banking Office, NRB

2. E Payment What is payment ? • It is the transfer of a monetary claim by the payer to the payee or to the party acceptable to the payee. • Typically claims take the form of bank notes or deposit balances in the financial institution.

3. E Payment Payment System: • Physical Payment System • Cash. • Cheques. • Demand Drafts. • Payment Orders etc.

4. E Payment Payment System cotd… • Electronic Payment System • It is the term used for any kind of payment processed without using cash or other paper instruments. • It is the form of payment and banking without physical appearance at the bank through the means of electronic interactive communication channels and other technology infrastructure.

5. E Payment – Nepal Perspective • Introduction of Credit Card business by Nabil Bank Ltd. in the year 1990. • Introduction of ATM by Himalayan Bank Ltd. in the year1995. • Introduction of internet banking by Kumari Bank Ltd. in the year 2002. • Introduction of mobile banking by Laxmi Bank Ltd. in the year 2004.

6. E Payment – Nepal Perspective Forms of E Payment System in Nepal: • Web Based Payments: • Internet Banking. • Mobile Banking. • Debit Cards, Prepaid Cards. • Credit Cards. • Mobile Cash. • Branchless Banking. • SWIFT – Society for Worldwide Interbank Financial Telecommunication.

7. E Payment – Nepal Perspective Web Based Payments – Internet Banking: • Registration is required to get this facility. • On registration user ID and Password is provided, which is essential for login to the system. • Following transactions can be done via internet: • Transfer of fund from one account to another in the same bank. • Payment of loans. • Payment of utility bills etc. • Computer and internet is necessary to execute transactions.

8. E Payment – Nepal Perspective Web Based Payments – Mobile Banking • All aspects same as in internet banking except: • Transaction execution through SMS. • Operated through NTC network. • Does not require computer and internet to execute transactions.

9. E Payment – Nepal Perspective Web Based Payments – Debit Cards, Prepaid Cards: • Balance in account is necessary. • Used for cash withdrawal from ATMs. • For commercial transactions – Accepted only at designated places. • Payment Process: • Cardholder gives his/her card to the merchant. • The merchant swipes the card into POS machine. • The data is then transmitted to merchant’s bank. • The merchants bank transmits the data through a card association to the card issuer. • The card issuer makes a decision on the transaction and relays it back to the merchant who gives goods or services to the cardholder. • Cardholder’s account is debited immediately.

10. E Payment – Nepal Perspective Web Based Payments – Credit Cards: • It’s line of credit facility to the card holder. • Maintaining account with the card issuer is not mandatory. • Transaction processing takes place in the same fashion as in debit cards and prepaid cards. • Can be used to purchase merchandise as well as for withdrawing cash. • The role of card association is vital for the authorization of transaction, settlement of transaction and settlement of disputes if any.

11. E Payment – Nepal Perspective Entities that involve in the card payment system: • Card holder. • Merchant. • Acquiring Bank (Merchant’s Bank/FIs). • Card Association (Visa, Master etc). • Issuing Bank (Cardholder’s Bank).

12. E Payment – Nepal Perspective Web Based Payments – Mobile cash: • Introduced by Kumari Bank Ltd. • Bank (mobile cash) account is linked to mobile number. • Operated through mobile (NTC network), does not require computer. • Service is available through agent in remote areas. • Transaction facilities for customer: • Deposit/transfer of fund from/to other account of the account holder. • Transfer of fund to mobile cash account of other person. • Cash withdrawal. • Suitable for low value retail transactions/payments.

13. E Payment – Nepal Perspective Web Based Payments – Branchless Banking: • Introduced by EBL in June 2009. • Named as Everest Bank Ghar – Dailo Banking Sewa. • Targeted to rural people. • Operation Model: • Appointment of Business Correspondent (BC) at remote areas. • Associate BC with the nearest branch of the bank. • BC is provided with one unit of POT machine. • Agent card is required to operate the machine. • BCs collect the filled application forms/other documents and submit them to the designated branches.

14. E Payment – Nepal Perspective Branchless Banking– Operation Model cotd… • A smart card bearing the photograph & demographic details of the account holder is issued. • To activate the card, the fingerprint of the customer is grabbed. • Signed receipt is issued as a proof of the transaction. • Machine will also prompt voice messages regarding the transactions. • BCs on daily basis transfers data to the bank branch. • BCs are provided certain limit to hold cash, which is insured.

15. E Payment – Nepal Perspective SWIFT: • Founded in 1973 in Brussels, supported by 239 banks in 15 countries. • Operates a worldwide financial messaging network which exchange messages between Banks & FIs. • Bank Identifier Codes (BICs) popularly known as SWIFT codes are issued to all the members. • Messages formatted to SWIFT standard can be read and processed by many well known financial processing system. • Currently majority of international interbank messages use the SWIFT Network.

16. E Payment – Nepal Perspective SWIFT cotd… • As of Sep. 2010, SWIFT linked more than 9000 FIs in 209 countries and exchanges 15 million messages per day on an average. • SWIFT does not hold accounts for its members and does not perform any form of clearing or settlement. • It simply sends payment orders which must be settled via correspondent accounts. • In Nepal NRB & Bank/FIs use SWIFT Network for transfer of funds – both local and abroad.

17. E Payment – Nepal Perspective Concerns/Challenges: • Low consumer/public awareness. • Level of IT development. • Lack of legal framework. • Loss of privacy of personal information and fear of identity theft.