Digital banking provides a better and more productive platform for payments and settlements in the banking sector. With the increasing use of technology and smartphones, more consumers are adapting to alternative payment methods, which are more convenient for transferring funds. The concept of promoting digital banking is to implement an alternative payment channel that boosts financial inclusion.
Nepal Rastra Bank (NRB), the central bank of Nepal, has a vision to improve the payment system with the objective of achieving a safe and efficient national payment system that effectively contributes to the country's financial stability and economic growth. Furthermore, Nepal Clearing House Limited (NCHL), promoted by the NRB, and banks and financial institutions in Nepal, has supported the central bank's vision with the launch of a digital payment system officially known as ConnectIPS, on October 12, 2018.
ConnectIPS is a payment platform system that allows banks and financial institutions to process transactions immediately on behalf of the customer. Unlike other mobile wallets, this payment system does not allow the loading and unloading of funds. Digital wallets affiliated with ConnectIPS, however, can transfer amounts through their own channels. It is simply a platform for fund transfers and customers can link multiple bank accounts after creating a ConnectIPS user account. Banks and financial institutions successfully verify the linked accounts at the request of their customers. Every bank ensures that customer details are updated before accepting linked accounts on ConnectIPS to prevent any fraudulent and criminal activities that could damage their reputation.
Know Your Customer (KYC) is a process by which banks and financial institutions obtain and maintain information about their customers. The main objective of this policy is to ensure that only legitimate and authentic customers are accepted. A strong KYC policy helps prevent a business from being used as a vehicle for illegal activities. Banks and financial institutions make the appropriate decision to accept or reject applications by customers.
It is the duty of customers to exercise caution before sharing valuable information. With fraudulent activities on the rise in the digital space, users need to follow certain steps, such as never sharing one-time passwords publicly and avoiding suspicious sites that could increase the risk of losing funds from their linked accounts. To prevent unauthorised access in ConnectIPS, linked accounts may be suspended in certain cases.
For instance, accounts may get suspended if a customer changes their mobile number, resets their password, and proceeds with an alternative method in case of a new device is detected during login, or if the customer forgets their security questions. In such situations, the linked account may be suspended, and the customer should visit their respective bank to unfreeze the suspended account. The bank will examine the details before releasing the linked account from the suspended list for that customer.
If confidential information is compromised, it might damage the reputation of an organisation, so it is imperative to identify the risks caused and prevent malware and phishing attacks. The senior management of an organisation must be aware of the cyber risks faced by customers. ConnectIPS is a platform for payments and fund transfers, and to make it easier for customers, some banks and financial institutions have enabled self-verification procedures so that customers don't have to visit their respective banks and branches. However, there is a limit on transactions in the case of the self-verification procedure, as per the respective bank's internal policies. Furthermore, the ConnectIPS transaction limit rule states that any individual or corporation can transfer funds up to Rs. 2,00,000 through the application and Rs. 20,00,000 through the web browser, and charges shall be levied on every transaction initiated by customers. Customers are charged on a slab basis.
As per the payment system indicators report published by the central bank, the use of ConnectIPS has been on an increasing trends for the last 12 months (Baisakh-Chaitra 2080,) but not to the same extent. ConnectIPS is a digital payment platform. Unlike other digital wallets, funds cannot be loaded or unloaded from ConnectIPS. However, users can transfer funds from different wallets integrated with ConnectIPS to bank accounts or different wallets. Out of 27 payment service providers licensed by the NRB, only 22 wallets are integrated with ConnectIPS.
As per the Payment System Directive, 2023, a licensed payment service provider may open a settlement account with the commercial bank in order to transfer funds on behalf of the customer. For that, the commercial bank and the payment service provider must first enter into an agreement. The directive has also put a limit on digital payment transactions. As per the guidelines of the Payment System Directive, 2023, the amount deposited in a digital wallet through any channel should not exceed the prescribed limit. Digital wallet users can deposit amounts up to 10 times a day. A maximum overnight balance of more than Rs 50,000 cannot be maintained in the wallet. The amount exceeding that limit must be arranged to be deposited in the customer's respective bank account.
ConnectIPS is convenient for transferring revenue payments, insurance payments, and many other payments through the web browser and its application to save time and effort for the general public. It is one of the best mediums of payment for fund transfers through the mobile banking of different banks and financial institutions. NCHL also launched another payment platform known as CorporatePAY on January 14, 2021 tailored to businesses and corporate clients of banks and financial institutions, especially micro, small, and medium enterprises. CorporatePAY is a single business payments platform with three user roles: transaction initiator, approver, and admin. These roles are created by the respective banks and financial institutions at the request of their business clients based on their privilege levels. Banks and financial institutions may verify documents before enrolling clients in CorporatePAY, including additional corporate Know Your Customer (KYC) documents.
Banks and financial institutions verify each document based on the organisation's category, such as clubs/non-governmental organisations, cooperatives, joint-stock companies, diplomatic missions and embassies, foreign companies, international non-governmental organisations, partnership firms, public trusts and private trusts, schools or colleges and individual firms that have an existing business relationship with the bank or financial institution. They then make an appropriate decision to enroll the organisation as a CorporatePAY user.
The Corporate Pay users created by banks and financial institutions have different roles. The initiator can initiate transactions in various underlying payment systems, the approver verifies such transactions and proceeds with payment, and the admin user is auto-generated by the system based on the primary contact details entered. Banks and financial institutions verify the primary contact details, including the mobile number and email, and send the admin user's credentials to the email and/or mobile number provided.
Corporate clients can link multiple bank accounts in the CorporatePAY system and proceed with payments. They can conduct financial transactions through CorporatePAY in various underlying payment systems, including ConnectIPS and inter-bank payment systems, such as salary payments, vendor payments, insurance payments, government payments (including tax payments), creditor payments, and other service payments. Unlike ConnectIPS, CorporatePAY is a secured payment platform for security purposes in case of fraudulent activities.
The financial inclusion model in Nepal considers factors such as digital financial literacy, access to financial transactions nationwide, and protection of consumer account details. It can be broadly defined as a transformation process from unbanked to banked, making affordable financial services accessible to all individuals and businesses to facilitate digital payments. The government of Nepal has envisioned implementing the Digital Nepal Framework in eight different sectors, including a national payment gateway, credit ratings, information management system for Nepali migrant workers, mobile wallet services, digital payments, a single window for business and industry, promoting e-commerce, and an information technology and digital payment campaign. However, people in the country, especially in rural areas and some urban sectors, are not fully aware of technology, which may pose difficulties for banks, financial institutions, and financial technology entities in focusing on the digital sector. In some rural areas, customers may not be able to access digital payment platforms due to poor technological infrastructure, making it difficult for banks and financial institutions to retain customers on such payment platforms.
Similarly, due to the rise of fraudulent activities in the digital sector, customers are using ConnectIPS with reluctance. Customers also face issues while transferring funds through ConnectIPS and CorporatePAY due to technical problems that impact financial transactions and the potential loss of payment system credentials. It is the responsibility of all concerned to make the general public aware of ConnectIPS and CorporatePAY and help integrate everyone onto one platform. Banks and financial institutions should also play a crucial role by supporting the digital movement's vision to integrate individual and corporate client accounts for alternative payment methods in the interest of their clients.
(Pant is Operation Executive at Nepal Clearing House Limited)
