Fonepay is boosting Nepal's digital economy with its online payment system.

BY Priyanka Mandal

Fonepay has taken over most of the payments in Nepal. Its QR code payment system is available in almost every sector, from small corner stores to large hospitals. Consumers in urban areas, in particular, prefer Fonepay over other payment methods due to its convenience, speed, and security. QR code payments eliminate the need for change and allow for immediate verification of transactions by both sender and receiver. As a result of Fonepay's widespread use, the use of other forms of payment like Visa and Master cards has declined, providing a significant boost to the national economy. 
There are differing opinions on what Fonepay actually is. Some people believe that all QR codes are Fonepay, while others consider Fonepay to be a digital wallet similar to eSewa and Khalti. However, these perceptions are not true. 
According to Fonepay's CEO, Diwas Sapkota, Fonepay is not a digital wallet or payment system, but rather a network that connects various parties involved in payments. Fonepay serves as an interface that enables interoperability between different e-payment systems such as eSewa and Khalti, as well as between e-payment systems and the banking system.
Fonepay has established partnerships 

with over 60 partners, which covers almost 95% of total banks and wallet companies, providing extensive coverage in the majority of sectors. The company's business has grown significantly, but even it did not anticipate such tremendous success in a short amount of time. Three years ago, the company processed around 5,000 IBFT transactions per day, whereas now, it processes 250,000 transactions per day, indicating substantial growth in just three years. 
Similarly, QR code transactions have also increased, with around 280,000 transactions conducted each day, worth an estimated Rs 20 billion per month through 7,500,000 transactions. Other Fonepay services have also attracted an impressive number of users, resulting in a 20 times growth in just two years compared to the company's projected growth rate. 
The Covid-19 pandemic has played a significant role in Fonepay's success, with online and QR payments skyrocketing during the pandemic and continuing to grow even after restrictions were lifted. Fonepay has a merchant base of over 1.1 million and a customer base of over 1.7 million, with a growth rate this year that is two to three times higher than last year’s.
According to CEO Sapkota, Fonepay did not expect to gain so many users so quickly, given people's tendency to rely heavily on cash transactions. Initially, Fonepay's projection for its merchant base was only 20,000 to 25,000 within a year and a half. The projection was made based on customers' interest and usage of cards over the last two decades. However, this projection proved to be inaccurate, as Fonepay experienced a 100% growth rate in just one year. In fact, the company achieved its projected growth rate in less than six months.
According to Sapkota, Fonepay is focused on innovation and upgrading its existing products to better serve its users. "Our goal is to create new products and launch them to enhance user convenience. For example, we were the first to introduce QR technology in Nepal, even though it was already widely used in other countries. Additionally, we strive to improve our existing products based on user feedback and make them more inclusive for all users.,” he added.
Fonepay still needs to work towards becoming more inclusive. A research study has revealed that Fonepay’s existing infrastructure and services do not cater to a certain segment of the population, making it difficult for them to use the services. 
One of the main issues with Fonepay is that it requires an internet connection to make payments, which is not accessible to a large portion of the Nepali population. As a result, users find it more convenient to use cash and card payments.
To address this issue, Fonepay has introduced the concepts of NFC (Near Field Communication) and offline payments. With the application of these payment formats, customers will be able to make payments even in the absence of an internet connection. These payment systems are popular in European and American societies but have not yet gained popularity in the Asian region. 
NFC and offline payments are fast and convenient for both merchants and customers. In addition, these systems have the potential to open up wider scopes in the future. It is therefore essential to lay the foundation for these payments now.
However, implementing NFC and offline payment systems requires a significant amount of investment. For instance, customers need to own an NFC-enabled phone, which costs a minimum of more than Rs 25,000. Additionally, merchants need to have a POS machine to receive payments, and the starting price for this equipment is around Rs 30,000. Since this payment system requires costly infrastructure at the individual level, its reach may not increase at the same rate as the online payment system did. Nevertheless, it can create opportunities for even better scopes in the future.
Despite the challenges, Fonepay is currently the leader in the online payment sector, both in the overall market and the retail sector. Its dominance in QR payments is unmatched. It also has a significant market share in other segments such as IBFT and is targeting a 70% market share with strategic planning. 
Moreover, the use of international payment cards like Visa and Mastercard results in the outflow of funds from Nepal in the form of charges. The usage of Fonepay ensures that all of the money remains within the country. This makes Fonepay an attractive option from an economic perspective, with various institutions like BFIs realising its contribution to the national economy. 
In the past, using cards for payments was a compulsion, but Fonepay has successfully built an ecosystem where funds circulate and remain within the country. Presently, Fonepay stands at an equal footing with Visa card payments, and according to data from Nepal Rastra Bank, the amount that Nepal used to pay to foreign countries for using international cards has already been reduced by half.
In terms of government facilitation, Sapkota said the government's attitude towards the concept of online payments is indifferent. The government is least bothered in this ecosystem, he added. Currently, there are no government initiatives to encourage the growth of the online payment ecosystem. However, the government is not hindering its progress and is indirectly helping the ecosystem thrive. 
One major contribution by the government is the inclusion of the online payment system in the government sector. The government's initiatives to promote digitisation and e-governance have indirectly impacted the online payment ecosystem, enabling it to flourish further.
Sapkota acknowledges the significant and encouraging support provided by Nepal Rastra Bank from the inception of Fonepay. “We know where to go. We expect the government’s facilitation on certain things like identity management. Government should help open up an ecosystem to make it more impactful and reliable,” he said, adding: “Furthermore, in cases of fraud we do not have a tracking system to locate the culprit. The government should facilitate such a system as it is not possible to do it alone.”
As Fonepay has become a major player in the domestic market, the company is now working on various plans to provide even better and more advanced products to its customers. Its next goal is to improve the remittance industry with more customer-friendly options. Since remittance plays a critical role in the economy, Fonepay is aiming to make it smoother and more efficient, which will ultimately benefit the economy as a whole. 
Additionally, Fonepay is planning to introduce the use of cards for offline payments as one of its upcoming new products. However, rather than just introducing new products, Fonepay is also aiming to provide an interface like the sandbox to other players such as BFIs and online payment systems, which will help them advance their business and bring innovation to the country while also benefiting the economy.