Nepal Must Focus on Building Digital Payment Infrastructure – Guru Prasad Paudel”

The world is witnessing rapid research and development in new technologies daily. The use of Artificial Intelligence (AI) has reached its peak, with AI-driven robots now capable of performing most human-required tasks. These technological advancements have also extended to the banking and financial sectors. Developed countries that have already begun leveraging AI are now adopting technologies like blockchain and quantum computing.

Banks and financial institutions in developed countries such as the United States have already begun using blockchain technology, while countries like Singapore have announced plans to implement quantum technology. Neighboring India is also advancing research in quantum technology for the financial sector. However, Nepal’s banks and financial institutions lag behind other countries in technological adoption.

The following is an edited excerpt from a conversation with Guru Prasad Paudel, Executive Director of the Banking and Financial Institution Regulation Department at Nepal Rastra Bank (NRB), regarding NRB’s policies and the state of technology usage in Nepali banks:

Globally, banks and financial institutions are rapidly adopting technology. While Nepal has also seen an increase in technology use, it remains minimal compared to other countries. What is your view on the current state of technology adoption?

Banks and financial institutions are among the leading entities adopting technology globally, and Nepal is no exception. Nepali banks have already adopted technology to serve their customers. You mentioned ‘blockchain’ and ‘quantum technology.’ While these technologies are currently beyond our imagination in Nepal, services based on Artificial Intelligence (AI) have already been introduced. Quantum technology is new even to the world.

The central bank (NRB) has been planning to increase AI usage. In the monetary policy of the current fiscal year, we have announced efforts to study the impact of technology and identify ways to mitigate risks. The government of Nepal has also issued a concept note on AI usage, identifying the financial sector as an area where AI usage could expand. As the global wave of Central Bank Digital Currency (CBDC) grows, NRB has already established a department to work on it. Additionally, NRB is focused on developing digital payment infrastructure.

You mentioned plans to study technology usage through monetary policy. Have any frameworks been developed regarding technology adoption in Nepali banks and financial institutions?

Yes, frameworks have been developed. Technology is dynamic and not confined to specific areas. The banking technology used by Nepali banks and financial institutions meets international standards. However, our infrastructure is comparatively underdeveloped. Work is ongoing in areas like digital payment infrastructure and the National Payment Switch. Nepali banks began using ATMs in the 1990s through joint ventures with international banks.

Since then, Nepali banks and financial institutions have been using technology extensively to serve their customers. While the usage may still be minimal compared to developed economies, we have made progress.

Although Nepal is a landlocked country, technological imports and exports are not restricted. However, the level of technology adoption in Nepal’s financial sector is still below expectations. What are your thoughts?

Last year, NRB introduced ‘Cyber Resilience Guidelines,’ directing banks and financial institutions to prioritize cybersecurity. The use of mobile banking, internet banking, wallets, and QR codes shows that Nepalis are tech-friendly.

Banks and financial institutions in developed countries have increased their use of AI. Similarly, Nepali banks have also started using AI chatbots. NRB’s upcoming operational procedures will outline specific plans for AI usage, enabling its application in areas such as fraud detection. However, debates on AI usage need to begin in Nepal’s banking sector.

You briefly mentioned quantum technology. Singapore recently announced plans to introduce quantum technology in its financial sector. When will NRB start planning for such advancements?

First, we must establish digital payment infrastructure (DPI). Affordable internet access nationwide is essential since digital banking and technology usage are unimaginable without the internet. Clear policy frameworks for cloud usage are also necessary, as not all financial institutions and wallet companies can maintain their own servers.

Once the necessary infrastructure for complete technology adoption is in place, NRB can push forward on these topics.

India has already allocated ₹8,000 crores for quantum technology research in 2020. When will Nepal start research on such advancements?

In 2019, the government of Nepal introduced the ‘Nepal Digital Framework,’ envisioning Nepal as a digital nation through 80 initiatives across eight sectors. This included plans to establish a ‘Digital Foundation’ within three years. However, many targets remain unachieved to this day.

In such circumstances, considering quantum technology adoption is far-fetched. Before digital banks, we must focus on developing digital banking services and infrastructure. Only after this foundation is established can we move forward with emerging global technologies.