The monetary value of electronic transactions in Nepal fell by over Rs 2.4 trillion between mid-November and mid-December, despite an increase in the number of transactions during the same period.
According to the Nepal Rastra Bank’s monthly report, electronic transactions in Mangsir (mid-November to mid-December) decreased to Rs 7.057 trillion, compared to Rs 9.486 trillion in Kartik (mid-October to mid-November). However, the number of transactions rose by 11.963 million, from 129.7 million in Kartik to 141.7 million in Mangsir.
The central bank attributed the decline in transaction value to reduced credit disbursement by banks, despite excess liquidity. Officials noted that limited money flow in the market—both among the general public and the government—has curtailed spending and, by extension, electronic payments.
“When money flows in the market, the general public gains access to funds, leading to increased spending, which directly impacts payment values,” a central bank official explained.
RTGS and Payment Trends
Large government payments, particularly through the Real-Time Gross Settlement (RTGS) system, saw a sharp decline. Payments processed through RTGS decreased by Rs 2.525 trillion during the two-month period, although the number of RTGS transactions increased slightly—from 59,304 in Kartik to 63,509 in Mangsir.
Other electronic payment methods showed mixed trends. Public transactions via ATMs, debit cards, and credit cards declined, while electronic check clearing, IPS payments, mobile banking, wallets, and QR-based payments experienced modest growth. Despite these increases, payments through IPS, credit cards, and branchless banking services dropped in volume.
Factors Behind the Decline
The significant reduction in electronic payments is not solely due to economic factors. A government-imposed value-added tax (VAT) on electronic transactions has discouraged digital payments. Consumers face an Rs 11 charge even for small transactions, adding a financial burden.
The data highlights the trend: mobile banking payments, which reached Rs 377 billion in Shrawan (mid-July to mid-August), fell to Rs 364 billion in Bhadra (mid-August to mid-September). After peaking at Rs 400 billion in Ashoj (mid-September to mid-October) due to festive spending, they began to decline. Similarly, QR-based payments dropped from over Rs 6 billion in Shrawan to Rs 5 billion by Mangsir.
Policy and Implementation Challenges
Although the government has promoted digital transactions for over five years, ineffective policy implementation has hindered progress. In fiscal year 2019/20, the government introduced a VAT refund policy, offering a 10% refund on digital payments ranging from Rs 1,000 to Rs 100,000. However, this program was discontinued in the current fiscal year for platforms like Esewa, NCHL, and PhonePay. Consequently, consumers now face higher transaction charges, further deterring digital payments.
Economic Implications
The decline in electronic payments has broad economic implications. Reduced digital transactions may lead to increased cash flow, posing liquidity management challenges for banks. Additionally, the lack of effective support for digital payments undermines the government’s long-term goals of reducing cash transactions and fostering a digital economy.
