The outbreak of COVID-19 and the consequent fear of using contaminated currency aided the country’s shift from completely paper-based economy to a somewhat cashless state.
Digitization has heavily influenced consumer behavior, which has resulted in new ways of living. Electronic payment has become increasingly trustworthy because of the increased acceptance of online services, as well as the expansion of the range of providers and the size of their delivery networks. While in the initial stages of mankind, the transactions took place in the form of barter system in which products were traded, it was gradually replaced with currencies where products were exchanged for money. However, with evolvement and development in technology and global financial system, the idea of cashless transaction emerged. Cashless transaction is the process of development in which no physical cash is printed or available, rather, all are in digital forms.
The Growing Trend in Nepal
Prior to COVID-19, the option of the cashless market in Nepal economy was far from reality. While there existed few e-payment platforms, people using them were in the minority. However, with the onset of the COVID-19 pandemic, when all physical activity had to be restricted including the transaction of money, the concept of a cashless economy became heavily popular. According to Nepal Rastra Bank (NRB), payments using QR (Quick Response) codes have increased recently. The reports showed that while in 2018 digital transaction amounted to NPR 712 billion, a data in 2019 showed the numbers witnessed an unprecedented growth of whooping 118% to reach NPR 1,559 billion. According to a study released by the NRB, QR code payments totaled NPR 1.71 billion between January 14 and February 12, 2021, compared to NPR 1.24 billion the previous month. The month had 535,790 transactions, which is an up from 372,176 the month before. Connect IPS, mobile banking, internet banking, and mobile wallets have all seen a growth in transaction in recent months. Between January 14 and February 12, 2021, over NPR 163.87 billion was transacted through digital payments using connect IPS, mobile banking, internet banking, QR codes, and mobile wallets, compared to NPR 153.17 billion between December 16, 2020, and January 13, 2021.
According to the bank’s data, transactions worth more than NPR 104.39 billion were made using connect IPS between January 14, 2021, and February 12, 2021. During that time, Connect IPS was used 1.545 million times. From January 14, 2021, to February 12, 2021, mobile banking transactions totaled NPR 385.970 million, while from December 16, 2020, to January 13, 2021, transactions totaled NPR 33.15 billion. From January 14 to February 12, e-banking was used 31,482 times, resulting in transactions worth NPR 9.22 billion. From January 14 to February 12, Wallet transactions grew to NPR 9.94 billion, up from NPR 9.65 billion from December 16, 2020, to January 13, 2021. From December 16, 2020, to January 13, 2021, e-commerce transactions were NPR 843 million, rising to NPR 932 million between January 14 and February 12, 2021.
Are We Ready?
The growing figures indicate the epitome of possibilities that the Nepali market has when it comes to the use of technology for monetary transaction. The rapid development of technology followed by the growing access to mobile and telecommunication and increase in youth population has fueled possibilities of digital transaction in the country. Meanwhile, the figures highlight that the pandemic changed the way the people in Nepal chose to carry out transactional process. The individuals find it more convenient to make transactions online and not having to carry cash with them. The longer the pandemic lasts, people are more likely to move to a completely cashless ecosystem. People’s behavior has altered because of COVID-19, and this change is likely to last. However, the currency will never completely disappear because grey and black markets will always rely on banknotes. Although a complete cashless payment system may not be attainable in the near future, ongoing improvement in technologically assisted payment systems will undoubtedly increase society’s access to cashless payment.
Benefits and drawbacks of Going Cashless
Undoubtedly, the cashless policy empowers the sector, resulting in an increase in employment and a decrease in cash-related frauds. Cashless economy has various advantages. While people carrying out transactions no longer must retain, in the physical paper, the overall transaction can take place using technology and devices. In fact, the promotion of the use of mobile payment services is one where a cashless economy can be established using the mobile platform. Another advantage of going cashless is that it helps banks’ cost on cash management. As a result, banks will have higher profit margins and will be able to transfer their resources to more successful ventures that would further expand the economy and raise the living standards of the global citizens. It is evident that with the concept of cashless economy, transactions are now faster, easier, and safer compared to when people were required to transact with a paper. Additionally, in a cashless society, the government and banks will have more capacity to monitor all transactions.
While a cashless economy has numerous benefits and advantages, it also has its own share of drawbacks. For instance, in a situation where suitable security procedures are compromised, cyber thieves would find it easy to defraud the defraud bank clients. Financial fraud is a massive illicit activity worth billions of dollars around the world and to combat such financial frauds, institutions must invest extensively in strengthening preventive measures. When it comes to high-value transactions, cash is completely irrelevant. However, it is important to understand that in the short term, the acceptance of one type of cashless payment will have an impact on another type of cashless payment. Only in the long run will the influence of implementing cashless payment on economic growth be seen.
Future Possibilities
A cashless society is one in which financial transactions are conducted using digital information instead of the actual banknotes or coins. The ease with which the instruments of cashless concept can be dealt with, the speed and convenience of the process, and more reliable safety and security policies are just a few of the benefits that are encouraging people to shift to cashless payment. Cashless transactions are becoming the new standard as the world adapts to the digital age. The internet penetration rate stood at 38.4% of the entire population at the beginning of 2022. The internet penetration rate has improved by 1.7% across the country as it was 36.7% at the beginning of 2021. Although residents of the Kathmandu valley may believe that most sectors are digitizing their payment systems, this is not the case for those living outside of the city. Other than Kathmandu, digital payment methods are not widely used, however, the adoption of cashless payment methods is gradual in other regions of the country. This can be highlighted by the fact that digital payments accounted for just 30% of total transactions outside the Kathmandu valley. However, the rapid rise of digital payment systems suggests that by improving existing infrastructure and developing new ones, Nepal will be able to smoothly transition to a cashless economy in the future. Increased online shopping trends, small businesses using online payment collections, and schools accepting online fee payments are just a few examples of expanding digital transactions. Even though the country is lacking advanced technology, systems and necessary legislation, the outcomes show positive possibilities in the days to come. The reality is that the growth of opportunities of cashless Nepal is inevitable and possesses a bright future in the upcoming days.
Namuna Shrestha is a Master's in Business Administration (MBA) graduate from Tribhuvan University with a major in Finance. She is interested in Financial Planning, Investment Management and Entrepreneurship. She is currently working as a beedtern in beed management.
