Banking and E-payment practices in Nepal

Kathmandu, Nepal.
12 December 2004

Vivek S. Rana
Chief IT/MIS
Nepal Bank Limited
In this presentation:
E-payment: Genesis and Status
Changing scenarios in Nepalese Banking
Case studies
Key components for success and barriers to e-payment
Suggestions and moving forward
Nepalese banks contents of Transformation?
FROM
Large space and staff at
Branches
Selling of existing services
without much of marketing
High costs per transaction
Domestic, local, manual banking
Driven by national political
regulatory standards e.g.,
dictated priorities, indifferent
customer service
Lack of awareness about IT,
among staff embers, users
TO
Limited space and staff
requirement due to IT
Enabling innovation and
development of new product
and services
Reduced cost per transaction
Driven by International policies
e.g. Risk management, BPR,
RTGS, Profitability
Well educated and ready to
adopt new technology
Why do we need E-payment?

ƒ Competition has been redefined ƒ Redefined Equity

– Servicing globally using local – Lower transaction costs
competitiveness
– Competitiveness in services
– Factor mobility has become
more fluid – Fast and efficient services
– Operational excellence, – New business synergies
customer intimacy and product
leadership
– Branding, image building and
personality
– Need to move up the value
chain and become better
process owners
• Electronic payment systems • CVC
• Cross Boarder transactions Audit, security and controls
• RTGS for fraud prevention and
• ATMS/E-cards detection

• Personnel Policies
• Financial implications • Recruitment
• Capital adequacy • Skills/Knowledge gap
• Capital investments • Industrial relations
IT Policies,
• Cost of obsolescence • Education
strategies
• Profitability • Training Infrastructure
and Gaps
• Productivity • Job enhancement

• Portfolio management • Outsourcing policies

• ALM • Data Centre management
• Treasury • Data base administration
• Credit/Investment • Web Design and Content
• Risk Management management
• Internet Banking

Emerging Challenges in Nepalese Banks

 Reasons for using e-payment Solutions
• Expected savings on time and efficient delivery mechanism
• Maintain huge floats over 20,000,000 (20M) in seven to
eight months
• Contributes to the bank deposits and increased
opportunities for investments
Benefits • Some other key benefits are:
¾Improved Image and Transparency
¾Cost Reduction and better cash management
¾Better Decision Making
¾Process Efficiency
¾Centralised rate contract with de-centralised delivery
schedule
¾Audit Trail
¾24 x 7 Availability
¾Price / Supplier behaviour forecasting
¾Supplier performance monitoring
 Mobile Internet
Banking

Access, simplicity and Interaction Design adopted

confidence for mobile devices and
situations

Open Menu: Log-In only We are where you are

when needed
SMS Messaging and mobile banking
Delivery of SMSC
Requested (BANK)
Information
Through SMS

Bank Data Servers

BANK
ENTERPRISE
HOST
 CURRENT PRACTICES
Certification
Authority

Merchant
Server
Customer Certificate

Internet Certificate
Server
Server

approval or rejection
Certificate
OVERSEAS
of transaction

Notification of Transaction
ISP
Server
Certificate

Authorization
Notification of Transaction

The Bank
Example: Convenience Management
(Internet Banking) Customer
Economy

ƒ Kumari Bank offer - Internet Banking

– Ramesh has an account in Kumari Bank. Ramesh wife also has an
account
– Ramesh accesses his account through e-mail from Cairo, Egypt.
– Though the Internet he transfers money from his account to his
wife’s account.
 e-payment/banking in India (1 of 2)

• According to current survey there are around 3

banks that are offering Internet Banking services.
Current Size • On an average of 10/12 customer opening
accounts at these branches
• On an average of 20/25 new accounts being
opened for payment of utility bills through SMS and
Internet Banking

• E-payment mechanism in the Banks is expected to

Expected Growth
grow at least at the rate of 10 – 12% per year
 E- Payment in Banks in Nepal (2 of 2)

• As more utility companies to form strategic alliance

with the banks. At present only Nepal Telecomm

• If this purchase is made online, these organisations

can save up to 10 per cent, at a conservative
estimate.
Growth Drivers
• Transparency in accounting systems of enterprises.
E-payment cannot cerate double book keeping

• Electronic transaction Act for financial institutions to

boost consumer and financial institutions’ confidence

• Trust in the technology

 Case Study 1: Kumari Bank
Implementation Details
• A relative new entrant in the
Banking industry
• THOUGHT DIFFERENTLY !
• Levering IT for the benefit of the
customers
• Develop a market niche for itself
Specifics
Perceived Benefits
• IT as a financial integrator
• Customer consistently served and
recognized across multiple
channels
• Attract a sizeable new
depositors/customers
Size of systems Deployment
• SMS RISC servers, Intel servers,
• DMZ
• Firewalls implementation
• Leased lines to the Utility company
 Case Study 2: Laxmi Bank
Implementation Details
• A relative new entrant in the
Banking industry
• Innovators in the IT deployment
• CBS systems integration WAP
deployment – GPRS
• Online payments, Debit card, POS
• SMS Find transfer (being enabled)
• Utility bill payment through IB.
Specifics
Benefits
• Average 5 accounts/day
• Completely retail
• Younger generation, Business Executive
Implementation/Expected Growth
• Flex Q UBS, Intel, Oracle 8
• Watchguard
• Fireworks
• DMZ 6 port, IDS and IDP
• 1000 + per year
 Some More Successful Implementations

• Internet Banking and alliances with

Kumari Bank thamel.com and muncha.com
• SMS account information
• ATM and debit cards

Laxmi Bank • SMS account Information

• WAP access support with GPRS
• Online payments POS, ATM
NABIL Bank
• Cautious market approach
• CBS enabled with IB services
• Online payments POS, ATM, VISA, MC

Nepal Investment Bank • Internet Banking

Ltd. • Tele Banking (statement, a/c balance)
• ATM, VIS master cards, POS
Key Barriers to Success:
One of the most significant is the issue of access to the Internet.
Rural dwellers have disproportionate access to the Internet, and
are better placed to take advantage of e-payment services.

In developing economies, rather than demand driven – It is

supply driven first to create a market. Educate the market of the
perceived benefits …Product lead approach …

Getting other players to join in developing a critical mass of both

users and suppliers in industries like – Education, Insurance,
Travel agencies, Stock Ex – associated networks

Hesitancy and Lack of consumer confidence trust dealing

electronically
 Transactional Trust in E-transactions

Trust in Control
Trust in Other Party
Mechanism
Subjective
Subjective trust reason
Objective trust reason
trust reason Objective trust
reason
EXTERNAL
Trustor’s Transaction
INTERNAL trust

Potential Gain Trust in Other Party

One’s level of transaction trust should be higher Source: Yao-Hua Tan and Walter Thoen, MOT
than one’s personal threshold.
Way Forward:

Have clear objectives

Identify obstacles
Take action locally
Identify obstacles:
Lack of quality/ adequate fibre optical/high speed network
Large segment of the network owned by former state monopoly
thereby distorting bandwidth pricing and increasing dependencies
High local levies and bank transaction charges
Lack of supporting structures for digital signature/ security-stamp for
all judicial/ quasi judicial purposes
Limited E-security knowledgeable resources in country

Actions for the domestic arena:

Need to upgrade telecom infrastructure
Level-playing-field for bandwidth providers and telecommunication
companies
Competitive transaction charges for online payment services
Fiscal incentives for enterprises going for e-payment adoption
Removing popular misconception on insecurity in online transactions
Clear objectives:

E-payment is destined to become a way of global transaction

Nepal cannot be afford to be left behind in this race
Government, Apex bodies, enterprises and Institutions have to build
a chain of trust
Congenial policy environment and optimal resource allocation must
be ensured
Conclusions:

There is no longer choice

The forces of globalization have made this ONE world and ONE
economy

The costs of being left out are a permanent sentence to isolation

and marginalization

There are enormous benefits and risks in joining the global

economy, but the greatest risk of all is in not participating in it
 “The rate of change outside the
organization
is much more than the
rate of change inside the organization,
the END is in sight”

-Jack Welch