A Nepali payment system operator says that if all goes well, Nepalis will be able to scan and pay in India from the beginning of 2025.

The process from Nepal’s side has been completed, and the operator is waiting for the Indian authority's nod to begin the system, which is expected to become a game changer in cross-border digital transactions.

“We have completed all preparations from the network side. India is making some changes to its payment system. So unless India provides the green signal, we cannot start,” said Paras Kunwar, chief operating officer of Fonepay.

In September last year, Fonepay Payment Service Ltd, Nepal’s largest payment network and NPCI International Payments Ltd (NIPL), the international arm of the National Payments Corporation of India, agreed to launch the first QR code-based payment solution between Nepal and India.

This historic unveiling occurred at the Global Fintech Fest 2023, a global gathering of fintech visionaries, thought leaders and innovators.

“India’s NPCI International Payments has given a timeline till December-end to complete the process on their side,” said Kunwar. NPCI is working on anti-money laundering checks and charges, among others.

The central bank allowed Nepali payment system operators to process digital retail payments in any country for purchasing goods and services through person-to-merchant (P2M) on June 27.

However, no Nepali operator has shown an interest.

This provision allows the Nepali payment system operator to agree with any PSO in any country to launch the quick response (QR) code payment system for the citizens of both countries to make purchases.

As Nepal Rastra Bank has imposed rules and regulations for banks to set a daily transaction limit of IRs100,000 while making QR code payments in India, some banks have implemented the limit while others are still in the process, said Kunwar.

The banks that complete the limitation process can start transactions once the QR payment operation starts.

Kunwar said that in addition to India, Fonepay has reached an agreement phase with Chinese payment apps like Alipay+ and UnionPay for QR code payment.

“To complete the agreement, getting approval from Nepal Rastra Bank and completing technical integration might take six months, optimistically, for Chinese nationals to make QR code payments in Nepal,” said Kunwar.

In the first phase, Chinese nationals will be allowed to make QR code payments in Nepal. In the second phase, Nepalis will be allowed to make QR code payments in China.

“It might take time for Nepalis to scan and pay in China,” Kunwar said.

On March 1, Indians in Nepal were allowed to make payments through their mobile phones.

The QR code system has become a boon for tourists, especially those from India.

It has reduced the hassle of carrying cash as the Nepal government has banned all Indian notes above the denomination of 100.

According to Fonepay officials, with the Fonepay service available in Muktinath and trekking areas connected to Pokhara, Indian tourists are increasingly scanning and paying.

The value of transactions made by Indian nationals in Nepal through QR code payment has grown and typically increases during the weekends.

Indians are making Rs6 million in transactions daily, on average, through QR code payments.

“On weekends, it increases to Rs8 million daily,” said Kunwar.

In addition to neighbouring countries, Fonepay said it is in the agreement phase for QR code payment with South Korea, Singapore, Thailand, and other Southeast Asian nations where tourism flows are high.

According to the central bank report, QR code payments increased to Rs61.39 billion in mid-August to mid-September this year from Rs36.21 billion in the same month last year.

The number of transactions also increased to 21.57 million from 11.79 million during the review period.

Over the past decade, Nepal has witnessed a surge in digital adoption. According to the central bank report, the 4G/LTE services now cover 739 of 753 local units across 77 districts in Nepal.

The smartphone penetration rate is 72.94 percent, and 38 percent of households have access to Internet services.

The cost of connectivity has also dropped significantly from $2.25 per gigabyte in 2019 to $0.46 per gigabyte in 2023.

Thus, as digital technologies become accessible and more affordable, the digital divide, especially the rural and gender divide, is narrowing.

The central bank report said that opportunities still exist for digital innovators, as 50 percent of adults from rural areas and 40 percent from urban areas still lack an account at a financial institution.

Nepal has experienced many innovations, especially in the digital payments sector, after the Covid-19 pandemic.

New payment instruments have evolved, changing the way people transact and bank.

Such instruments are Quick Response (QR) codes, connectIPS (Instant Payment System), Cardless Withdrawal, Smart Point-of-Sale (POS), Contactless Cards based on Near-Field Communication (NFC) technology, Virtual Cards, and Digital Lending.

Nepal has further operationalised the Retail Payment Switch (RPS) to settle retail payment transactions within the nation, and the development of the National Payment Switch (NPS) is in progress.