Nepalese citizens will be able to use India’s Unified Payments Interface (UPI) by May in hopes the real-time payments system will drive the country’s digitalisation of cash transactions and catalyse the process of financial inclusion.
The international arm of the National Payments Corporation of India (NPCI) – an umbrella body for retail payments and settlement systems established by the Reserve Bank of India (RBI) and Indian Banks’ Association (IBA) – has announced that it is partnering two companies to roll out its UPI in its neighbour country.
The NPCI expects that the platform will ‘further the vision and objectives’ of Nepal’s government and central bank Nepal Rastra Bank (NRB).
The UPI, which was launched in India in 2016, takes the form of a mobile app designed to send or receive money while eliminating the need to enter bank details or other sensitive information during a transaction. It enables P2P (person to person) and P2M (person to merchant) transactions and will allow ‘last-mile consumers in Nepal to reap the benefits of an open interoperable payments system driving immediate payment transfers between bank accounts and merchant payments in real-time’, according to the NPCI.
India has a population of about 1.38 billion, while its mountainous neighbour has about 30 million citizens. An estimated 67.3 per cent of Nepalis have at least one bank account, meaning that about one third of the population are unbanked, according to the Financial Access Report 2021 published by the NRB last August. This report also revealed huge gaps in the number of accounts between males and females, and in rural and urban areas. Male account holders outnumber females by almost two to one. There are 251 accounts per 1,000 inhabitants in rural municipalities compared to 1,930 in sub-metropolitan cities and 3,296 in metropolitan cities.
Nepal’s financial access challenges
The relatively high number of smartphone users in Nepal might serve as fertile ground for UPI’s growth in the country. Smartphone penetration reached 65 per cent in 2020 and the number of mobile-cellular subscriptions was equivalent to 131 per cent of the total population. In 2021 the number of mobile-banking users increased by 25.5 per cent compared to the previous year and reached 14 million. The number of internet banking users increased by 12.5 per cent and reached 1.2 million, according to the NRB’s most recent ‘Payment Systems Oversight Report’.
By 2021 India had become global leader in real-time payments, according to a report by the Economist Intelligence Unit, which refers to India as the prime example of the shift to modernise payments systems. According to the NPCI, UPI enabled 39 billion financial transactions in 2021 amounting to commerce worth $940 billion (about £721bn), which is equivalent to about 31 per cent of India’s GDP.
The NPCI states that it will work closely with Indian fintech Manam Infotech and Nepalese payment system operator Gateway Payment Service in order to deploy UPI in Nepal with all ‘functionalities and features’ presently available in India. “We are all set to launch the system after three months,” Anu Maity Shakya, marketing head of Gateway Payment Service, told the Kathmandu Post.
The move aims to enable cross-border remittances. Guru Prasad Poudel, NRB’s executive director, told Kathmandu Post that the system would give the Indian currency direct access to Nepalese banks. “Although we have not permitted the system on a reciprocal basis, it’s on a priority [list] of the central bank,” Poudel said. “Nepal currently imposes some restrictions on sending money outside the country.”
While the NRB makes no mention of UPI in its ‘Strategic Plan 2022-2026’, it does list a ‘digitalised financial ecosystem’ among its five priorities for the five-year period.
The central bank states that it has overseen ‘many’ payment digitalisation initiatives and aims ‘to motivate innovation and foster competition through interoperability of payment systems’. The NRB also lists seven ‘strategic pillars’, describing how effective oversight would ensure the ‘soundness’ of the payment system: ‘Regulations related to interoperability, agent network and new modes of digital payment will deepen financial inclusion, foster innovation and competition.’
‘India launches e-Rupi for “leak-proof” digital welfare payments’ – our news story (2 August 2021) on India launching a cashless and contactless instrument for government welfare payments
‘State payments via QR code take step forward in rural India’ – our news story (28 August 2020) on a regional government (Andhra Pradesh) launching an initiative to promote digital payments and drive financial inclusion