The future: Nepal entering a cashless economy

In recent years, I noticed a surge in the use of mobile banking and digital transaction in Nepal. A few years ago, the use of the digital platform for transactions was a lot less and quite limited. I still remember the days when my friends and I used to exchange cash after sorting out the amount we were required to pay in a restaurant. But the trend of using cash as a method of payment is gradually changing and shifting to digital transactions which makes me believe that the future of transactions is a cashless payment method and Nepal is moving towards becoming a cashless society. In this article, I will be looking into the trend of digital transactions, the benefits and downsides of going cashless, and the future of a cashless economy in the context of Nepal.

But before I dive into detail, I would like to briefly introduce a cashless payment method. A cashless payment method utilizes digital platforms like QR (Quick Response) code or mobile banking and credit or debit cards for monetary transactions and does not involve physical money whereas, in a cashless economy, payment merchants make transactions through different means and not paper cash.In a cashless economy, the use of physical money is minimal.

The trend of cashless transaction in Nepal

The use of digital payment systems and credit or debit cards has significantly increased in Nepal in recent years which is evident by the data provided by the Nepal Rastra Bank (NRB). Digital transaction or cashless payments in 2018 was NPR 712 billion while in 2019, the amount increased to NPR 1,559 billion. [i] This is an increase of NPR 847 billion in the timeframe of a year. Some of the prominent companies that provide digital monetary transaction services like eSewa and IME Pay observed a substantial rise in terms of users. There was a 35% increase in the number of users of eSewa bringing the user base to 3.5 million people since the start of the COVID-19 pandemic whereas there was a 25% increase in the number of users of IME Pay between March and August 2020.Companies like eSewa and IME Pay has made the service simple and easy to use and users have different avenues to make payments like a phone app, SMS and in the case of eSewa, a registered eSewa agent.[ii] The substantial increase in the number of users indicates the growth potential of digital payment platforms.

Cashless payment is convenient for many leading to an increase in the use of digital monetary transaction platforms, but I believe that the COVID-19 pandemic has also played a crucial role to accelerate the use of cashless payment methods. One of the major reasons for people to shift to a cashless payment method is the fear of transmission of the coronavirus through physical money. It is believed that the disease can stay on cash for days. Research by the Australian Centre for Disease Preparednessmentioned that the coronavirus can survive for at least 28 days on both paper and polymer banknotes. I believe, the other reason for going cashless is because people tend to avoid crowded places during the pandemic to be safe from the disease which might have led many organizations and sectors to initiate digital payment systems.

The pandemic has caused the remittance sector, the insurance sector, school, hospital, and government payments to go digital. In the case of the remittance sector, as per the directive of NRB, Nepali people living abroad can send remittances directly through digital payment platforms like mobile banking, internet banking, electronic card, digital wallet, etc. In addition, the Inland Revenue Department (IRD) since mid-February2020 provided a 10% VAT refund for digital transactions. Digital payment platforms and going cashless can be convenient but there are both benefits and downsides of using digital payment methods and moving to a cashless economy.

The benefits and downsides of digital payment systems and cashless economy

There are several benefits of adopting digital payment systems and a cashless economy. One of the major benefits of going cashless is the safety and security factor. By using digital payment methods or going cashless people will not have to worry about theft and robbery while carrying large sums of money fortransactions.[v]Further,talking about transactions of large amounts or just general transactions, digital payment systems provide transparency as they enable users to have records of the transaction which may decrease the issues of tax evasion and other fraudulent activities.

Moving on, as I was researching the possible benefits of digital payment systems and a cashless economy, I was quite intrigued to find out the connection between the geography of a country and benefits provided by cashless payment methods.Nepal has hills and mountainous terrains, which make it difficult for people living in such areas to get access to financial institutions for transactions and/or for financial institutions to deliver cash.Ibid [i] Therefore, through digital payment systems and a cashless economy, people in every part of the country can have access to financial services and easily make simple transactions, which is advantageous for all.  While there are benefits of digital payment systems and a cashless economy, we should consider some of the downsides of it.

One of the downsides of a cashless economy is a hurdle in financial access. Although earlier, I did mention that a cashless economy can be a gateway of financial services for people living in high hills and mountainous terrains, we should consider the availability of the internet and access to technology in such areas. A recent report (14 January – 12 February 2021) by Nepal Telecommunication Authority (NTA)mentioned that the total broadband subscription is 84.09% among which the fixed broadband (wired) subscription is 21.85%, the fixed broadband wireless subscription is 0.77% and the mobile broadband subscription is 61.47%. The remaining15.91% of the population does not have any type of subscription and is yet to have access to the internet. Such a situation can lead to a digital divide in accessing financial services because a certain percentage of the population will not have access to digital payment systems.[i]

The other downside of digital payment systems is the cybersecurity issue. With the rise in digital footprint, as people shift to digital payment systems and a cashless economy, the risk of exposure of personal and financial information will also increase, which can lead to loss of money and valuables and a major reason behind it is because digital payment systems are dependent on several entities. Digital payment platforms are dependent on application developers, telecommunication providers and system operators and issues in one of the components can have an impact on the whole digital payment system.Hence, I believe additional investment and spending would be required to make a solid infrastructure of digital payment systems. For a smooth transition to a cashless economy, the concerned authorities should consider various other factorsin addition to the issue of cybersecurity.

Moving Forward

The use of technology in almost every sector along with the financial sector is rising in Nepal and the world. Growth in the digital payment platform has been quite impressive in recent years in Nepal. But as we move forward, I believe there are a few factors that should be considered for a transition to a cashless economy.

A major factor that should be looked into for Nepal to move into a cashless economy is the pace of adoption of digital payment methods for people living in different parts of the country. Although people living in Kathmandu valley might feel like most sectors are digitizing their payment methods, it is a bit different for people living outside Kathmandu. Digital payment methods are not much prevalent in other cities and areas other than Kathmandu because the pace of adoption of cashless payment methods is slow in other parts of the country which is evident as digital payments only accounted for 30 percent of the total transactions outside Kathmandu valley[vii].

To close the gap between Kathmandu and other parts of Nepal in the case of adoption of digital payment methods and to not limit the concept of cashless payment to certain places it is important to aware people and provides digital literacy about the digital payment systems and methods. Digital literacy and awareness can be provided through in-person campaigns after the COVID-19 crisis subsides. Meanwhile, people can be informed about digital payment platforms through advertisements in social media and TV and virtual campaigns conducted by banks, e-commerce websites, and companies providing digital payment services.

Another factor, I believe is important and should be considered for Nepal to shift to a cashless economy is studying the current situation of access to technology and the internet in all parts of the country. There are reports that provide data and information regarding the topic but a collaborative and thorough study by the financial institutions, the application developers and telecommunication service providers can help decide on the necessary actions to be taken for the future and prevent a digital divide. Although there has been immense growth in the digital payment platform, I still experience the need to carry cash when I visit a kirana shop near my house or when I go to a local restaurant and such practice can be easily overlooked.  Therefore, a thorough study and research can help take necessary actions for a smooth shift to a cashless economy.

There is still a lot of improvements to be done for Nepal to go cashless. But a speedy growth in the digital payment systems and fintech sector signals that continuous effort, time and hard work are being put into for the transition. I am quite certain that with the improvement of already established infrastructures and the development of new ones Nepal can seamlessly transition into the future, a cashless economy.