By Nirajan Kandel
The world is swiftly entering a digital era, and banking is not being left behind. Traditional banking is making way for digital-only banking as technology advances and consumer preferences change. In Nepal, this shift is gaining momentum, driven by recent milestones and an increasing number of people adopting digital payment methods. This article explores the significance of embracing digital-friendly banks and highlights key facts that demonstrate the growing prominence of digital transactions in Nepal.
Simplifying Cross-Border Payments:
On June 1, 2023, Nepal and India signed a Memorandum of Understanding (MOU) for a cross-border digital payment mechanism. This agreement opens up new opportunities for seamless transactions between the two countries, underscoring the importance of digital channels in facilitating international payments.
The Rapid Growth of Digital Payments:
The introduction of the first credit card by Nabil Bank (formerly Nepal Arab Bank) in 1990 marked a new era in financial services. This gave birth to the concept of alternative payment methods other than cash. While the transition to a digital regime took some time, the growth has been impressive since its inception. According to data from the Nepal Rastra Bank (NRB), QR-based payments have tripled within a year, with transaction volume rising from 2.38 million in mid-March 2022 to 6.75 million in mid-March 2023. Moreover, the total amount of payments reached Rs 20.77 billion in mid-March 2023, tripling from Rs 7.76 billion in mid-March 2022.
The Rise of Mobile and Internet Banking:
Nepal has witnessed remarkable adoption of mobile and internet banking. The number of mobile banking users soared from approximately 1.75 million in 2016 to 8.35 million in 2019 and further jumped to 18.31 million by mid-July 2022. Similarly, internet banking users expanded from 515,000 in mid-July 2016 to 917,000 by 2019, and reached 1.68 million by mid-July 2022. These figures indicate the growing acceptance of digital banking channels among the population.
The Soaring Popularity of Mobile Wallets:
Mobile wallets have experienced an exponential surge in popularity in recent years. The number of mobile wallets increased from 6.27 million in mid-August 2020 to approximately 15.96 million by mid-January 2023. This remarkable growth reflects the convenience and accessibility offered by mobile wallets in enabling secure digital transactions.
The Government's Support for Digital Payments:
The government has been actively promoting digital payments and has achieved significant milestones in this regard. Currently, 30% of the government's total revenue collection comes from digital payments, and nearly 90% of government transactions are conducted through digital payment systems. In Chaitra (mid-March to mid-April) alone, 7.7 million transactions amounting to Rs 77 billion were processed digitally, further emphasising the importance of digital payment systems.
To thrive in today's evolving financial landscape, Nepal's commercial banks must prioritise certain areas to stay competitive and meet customer expectations. Here are some important areas of focus:
Personal Financial Management Tools:
Banks should integrate user-friendly personal financial management tools within their mobile apps. These tools provide valuable features like budgeting assistance, spending analysis, and customised financial insights. By offering these tools, banks empower customers to effectively manage their finances, set goals, and achieve financial success.
Virtual Payment Cards:
Introducing virtual payment cards within banking apps is essential. These virtual cards offer an added layer of security for online purchases. They come with unique card numbers that can be generated instantly, locked, or deleted as needed. By providing this feature, banks assure customers of safe and secure online transactions.
AI-Powered Chatbots and Customer Support:
Leveraging artificial intelligence (AI) and chatbot technology is crucial for providing efficient and round-the-clock customer support. AI-powered chatbots can handle customer inquiries, offer account information, assist with transactions, and even provide personalised financial recommendations. This technology ensures prompt and convenient assistance for customers.
Instant Loan Approvals:
To simplify the loan approval process, banks should employ advanced algorithms and data analytics. By assessing customer data and creditworthiness in real-time, banks can offer instant loan approvals. This eliminates the need for lengthy paperwork and manual processing, providing customers with quick decisions.
P2P Payments and Splitting Bills:
Enabling peer-to-peer (P2P) payments through mobile numbers or email addresses enhances customer convenience. Banks should facilitate easy money transfers between friends and family. Additionally, offering bill-splitting features simplifies sharing expenses with contacts, further streamlining digital transactions.
Virtual Account Opening:
Streamlining the account opening process is crucial for a digital ecosystem. Banks should allow customers to open new accounts entirely online, minimising the need for physical visits and paperwork. This enhances accessibility and convenience for customers.
The future of banking lies in embedded finance, where financial services and products are seamlessly integrated into non-financial platforms or businesses. Banks that embrace this trend early on can reap the benefits of expanded reach and customer engagement.
As Nepal embraces digital transformation, these focus areas will enable commercial banks to offer enhanced services, build trust, and stay relevant in the digital age. Embracing digital-only banking is not only a necessity but also an opportunity for financial institutions to thrive in the evolving financial landscape. By adapting to these trends, Nepal's commercial banks can shape the future of financial services and contribute to the growth of the digital ecosystem in the country and beyond.
(Kandel is the Deputy CEO of Sanima Reliance Life Insurance Ltd)