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Fintech Industry In Nepal

The payment industry in itself keeps on evolving with the ever-changing consumer sentiments and the needs of the businesses. Innovations in this space is thus a continuous process, while the adoption of each of new development takes its own pace to penetrate, here are such trends which are changing the way Nepal pays.

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Market Overview

The recent growth of bank branches in Nepal is unprecedented in terms of providing access to financial services on a nationwide scale. However, despite the efforts of the banking industry, more than 70% of the population still remains without access to formal financial products and services. The Government of Nepal and Central bank of Nepal, Nepal Rastra Bank are encouraging the banking industry to promote financial inclusion to improve livelihoods of the financially disadvantaged. There is no doubt that banks and financial institutions are keen on rendering branchless banking services to the masses but at the same time they are also constrained by financial and technological constraints of sustainably running such services. FinTech Industry in Nepal

Digital Payment Services and Mobile Technology has evolved in the recent years as the most preferred alternative channel to provide banking and financial services. Mobile telephony introduced less than 20 years ago, in Nepal has seen unparalleled growth and today it has penetration of more than 80% of the population and within a couple of years the reach would be almost 90%. Realizing the opportunity of providing financial access to un(der) banked population, Nepal Rastra Bank recently added mobile device as an approved tool for the financial transactions and introduced Payment and Settlement Bylaws, 2015 to issue license for establishment of institution/mechanism operating payment related function and their related instrument and transaction. This provision shall also be applied to the institution/mechanism established in Nepal and operating abroad as well as to those established abroad and operating in Nepal.

Both the developed world and developing world are simultaneously taking up Digital Payment Services and Mobile Technology suitably for financial transactions. As per CGAP’s report financial transactions through mobile technology has already crossed US$ 1 trillion in 2012 and further growth is very promising. Payment giants like VISA International and Master Card International have already entered into mobile based products and likewise we are seeing a lot more Financial Institutes also creating innovative and efficient financial products.

Asian fintech companies continue their growth and overseas expansion. The Chinese fintech firm Ant Financials’ payment arm Alipay has recently started partnering with Finnish mobile payment provider ePassi to launch mobile payments for shopping and services on Finnair’s flights, therefore, marking a significant milestone in the development of mobile payment services in air.

Alexander Yin, chief financial officer of TCG, the parent company of the Finnish mobile payment provider ePassi, said: "In the fintech and mobile Internet sectors, China is a global leader thanks to business, innovation, market size and population density." Indeed, while on the global scale fintech is growing rather rapidly, the industry is absolutely booming in Asia and particularly in China. Last year was the year fintech became legit in the region, with everyone from banks to governments starting to pay more attention to the industry development.

According to a report by KPMG and the Australian investment firm H2 Ventures, five of the world’s top 10 fintech firms are from China. Moreover, EY reports China being the homeland of fintech unicorns - eight of the world’s 27 fintech startups worth more than $1 bln are from China.

Last year Asia surpassed the US and Europe on fintech investment, with investment volume by the end of the year reaching $1.2 bln versus $900 mln in the US and $200 mln in Europe.

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Trends of Digital Payments

The payment industry in itself keeps on evolving with the ever-changing consumer sentiments and the needs of the businesses. Innovations in this space is thus a continuous process, while the adoption of each of new development takes its own pace to penetrate, here are such trends which are changing the way Nepal pays.

Shift to Mobile

It makes economic sense for businesses to have a mobile first/mobile ready platform. Payment system providers are now offering ready-to- integrate development kits for mobile app companies to deliver a native payment experience.

Wallets & Banking Apps

Consumers are now even ditching their credit/debit cards when it comes to making a purchase online, all thanks to wallet and banking apps which allow swift checkout experience. Infact, we have already integrated a number of mobile wallets & banking apps to allow companies to provide this experience.

Wallet & Point of Sale (Pos) Integration

Another notable development that is happening with the onset of the wallet adoption is the usage of these instruments beyond the digital space. Restaurants, brick and mortar stores which depend upon PoS systems for payment collection can also give wallet users an option to use the same instead of swiping their bank cards.

Government Support

Also, to keep up with the pace of the global economy, the Government too is pushing out policies to encourage a movement towards a cashless society. This is happening through various initiatives.

Contactless Payments

Payments via NFC is a development that has already come into practice. However now contactless payment is the next step, where in tangible scenario customers can make payments by flashing their card at the terminal.

Cashless Society

A cashless society describes an economic state whereby financial transaction are not conducted with money in the form of physical banknotes or coins, but rather through the transfer of digital information (usually an electronic representation of money) between the transacting parties.

Underbanked Customer

“The underbanked” as customers that use alternate financial services such as check- cashing in addition to traditional banking accounts, which the majority of underbanked customers have. The underbanked are greater users of mobile banking services than those with higher incomes but underbanked often rely too much on their mobile devices to meet their banking needs.

Unbanked Customer

The “Unbanked Customer.” are adults who do not have their own bank accounts. As those adults without an account at a bank or other financial institution and are considered to be outside the mainstream for one reason or another. Unbanked persons also typically do not have insurance, pensions or any other type of professional money-related services.

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Products and Services Prevailing in FinTech Industry

Payment Service Providers (PSP) in Nepal

These are the organizations privately owned to provide service in the field of FinTech via E-Wallet based system in build support with mobile banking to cover unbanked and underbanked consumers in the country.

"List of E-Wallets in Nepal"

  • E-Sewa
  • Khalti
  • E-Prabhu
  • IME Pay
  • I-pay
  • NepZy
  • QPay
  • Online Payment

"Services Offered in E-Wallet"

  • TopUp/ Mobile Recharge
  • Utilities Bill Payment
  • Electricity Bill Payment
  • Drinking Water Bill Payment
  • Internet Service Bill Payment
  • TV Bill Payment
  • School/ College Bill Payment • Bus- Ticket Booking
  • Airlines Ticket Booking
  • Movies Ticket Booking
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A Digital Fund Transfer Operator (FT operator)

Digital Fund Transfer shall facilitate its customer to transfer funds from one bank to another instantly in real time. For this, a system shall be built over Immediate Payment System for transferring funds instead of the current practices such as Real Time Gross Settlement (RTGS) or National Electronic Fund Transfer (NEFT) where the transactions are settled in batches and aren’t settled instantly.

As an operator, it has a strategic objective to be an umbrella organization for all digital transactions in Nepal. Being a digital payment system, it will be available round the clock and across public holidays. Unlike, traditional mobile wallets and inter-bank fund transfer system, which takes a specified amount of money from user and stores it in its own accounts - it intends to withdraw and deposit funds directly from the bank account whenever a transaction is requested. In order to transfer funds from one bank to another, the source bank and destination bank should be participants within the payment/financial switch of the operator. The operator will use Virtual Payment Address (VPA) as a key to the fund transfer system. VPA will replace the need for bank account details. The VPA address will be unique for every participating bank customers. The address will separate bank customers, as the suffix for every bank will be registered, for e.g. abc@bank_name.com. The VPA address assigned to the customer by the bank will be verified through the Mobile Money Identifier that will be generated randomly which binds or identifies the person and his/her bank account. One doesn’t need to know the bank account number of the beneficiary making it more secure.

For participating in this system, the user should be registered via Mobile number. The third-party transfer won’t be possible through this system. This system should bring huge benefit to both bank and their customers by creating a huge network and ease for banking to ALL.

Transaction Facilitate
  • Withdraw Cash from Bank B using cheque issued by Bank A.
  • Deposit to Bank B using cheque issued by Bank A.
  • Deposit in Account of Bank A from Bank
  • Cheque scanning and processing
  • Message will be ISO 8583 format and encrypted •Request sent for verification and confirmation
Requirement for the Banks
  • Reconciliation
  • Handover of Physical Cheque and deposit slip
  • Cash Transfers
  • Limit of deposit and withdrawal Amount

Benefits

Accelerated Clearing

Allows customers to deposit cheques from anywhere using their smartphones resulting in faster clearing cycles and smooth operations.

Improved Accessibility

Helps establish Point-to-Point connectivity between the bank and its customers leading to better relationship and more business opportunities

Greater Market Share

Helps bank reach the untapped markets by connecting various branches and customers across remote locations

Improved Customer Experience

Allows banks to differentiate from its competition by offering an enhanced customer experience.

Competitive Analysis

Currently in Nepal, Nepal Clearing House Ltd. (NCHL) is the only banking and financial technology- oriented service provider that is granted the license of Payment System Operator by Central Bank, Nepal. Electronic Cheque Clearing (NCHL-ECC) and Interbank Payment System (NCHL-IPS) are the national payment systems that are currently in operation.

Joining this new FinTech operator network would eliminate the need to maintain and manage any expensive hardware and software as the Service Operator provides a fully cloud based managed service experience enabling banks to focus on the business and operational roll out. Any bank and financial institution which has a standalone mobile banking system or ‘brand’ at present can only provide a limited service to existing customers but once the Service Operator opens the door via its connection to the switches VISA network, National Payment Network (NPN), Nepal Payment Switch (Neps), Smart Choice Technology (SCT) and any other means, it will enable banks to cater to unbanked customers through its mobile wallet and provide an opportunity to convert them to their customer base as well as cross sell other products through this Service Operator gateway/switch.

Risks & Securities

Arrangement for electronic payment system and safety

  • Authentication: A method to verify the buyer’s identity before payment is authorize and customer has to enter a transaction PIN to imitate the payment.
  • Encryption: A process of making messages unreadable except by those who have an authorized decryption key.
  • Integrity: Ensuring that information not to be intentionally or unintentionally alter or destroyed during transmission.
  • Alert: When the transaction is successful or unsuccessful receives and alert message.

Policy of disclosing and related arrangement for keeping data secure from misuse, loss, damage, destruction, theft, etc.

  • Data access controls
  • Damage & Loss Control via
  • Hardware or System Malfunctions
  • Human Errors
  • Software Corruption
  • Virus and threads
  • Natural Disasters
  • Protect data in transit with IP security
  • Encryption

References


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