Indians were allowed to pay in Nepal through mobile phones on March 1

Kathmandu — Nepali citizens will have to wait several more weeks before they can use the “scan and pay” feature in India, despite the central bank’s earlier approval for digital retail payments across borders.

In mid-July, Nepal’s central bank permitted local payment system operators to facilitate person-to-merchant (P2M) digital payments in any country. However, no Nepali operators, apart from those partnering with India, have pursued this opportunity.

Nepal’s Fonepay, a payment service operator (PSO), has announced a partnership with India’s NPCI International Payments to launch a cross-border QR code payment service within the next couple of months. According to Paras Kunwar, the chief operating officer of Fonepay, “We estimate about a month and a half to complete all technical processes before launching the QR code payment service in India.” The trial phase has been completed, but both Indian and Nepali banks must be fully prepared before going live.

Fonepay is working on two key technical aspects of the QR code payment system: ensuring compliance with transaction limits and implementing geo-tracking features to confirm that transactions occur within India.

The central bank has established restrictions on these transactions, limiting Nepali citizens to a maximum of IRs 100,000 per month while in India. Banks are currently setting these transaction limits. Kunwar emphasized, “The banks are all set for the launch of the QR code payment for Nepali citizens in India. Our trial transaction has been successful.”

Gyanendra Prasad Dhungana, former president of the Nepal Bankers’ Association and CEO of Nabil Bank, confirmed that a successful trial transaction took place in Mumbai last week. “We are ready to go live anytime, pending the signal from PSOs and the central bank,” he stated.

Recent data from the central bank reveals a significant rise in QR code payments, which surged by 104.81% to Rs 61.73 billion from mid-June to mid-July compared to the previous year. The number of transactions also increased from 9.76 million to 20.82 million during this period.

On March 1, India allowed its citizens to make mobile payments in Nepal, a development celebrated as a significant step in cross-border digital payments. This advancement has been particularly beneficial for students and individuals seeking medical treatment in India. The QR code system has made transactions easier for Indian tourists, eliminating the need for cash due to Nepal’s restrictions on Indian currency notes exceeding 100.

The central bank issued a circular on June 27 permitting a merchant-to-person (M2P) payment system, enabling PSOs to partner with counterparts in any country. However, these agreements require prior approval from the central bank.

Over the last decade, Nepal has seen a dramatic increase in digital adoption. The central bank reports that 4G/LTE services now reach 739 of the 753 local units across 77 districts, with a smartphone penetration rate of 72.94% and 38% of households having internet access. The cost of connectivity has also decreased from $2.25 per gigabyte in 2019 to $0.46 in 2023.

Despite this progress, opportunities remain for digital innovators, as approximately 50% of rural adults and 40% of urban adults lack access to financial institutions.

Since the COVID-19 pandemic, Nepal has witnessed numerous innovations in digital payments, with new instruments like QR codes, Instant Payment Systems, Cardless Withdrawal, and more transforming the way people transact. The country has implemented the Retail Payment Switch (RPS) for domestic retail transactions, and development of the National Payment Switch (NPS) is ongoing.

The central bank notes that physical banking is evolving into phygital banking, positioning Nepal on a path toward a fully digital banking landscape. As of mid-July 2023, 37 payment institutions were licensed, including 27 payment service providers (PSPs) and 10 payment system operators (PSOs), with all commercial and development banks also licensed to operate as PSPs.